30th Apr 2008 07:01
Home Retail Group Plc30 April 2008 30 April 2008 Home Retail Group plc Full-Year Results Home Retail Group, the UK's leading home and general merchandise retailer, todayannounces its results for the 52 weeks to 1 March 2008. The results for theprior year are a non-comparable financial period due to the change in year-endand because they also include certain financial impacts of GUS plc's ownershipof Home Retail Group up to the point of demerger(1). To assist with analysis andcomparison, certain pro forma information for the prior period has thereforebeen provided to eliminate the distortions of these two impacts on theperformance 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 * Sales(2) 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 ahead 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 profit(3) 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 tax(4) up 15% to £433m (2007 pro forma: £377m); reported profit before tax of £426m * Basic benchmark earnings per share(5) 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 capital(6) 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 isan excellent performance and is testament to the underlying strength of theGroup 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 relativelywell in more difficult market conditions. As we head into a weakening consumerenvironment, we believe that the Group is well positioned both operationally andfinancially, 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 weigh ted 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. Enquiries Analysts and investors (Home Retail Group)Richard Ashton Finance Director 01908 600 291Stuart Ford Head of Investor Relations Media (Finsbury)Rollo Head 020 7251 3801 There will be a presentation today at 9.30am to analysts and investors at KingEdward Hall, Merrill Lynch Financial Centre, 2 King Edward Street, LondonEC1A 1HQ. The presentation can be viewed live on the Home Retail Group websitewww.homeretailgroup.com. The supporting slides and an indexed replay will alsobe available on the website later in the day. An Interim Management Statement, covering the first quarter's 13 weeks of2 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 ofrisks and uncertainties that could cause actual events or results to differmaterially from any expected future events or results referred to in theseforward looking statements. FINANCIAL SUMMARY Statutory Pro forma Statutory 52 weeks to 52 weeks to period to 1 March 3 March 3 March£m 2008 2007 2007 (short period) Argos 4,320.9 4,164.0 3,912.8Homebase 1,568.5 1,594.2 1,606.3Financial Services 95.4 93.2 87.6 _________________________________Sales 5,984.8 5,851.4 5,606.7 Cost of sales (3,881.0) (3,852.2) (3,680.5) _________________________________Gross profit 2,103.8 1,999.2 1,926.2 Net operating expenses before exceptional items and costs related to demerger incentive schemes (1,705.8) (1,639.8) (1,592.5) _________________________________Argos 376.2 325.0 300.9Homebase 45.1 53.4 51.2Financial Services 5.5 5.0 4.5Central Activities (28.8) (24.0) (22.9) _________________________________Benchmark operating profit 398.0 359.4 333.7 Net interest income (see below) 33.3 16.6 n/aShare of post-tax results of joint ventures and associates 1.6 0.7 0.7 _________________________________Benchmark PBT 432.9 376.7 n/a Net interest costs attributable to GUS capital structure - (39.2) (21.0)(see below)Exceptional items included in operating profit 0.8 (22.7) (22.7)Costs related to demerger incentive schemes (11.7) (5.8) (5.8)Financing fair value remeasurements (9.0) (0.1) (0.1)Financing impact on retirement benefit balances 13.0 12.3 12.1 _________________________________Profit before tax 426.0 321.2 296.9 Taxation (131.4) (117.5) (109.5)of which: taxation attributable to benchmark PBT (138.5) (122.1) n/a _________________________________ Profit for the period 294.6 203.7 187.4 _________________________________Basic benchmark EPS 33.9p 29.3p n/a Basic EPS 34.0p n/a 21.6p Number of shares for basic EPS 867.7m 869.6m 869.6m Net interest reconciliation: Third party net interest income/(expense) 13.7 (1.2) n/aFinancing costs charged to Financial Services 19.6 17.8 n/a _________________________________Net interest income 33.3 16.6 n/a Interest costs attributable to GUS capital structure - (46.1) (44.3)Exceptional finance income - 6.9 6.9Financing costs charged to Financial Services - - 16.4 _________________________________Net interest costs attributable to GUS capital structure - (39.2) (21.0) Financing fair value remeasurements (9.0) (0.1) (0.1)Financing impact on retirement benefit balances 13.0 12.3 12.1 _________________________________Income statement net financing income/(costs) 37.3 (10.4) (9.0) _________________________________ The above tables and those throughout this announcement have been prepared inaccordance with Note 1 to the Financial Information on page 30. The basis ofpreparation for pro forma restatements is set out as Appendix 1 on page 22, withreconciliations between pro forma and statutory reported periods provided asAppendix 2 on page 23. Sales up 2.3% to £5,985m, reflecting total growth of 3.8% at Argos and a declineof 1.6% at Homebase. Like-for-like sales were up 0.7% at Argos and down 4.1% atHomebase, while the net new space contribution added 3.1% at Argos and 2.5% atHomebase. Benchmark operating profit up 11% to £398m, with the £39m improvement comprisinga £51m or 16% increase to a record level at Argos and an £8m or 16% decline atHomebase; Financial Services increased £1m and costs of Central Activities were£5m higher. Benchmark PBT up 15% to £433m, with the £56m increase additionally reflectingthe £17m improvement in net interest income as a result of further strong cashgeneration and a higher effective rate of interest earned. An effective tax rate based on benchmark PBT of 32.1%, with the reduction from32.5% last year principally reflecting the growth in profits while the absolutelevel of disallowable expenditure remained broadly stable. Basic benchmark EPS up 16% to 33.9p, reflecting the growth in profits and asmall reduction in the effective tax rate, on a broadly flat number of sharesoutstanding. Net cash increase of £114m to £174m at 1 March 2008, attributable to the strongprofit performance and after funding working capital requirements, capitalexpenditure and acquisition investment activity. Benchmark pre-tax ROIC improvement of 70 basis points to 12.7%, reflecting thecombination of an increase in profits and a well-managed balance sheet position. Total dividend for the year up 13% to 14.7p, with a final dividend of 10.0precommended by the Board. OUTLOOK The Group has demonstrated a strong performance in the financial year justcompleted. However, the outlook for consumer spending looks weaker for the newfinancial year. A more difficult consumer environment is likely to result in anegative like-for-like sales performance in both businesses in the short term. We face this challenging backdrop from a position of operational and financialstrength. There are also areas of resilience which benefit the Group such as itsbroad product offerings and its low overall transaction values. Appropriatetrading strategies are in place, along with continued emphasis on costmanagement and scale leverage. The Group therefore expects to demonstratefurther good relative performances in its markets, and emerge even betterpositioned from any slowdown resulting from the prevailing macro-economicconditions. Details of the trading performance for the first thirteen weeks of the newfinancial year will be announced on 12 June 2008. Against the backdrop of theweakening consumer environment, Argos has begun the year trading in line withour expectations overall, notwithstanding a continued adverse product miximpact. However, Homebase has started the year weaker than anticipated, as poorweather conditions this March and April contrast with very good weatherconditions in the comparable months last year. At this very early stage, it istoo soon to evaluate the impact of these weather conditions on the outcome forthe financial year as a whole as further key trading periods remain.GROUP GROWTH STRATEGY Home Retail Group is the UK's leading home and general merchandise retailer,with a 10% share in combined product markets worth £60bn a year. Argos andHomebase are strong retail brands and household names, each offering theircustomers a differentiated shopping experience from their competitors andcapitalising on leading multi-channel capabilities. Supporting the retailbusinesses is a well invested and increasingly shared infrastructure. The Grouphas a clear agenda to deliver long-term growth. Growth through leveraging purchasing scale Purchasing scale continues to be leveraged with particular benefit from theGroup-wide overseas buying operations. Buying directly from overseas has grownto 31% of Group sales, of which 18%, or over £1bn, is directly sourced frommanufacturers, with the balance being purchased via overseas agents. Over 7,500product lines are sourced directly via our overseas buying offices, and theseare spread across the majority of the Group's product categories. While costpressures may build, such as from raw material prices or from foreign exchangerates, this will impact the market generally and Home Retail Group will utiliseits substantial scale, skills and direct control over its supply chain tocontinue to extend advantage over its competitors and provide further benefit toits customers. A continuing programme is driving wider cost synergies across the combinedGroup. Areas of focus include corporate procurement, media buying, IT servicesand property management. There has also been increased focus on the distributioninfrastructure across the Group. Examples of benefits include combined fleetpurchasing, shared backhaul (vehicles returning from store deliveries withcollections from nearby suppliers) and relocating certain Argos Direct outbasesto other Group facilities. Growth through increasing market share in targeted large product markets The Group has become the number two in the growth market of consumerelectronics, with Argos clearly demonstrating the strength of its customer offerwith excellent sales in areas such as video games systems, LCD TVs and 'satnav'.'Big ticket' categories such as furniture and white goods are likely to exhibitmore difficult conditions due to the weakening in the housing market and generalconsumer confidence; however, the Group will capitalise on the combined buyingscale, a market-leading home delivery infrastructure, new product presentationsand its in-house financial services operation to continue to drive market sharegrowth. Homebase also expects to continue its market share progress in kitchens,and Argos in the sports and leisure market. At the same time as targeting share growth in 'big ticket' categories, emphasiswill still be placed on maintaining strong positions in 'smaller ticket'categories. Such categories remain key to the overall performance of the Group,given that in both businesses average basket values are approximately £20 to£30. Growth through extending and exploiting multi-channel leadership The leadership of Argos in fully integrated multi-channel convenience continuesto build, demonstrated by 37% of its sales now being transacted across more thanone channel. In particular, Argos Check & Reserve is unique in itsfunctionality, scale and efficiency. With its online presence being wellestablished, well invested and generating £900m of sales in the last year, Argossees the internet as a further key growth opportunity and one that issignificantly enhanced by its physical store presence for additional customerconvenience. Homebase has embarked on further multi-channel opportunities and continues tobenefit from the scale and expertise of Argos. Homebase utilises the in-housecost advantage of Argos Direct, the UK's largest home deliverer of bulkyproducts. Its recently relaunched website will also provide customers withexpanded choice and improved information and functionality, while the 'Furnitureand Home' catalogue, which brings together many of the key elements of theHomebase customer proposition, was rolled out to all stores in January 2008. Growth through expanding the store networks Both Argos and Homebase regularly review their 'extent of chain' across the UKand Irish markets and will continue their new store opening programmes of around30 Argos stores and 10 Homebase stores a year. Confidence in the Argos openingprogramme comes, in particular, because of its increased product choice thatcaptures a wider share of customer spend in a catchment and its success in bothhigh street and out-of-town locations. Confidence in the Homebase openingprogramme comes from its now broader home enhancement offer and its successfulsmaller store format which allows it to enter smaller catchments and frequentlybe the leading customer offer in categories including core DIY, garden andshowroom. Growth is also expected to be achieved from continuing to developformats and store presentations to meet the changing needs of customers. BUSINESS REVIEWS The following business reviews incorporate pro forma information for the prioryear; this represents the 52 weeks to 3 March 2007 and is therefore a comparablefinancial period. The basis of preparation for pro forma restatements is set outas Appendix 1 on page 22, with reconciliations between pro forma and statutoryreported results provided as Appendix 2 on page 23. These pro forma restatementsare unchanged from those previously provided on 2 May 2007. Argos __________________________________________________________________________________52 weeks to 1 March 2008 3 March 2007 Sales (£m) 4,320.9 4,164.0 Benchmark operating profit (£m) 376.2 325.0 Benchmark operating margin 8.7% 7.8% __________________________________________________________________________________Like-for-like change in sales 0.7% 2.4% Net new space contribution to sales change 3.1% 5.5% Total sales change 3.8% 7.9% Gross margin movement Up c.50bps c.0bps Benchmark operating profit change 16% 9% Number of stores at year-end 707 680 Of which Argos Extra stocked-in 278 238 __________________________________________________________________________________ As the UK's leading general merchandise retailer, Argos provides a unique offerof choice, value and convenience that continues to grow in popularity withconsumers. Operational review The UK's leading general merchandise retailerArgos has further strengthened its position of market leadership with salesgrowth of nearly 4% to £4.3bn in the year. Sales benefited in particular from anexcellent performance in one of the market's fastest growing product categories,video games systems, and Argos extended market share in other fast-growingtechnology areas of LCD TVs and 'satnav'. Share was also gained in other moresubdued or declining markets, notably pre-pay mobile phones, digital cameras,white goods and toys. Markets were difficult in older technology areas such asaudio and VCR/DVD, while the jewellery market also remained difficult for Argosalbeit on an improving trend to recent years. Choice further expandedThe current Spring/Summer catalogue has been expanded to a record 18,500 lines.This is around 1,800 more lines than the equivalent edition last year, followinga similar 1,500 line step-change in the preceding Autumn/Winter 2007 catalogue.Today's customer offer includes 10,400 catalogue lines available for immediatecollection in virtually all 707 stores, an additional 3,700 lines available inthe Argos Extra stores and 4,400 lines of large products that are for homedelivery only. Growth in customer choice has been driven by range extensions in over 50categories and around 20 new product areas. Significant areas of range expansioninclude children's bedroom furniture, eco-friendly products, fitness and outdoorpursuits clothing and accessories, and many areas of technology. The latestcatalogue has also seen further expansion of the Argos Guide pages, particularlywithin technology and furniture. Choice from leading premium third-party brandsis further supported by 'brand shops' within the catalogue for manufacturersincluding Apple, Dyson and Sony. Value further extendedArgos has continued to demonstrate its ability to lower prices for itscustomers. In the Autumn/Winter catalogue, prices on reincluded lines were downby approximately 5%, one of the highest ever levels of reduction and partlydriven by the favourable dollar exchange rate environment. In the currentcatalogue, the average price reduction across some 8,000 reincluded lines isapproximately 4%. The ongoing move to more direct buying of overseas product hasbeen a key driver of lower prices; around 32% of sales are on this basis, ofwhich more than half is now directly sourced from the manufacturer. As the market leader in many categories and often with as wide a choice as aspecialist, Argos presents ranges that offer entry price point products throughto premium products and brands. To strengthen further its position in marketssuch as small domestic appliances, consumer electronics and housewares, Argoshas introduced its own Argos Value range of products, with prices starting aslow as £2. Convenience further enhancedSuperior customer convenience continues to be driven by Argos' fully-integratedmulti-channel leadership position. A combined 37% of all Argos' sales are nowordered or fulfilled across more than one channel. Within this, total internetorders grew nearly one-third to around £900m and now represent 21% of all sales.Sales of over £500m were from internet orders for pick-up in store, an increaseof 50% in the year. The popularity of this market-leading Check & Reserveservice - either online, by phone or by text - is such that, on average, over40,000 reservations are collected daily. Check & Reserve accounted for 15% ofArgos' sales overall, and reached as high as 25% during the Christmas weeks. Argos also continues to enhance its website functionality. As part of athree-year e-commerce programme to consolidate on its market-leading position,www.argos.co.uk was relaunched in September 2007 with a complete upgrade to bothdesign and operation. The major changes included greatly enhanced sitenavigation, search functionality and better product and service information. Theupgrade also saw increased transaction security and the implementation ofpromotional voucher capability ahead of Christmas. The success of Argos' multi-channel model has also led to developments in themarketing mix. Email campaigns have become more sophisticated, and now includecustomer segmentation, dynamic product content to further meet specific customerneeds, as well as special offers targeting active but low frequency customers.Argos has built an email database of over five million customers, one of thelargest in the UK. Kiosk technology brings together store format and multi-channel developments.Over the year, the number of stores with kiosks doubled; there are now 1,800 inplace across all UK stores. The physical positioning of kiosks, in-store staffon-hand at peak times to assist customer awareness, together with the growth inCheck & Reserve, have led kiosk participation of in-store sales to rise from anaverage of 12% to 17%. Store portfolio expansion and developmentThe total number of stores increased by a net 27 to reach 707 at the end of theyear. Of the 31 gross openings, 13 were stores in new catchments while 18 wereopenings in an existing catchment. Four stores closed in the year; in each casethese were Call & Collect stores where there are now stocked-in stores open inthe catchment; only six Call & Collect stores remain. Three store relocationswere also completed in the year. The proportion of Argos Extra stores also continues to increase. There are now278 fully stocked-in Extra stores representing 39% of the portfolio; virtuallyall new stores were opened as Extras and an additional 10 conversions werecompleted in the year. There are also a further 71 stores that now carry anedited selection of the Argos Extra range; these 'partial Extra' stores providecustomers with a choice of even more products to take home immediately andgenerate sales from better-utilised space. The sales penetration of Extra rangesis low single-digit in ordered-in stores, while fully stocked-in stores achievea low double-digit level on average, demonstrating the benefit of Argos'immediate fulfilment model. There are additional store format trials in place. In densely urbanised areas,the lack of suitable locations for standard-sized Argos stores has led tounder-representation in these areas. Over the last year, Argos has trialled asmaller format store and is now refining the model to reduce the customer areafurther and edit the stocked-in range while still meeting customer requirementsfor wide choice and immediate fulfilment. Other format trials include displayingfurniture room sets in some larger stores in order to drive the qualityperception and an improved awareness of the breadth of the furniture offer, anda series of store presentation and service trials to test opportunities toincrease the jewellery and watch participation in relevant store locations byachieving a customer re-appraisal of the overall offer. Analysis of the 'extent of chain' supports multiple years of new store growth.Argos has opened nearly 250 stores or an average of approximately 30 stores ayear since 2000. In assessing future potential, analysis takes into account thesubstantially expanded range, the fact that Argos trades successfully from bothtraditional high street and out-of-town retail park formats and the potentialopportunities in specific areas such as London and the Republic of Ireland.Taking all this into account, Argos currently sees an extent of chain thatsupports continuing to open around 30 stores a year. Cost efficiencyA key feature of the successful profit outcome for the year has been exceptionalcost management throughout the business. Initiatives have included carryingincreased numbers of product lines in store for immediate collection, bookingdelivery slots at the point of order, new processes for handling deliveries ofmultiple products, achieving production efficiencies in flyer publications andimproving the transport methods for deliveries to stores. Each of thesecontributed towards cost productivity, while dealing effectively with the lateChristmas sales pattern also provided an additional productivity benefit. There have also been distribution network efficiency improvements. The openingof the new purpose-built direct importing facility at Kettering allowed theArgos Direct imported lines previously managed at the Corby facility to betransferred for greater scale benefit. In turn, this facilitated furtherconsolidation of product ranges into Corby, allowing a rented facility atWolverhampton to be closed. In the new financial year, continued optimisation will see the least efficientregional distribution centre (RDC) at Castleford relocate the majority of itsoperations to the five remaining RDCs. The centralised jewellery warehousingoperation that also runs from Castleford will be transferred to a new, smaller,dedicated facility. Financial review Sales in the 52 weeks to 1 March 2008 increased by 3.8% in total; like-for-likesales grew by 0.7%. There was exceptional growth in video games systemsthroughout the year, while further strong growth in flat panel TV sales hadmoderated by the end of the year. Good growth was achieved in 'satnav', mobilephones, digital cameras and accessories. Older technology areas of audio, VCR/DVD and landline phones were weaker. Furniture and homewares categories showedsigns of more difficult market conditions towards the end of the year. The contribution to sales from net new space was 3.1%. Next year's store openingprogramme is expected to produce a contribution of between 3% and 4%. Gross margin was ahead by approximately 50 basis points for the year. In thefirst half some foreign exchange benefits were retained within the business; inthe second half these benefits, together with ongoing supply chain gains, werefully passed on to the customer with a greater level of investment in lowerprices over the peak trading period. Operating costs grew in total by approximately 2%, of which underlying inflationwas approximately 3%. Non-inflationary costs therefore declined by approximately1%, representing an exceptional five percentage points of productivity whencompared to the level of total sales growth. This was achieved by continued costcontrol programmes and leverage from the ongoing new space programme. Whilefurther cost control and efficiency measures are planned, a significantly lowerlevel of productivity gains is anticipated in the new financial year. Benchmark operating profit for the 52 weeks to 1 March 2008 grew 16% to a record£376.2m as a combined result of sales growth, gross margin expansion led byshort-term external factors, and exceptional cost management. Homebase __________________________________________________________________________________52 weeks to 1 March 2008 3 March 2007 Sales (£m) 1,568.5 1,594.2 Benchmark operating profit (£m) 45.1 53.4 Benchmark operating margin 2.9% 3.4% __________________________________________________________________________________Like-for-like change in sales (4.1%) (1.4%) Net new space contribution to sales change 2.5% 3.6% Total sales change (1.6%) 2.2% Gross margin movement Up c.250bps Up c.300bps Benchmark operating profit change (16%) 4% Number of stores at year-end 331 310 Of which contain a mezzanine floor 181 165 Store selling space at year-end ('000 sq ft) 15,398 14,560 Of which - garden centre area 3,505 3,304 - mezzanine floor area 1,909 1,776 __________________________________________________________________________________ Homebase is positioning itself as the UK's leading home enhancement retailer. Operational review Trading strategyThe DIY 'sheds' market has seen flat sales over the year, with a further declinein sales excluding net new space. Homebase's like-for-like performance has thisyear lagged the wider market, driven by its greater exposure to the seasonalsmarket which suffered on adverse weather conditions during the first half of theyear. Over the latter stages of the year, Homebase's markets in general began toshow evidence of the onset of the consumer slowdown. In these volatile andincreasingly challenging trading conditions, Homebase has performed welloperationally; most importantly, its trading strategy through the year has beento continue gross margin progress. Sourcing and supply chain gains have driven the gross margin progress. Byleveraging the scale and expertise of the Group, Homebase has made furtherexcellent progress with more product being directly bought from overseas. Some28% of sales are now on this basis and over half of this is being sourceddirectly from the manufacturer. A continuation of this strategy is expected todeliver further gross margin benefits with the aim of increasing the grossmargin by approximately 100 basis points in each of the next two years, althoughthis is clearly dependent on the trading and foreign exchange environments. Customer offer developmentHomebase has produced a resilient performance in the 'big ticket' category withexcellent growth in a broadly flat kitchen market, as well as share being heldin a weakening furniture market. The national roll-out of the installationservice has been the key driver of the performance in kitchens. The service hasdriven both incremental product sales and supported sales of higher valueranges. Customer satisfaction and recommendation levels continue to be very high. Some 600 kitchen displays in around 100 stores will be refreshed in the newfinancial year. Ongoing range reviews also continue to drive category performances. Key rangedevelopments that supported a good performance in homewares included textiles,cookshop and home accessory areas, while wider ranges of tiling, flooring andlighting have also recently been developed. Around 40% of the garden power rangeis new for 2008, and the Homebase 'Powerbase' tools range has been relaunchedwith new-look products and packaging. The rolling programme of range reviewswill continue through the new financial year. Supporting the broader home enhancement offer, a single 'Furniture and Home'catalogue has been made available in all stores, replacing the smaller'Furniture Extra' brochure that was in around two-thirds of the portfolio. Itsincreased 232 pages present over 1,500 furniture lines and a further 800home-related accessories. The coordinated ranges and 'create the look' featuresin the catalogue are also presented through in-store displays in two-thirds ofthe store portfolio. Homebase has begun a partnership with Cornwall's 'Eden Project' in a year-longstudy into sustainable living. This will analyse in detail consumers' energy,recycling, waste and water usage, in order to direct practical lifestylechanges. Homebase's Spend & Save database was used to canvas families and askfor volunteers for the project. Data from the study will be used to developfuture ranges as part of Homebase's ongoing 'Ecohome' environmental campaign tohelp customers make informed purchasing decisions. Store portfolio expansion and developmentExcluding stores acquired from Focus DIY, 14 new stores were opened, five wereclosed and a further four were relocated. Of the newly opened stores, themajority were in the successful smaller format consisting of less than 25,000square feet internal ground floor area (compared to a portfolio average of36,000), and typically feature an 8,000 to 10,000 square foot mezzanine floorand a similar sized garden centre. These smaller stores are significantlydifferentiated, remain authoritative across the broader home enhancement market,and are designed to provide an unrivalled customer offer in smaller catchments.'Extent of chain' analysis supports multiple years of new store growth, with aprogramme in place of continuing to open around 10 new stores a year. The acquired Focus DIY stores will add further new space leverage. By theyear-end, Homebase had already relaunched 12 of the acquired stores; theremaining nine of the net 21 stores to be integrated have either opened sincethe year-end or will do so in the coming weeks. Further store portfolio investment opportunities exist. In approximately 70stores that have received minimal or no investment for a number of years, trialsto test a low-cost refurbishment continue to produce the required sales uplifts.As previously indicated, plans will be further developed once the Focus DIYconversion programme and the 2008 peak trading season are completed. Multi-channel developmentA relaunch of www.homebase.co.uk was completed in March 2008. Significantimprovements include enhanced navigation and search, better promotionalcapabilities, improved 'how to' and buyer guides, and the launch of an online 3Dkitchen planner to further support the success of kitchen sales andinstallations. There are now over 10,000 Homebase products to research fromhome, with around a third of these available for home delivery. The site alsocontinues to embed relevant products from the Argos product pool. The new sitesupports the Homebase store card and Spend & Save loyalty card offerings.Additional transactional ranges and further developments are planned in the newfinancial year. Operational improvementsThere is a continued emphasis on operational improvements throughout theHomebase business, and as part of Home Retail Group, there has been a series ofstep-changes in improving the retail basics. The ongoing '300 to 1' programme isdriving consistency of store operations, leading to reduced costs whilebenefiting customer service. This and other programmes have continued to improvefundamental operational measures around customer experience, employee engagementand on-shelf availability. Homebase has also made distribution network improvements. It completed therelocation of its national distribution centre for small items and high-valueproducts to a new 350,000 square foot site at Wellingborough. The four-monthmigration programme required the relocation of around 10,000 product lines fromapproximately 300 suppliers. Financial review Sales in the 52 weeks to 1 March 2008 declined by 1.6% in total; like-for-likesales declined by 4.1%. Weakness in the first half of the year was driven byadverse weather conditions over the May to August period, with non-seasonalcategories generally stable. A more difficult overall environment through thesecond half saw like-for-likes worsen, with the impact broadly similar acrossthe business. One exception was kitchens, which has been a consistently strongcategory throughout the year; there were also good performances within areas ofhomewares and decorating. The contribution to sales from net new space was 2.5%. Next year's store openingprogramme is expected to produce a contribution of between 3% and 4%, with anapproximate 5% contribution to come from the acquired Focus DIY stores. Gross margin was ahead by approximately 250 basis points for the year. Ongoingsupply chain initiatives together with foreign exchange benefits were theprincipal drivers of this improvement over the year, with an additional benefitin the first half from the improvements in stock management procedures. Operating costs grew in total by approximately 5%, of which underlying inflationwas approximately 3%. Non-inflationary cost growth was therefore approximately2%, principally reflecting the additional investment in new space that wasback-end weighted in the year. One-off increases in distribution costs as aresult of the warehouse relocation, together with onerous lease costs on itsunderperforming stores, were broadly offset by one-off benefits principally fromstore-related property transactions in the year. There will be continued costcontrol and containment programmes throughout the business in the new financialyear. Benchmark operating profit for the 52 weeks to 1 March 2008 declined 16% to£45.1m as a result of the decline in underlying sales, which was partiallyoffset by further gross margin progress. Financial Services _________________________________________________________________________________52 weeks to 1 March 2008 3 March 2007 Sales (£m) 95.4 93.2 Benchmark operating profit before financing costs 25.1 22.8 Financing costs (19.6) (17.8) ______________________Benchmark operating profit (£m) 5.5 5.0 _________________________________________________________________________________ 1 March 2008 3 March 2007 Store card gross receivables 482 448 Personal loans gross receivables 9 24 ______________________Total gross receivables 491 472 Provision (59) (55) ______________________Total net receivables 432 417 Provision % of gross receivables 12.0% 11.7% _________________________________________________________________________________ Financial Services works in conjunction with Argos and Homebase to provide theircustomers with the most appropriate credit offers to drive product sales, and tomaximise profit from the transaction for Home Retail Group. Operational review The store card operations continue to drive retail sales. £566m of Group retailsales were funded by the store cards, with the penetration rate increasing to8.5%. Promotional credit is a key enabler of driving gains in 'big ticket' categories.Approximately 75% of all credit sales were on promotional credit terms; thecards offer a range of three, six, nine and 12 month 'buy now, pay later' plans.The offer is also fully multi-channel, with the availability of credit being afeature on both www.argos.co.uk and www.homebase.co.uk. There has been successful expansion of ancillary businesses. The joint venturewith Barclays Bank PLC has seen good take-up of the Argos credit card launchedin May 2007. Direct insurance arrangements have also seen good progress, withsignificant growth in pet insurance in particular. Financial review Financial Services' financial objective is to achieve a return in line withfinancial services industry norms on the revolving (i.e. interest-bearing)element of receivables; the provision of promotional credit products isrecharged at cost to the Argos and Homebase businesses. The benchmark operatingresult of £5.5m for the year therefore reflects this arrangement, with the costadvantage versus third-party promotional credit provision being recognised inArgos and Homebase benchmark operating profits. Total gross receivables grew by £19m, with a £34m increase in store cardoperations partially funded by the £15m reduction in the planned run-off of theon-balance sheet personal loans operation. There was a small increase in provision levels over last year, driven by therun-off of personal loans; delinquency rates for the store card operations weremarginally lower than the prior year. The increase in financing costs reflectsthe growth in receivables as well as a higher internal rate being charged toreflect the movement in funding costs. A corresponding benefit is recognised inGroup net interest income. New development opportunities Home Retail Group is developing the Argos retail format in India in a strategicpartnership arrangement with leading Indian department store retailer Shoppers'Stop and hypermarket format HyperCITY. Argos is providing its brand, catalogueand multi-channel expertise and IT support. The development is approximatelyhalf-way through an initial trial phase and, if successful, would see any futuredevelopment continue under a franchise arrangement. The business, trading under the 'HyperCITY-Argos' brand name, is based largelyon the existing Argos multi-channel proposition. To date, six stores have openedin the Mumbai region to support the October 2007 launch of the first edition ofthe catalogue which contained 4,700 lines. A number of store formats are beingtested, including catalogue stores similar to those of Argos in the UK, adisplay store showcasing a greater amount of the product range, and small storeswhere stock can be ordered for later customer collection. The stores arecurrently supported by a non-transactional website, www.hypercityargos.com, acall centre operation and a home delivery operation. The second edition of thecatalogue has recently launched, and the next stages of the trial includefurther stores being added and the website becoming fully transactional. A second opportunity being developed is the HomeStore&More out-of-town homewaresformat. The Group paid £6.8m to acquire a 33% stake in the Irish operator ofthis format, with the investment being used to expand the business throughoutIreland; three stores were opened in the year taking the chain to five, withfurther openings expected in the next 12 months. In terms of mainland UK, HomeRetail Group is developing its own wholly-owned version of the format. The firststore opened in October 2007 in Aylesbury, Buckinghamshire, and a second storeopened in March 2008 in Cambridge. Further UK stores are expected to be addedover the next 12 months and there are ongoing reviews of potential adaptationsto the product mix and format. The success of both these ventures will continue to be monitored over theirinitial trial phases. Central Activities ________________________________________________________________________________52 weeks to 1 March 2008 3 March 2007 Central Activities (£m) (28.8) (24.0) ________________________________________________________________________________ Central Activities represents the cost of central corporate functions and theinvestment costs of new development opportunities. Corporate functions costswere held broadly flat; the overall cost growth of £4.8m in the year reflectedthe first year of the India and HomeStore&More trials. As previously announced,during the second year of the trials a similar cost of approximately £5m isexpected. GROUP FINANCIAL REVIEW Sales and operating profit Sales for the Group grew 2.3% to £5,984.8m (2007 pro forma: £5,851.4m) andbenchmark operating profit grew 11% to £398.0m (2007 pro forma: £359.4m). Groupbenchmark operating margin was 6.7% (2007 pro forma: 6.1%). The drivers of thisperformance have been analysed as part of the preceding business reviews. Net interest income Net interest income was £33.3m (2007 pro forma: £16.6m). Third party netinterest income of £13.7m (2007 pro forma: expense of £1.2m) was earned on theGroup's improved average net cash position. A particularly favourableenvironment for deposit rates was also a driver. A further credit of £19.6m(2007 pro forma: £17.8m) reflects the financing costs charged within FinancialServices' benchmark operating profit. In the prior year, interest costs attributable to the GUS capital structureprior to the demerger were £46.1m and have been excluded from 2007 pro formabenchmark PBT. Share of post-tax results of joint ventures and associates These amounted to an income of £1.6m (2007: £0.7m). Within this, there was a£2.8m gain on disposal of the Group's 33% holding in AAGUS, a consumer financecompany in The Netherlands. The residual loss reflects the Group's share of theinitial start-up costs incurred by the financial services joint venture withBarclays Bank PLC. Exceptional items An exceptional pre-tax income of £0.8m was recorded for the year. Thisrepresents the release of a £20.2m accrual in respect of previous GUS-relatedlong-term incentive schemes that were settled in June 2007, offset by Homebasestore impairment charges of £10.3m (2007: £4.1m) and costs relating to thepost-acquisition integration of certain Focus DIY stores of £9.1m. In the prior year, exceptional pre-tax items also included demerger-relatedcosts of £11.3m and a charge in relation to the waiver of a loan note due fromExperian of £7.3m. Within the prior year's net financing costs, £6.9m ofexceptional income related to the gain made on transfer of an interest swapassociated with a financing facility novated from GUS plc on demerger. Costs related to demerger incentive schemes These amounted to £11.7m (2007: £5.8m). As previously announced, these costs areexpected to amount to a maximum of £40m, to be charged to the income statementover the three-year period commencing from the date of the demerger in October2006, and are excluded from benchmark PBT. Financing fair value remeasurements Changes in the fair value of certain financial instruments are recognised in theincome statement within net financing costs. These amounted to charges of £9.0m(2007: £0.1m). The increase is principally the result of currency translationdifferences on overseas subsidiary balances, with an equal and oppositeadjustment being recognised as a movement in reserves. Financing impact on retirement benefit balances The credit through net financing costs in respect of the excess of expectedreturn on retirement benefit assets over the interest expense on retirementbenefit liabilities amounted to £13.0m (2007 pro forma: £12.3m). The currentservice cost, which Home Retail Group believes to be a fairer reflection of thecost of providing retirement benefits, is already reflected in benchmarkoperating profit. Profit before tax Benchmark profit before tax grew 15% to £432.9m (2007 pro forma: £376.7m).Reported profit before tax was £426.0m (2007: £296.9m). Taxation Taxation attributable to benchmark PBT was £138.5m (2007 pro forma: £122.1m),representing an effective tax rate (excluding joint ventures and associates) of32.1% (2007 pro forma: 32.5%). The improvement in the effective rate largelyreflects a growth in profits while the absolute level of disallowableexpenditure for tax purposes has remained broadly level. Taxation attributable to exceptional items amounted to a charge of £1.0m (2007:£5.3m). In the year being reported there was also an exceptional corporation taxcredit of £12.6m arising from the settlement of a number of historic taxcomputations, together with an exceptional deferred tax charge of £5.9m relatingto the re-estimation of qualifying assets. Total exceptional tax in the yeartherefore amounted to a credit of £5.7m. The reported effective tax rate was 30.8% (2007: 36.9%), representing a totaltax expense for the period of £131.4m (2007: £109.5m). Number of shares and earnings per share The number of shares for the purpose of calculating basic earnings per share(EPS) is 867.7m (2007: 869.6m), representing the weighted average number ofissued ordinary shares of 877.4m (2007: 877.4m), less the weighted averageordinary shares held in Home Retail Group's Employee Share Ownership Trust(ESOT) of 9.7m (2007: 7.8m). The calculation of diluted EPS reflects the potential dilutive effect ofemployee share incentive schemes in place post demerger. This increases thenumber of shares for diluted EPS purposes by 9.6m (2007: 7.6m) to 877.3m (2007:877.2m). Basic benchmark EPS is 33.9p (2007 pro forma: 29.3p), with diluted benchmark EPSof 33.6p (2007 pro forma: 29.0p). Reported basic EPS is 34.0p (2007: 21.6p),with reported diluted EPS of 33.6p (2007: 21.4p). Dividends Home Retail Group's dividend policy remains to target dividend cover over themedium term of around two times, based on full-year basic benchmark EPS. A final dividend of 10.0p (2007: 9.0p) is being recommended by the Board, making14.7p for the year (2007: 13.0p). Based on basic benchmark EPS of 33.9p (2007pro forma: 29.3p), this represents cover of 2.31 times (2007 pro forma:2.25 times). Based on reported basic EPS of 34.0p (2007: 21.6p), it representscover of 2.31 times (2007: 1.66 times). The final dividend, subject to approval by shareholders at the AGM, will be paidon 23 July 2008 to shareholders on the register at the close of business on 23May 2008. Cash flow and closing net cash position_________________________________________________________________________________Period to 1 March 2008 3 March 2007 (52 weeks) (Short period) Benchmark operating profit 398.0 359.4 Change of year-end pro forma adjustments - (25.7) Exceptional items within operating profit 0.8 (22.7) Demerger incentive scheme costs (11.7) (5.8) ________________________Statutory operating profit after exceptional items 387.1 305.2 Depreciation and amortisation 151.6 146.4 ________________________Statutory EBITDA 538.7 451.6 Movement in working capital (48.1) 127.2 Finance expense charged to FS cost of sales 19.6 16.4 Adjustments for other non-cash operating items 54.0 25.7 ________________________Cash flows from operating activities 564.2 620.9 Net interest 15.1 (37.8) Taxation (95.1) (101.6) Net capital expenditure (207.9) (158.6) Acquisitions and disposals (46.2) (3.8) Loan to joint venture - (8.1) ________________________Cash inflow before financing activities 230.1 311.0 Dividends paid (118.9) (34.6) Share of GUS plc final dividend - (62.0) Repayment of amounts to GUS plc - (50.3) Repayment of borrowings (225.1) (1.2) Other financing activities 2.3 (6.1) ________________________Net (decrease)/increase in cash and cash equivalents (111.6) 156.8 _________________________________________________________________________________ Opening cash and cash equivalents 283.8 130.0 Net cash (outflow)/inflow (111.6) 156.8 Effect of foreign exchange rate changes 1.8 (3.0) ________________________Closing cash and cash equivalents 174.0 283.8 Closing borrowings - (223.6) ________________________Closing net cash 174.0 60.2 _________________________________________________________________________________ Cash flows from operating activities were £564.2m (2007: £620.9m). As the prioryear was a short period of approximately 11 months due to the change inyear-end, there was a benefit in the prior year from the exclusion of March,which is typically a significant cash outflow month in terms of working capital.Excluding this, underlying growth in operating cash flow was therefore drivenprincipally by the growth in profits. A net interest inflow of £15.1m (2007: outflow of £37.8m) reflects improved cashgeneration and higher rates of interest earned, together with the removal of theimpact from the previous GUS capital structure up to the point of demerger. Net capital expenditure was £207.9m (2007: £158.6m), with the increaseprincipally driven by a full 52-week period together with an additional £19m inrelation to the expected £30m programme to refit the acquired Focus DIY stores.Overall, a broadly similar level of Group capital expenditure is expected in thenext financial year. Cash outflows in relation to acquisitions and disposals reflects £39.6m topurchase 27 store properties from Focus DIY, £6.8m to acquire a 33% holding inthe Irish homewares business 'Home Store + More', proceeds of £3.9m from thedisposal of the Group's 33% holding in AAGUS, and associated costs related tothese transactions. Cash flows in relation to financing activities in the year principally reflectdividend payments to shareholders, together with the use of cash balances torepay in full a £225m borrowing arrangement inherited from GUS plc on demerger. The Group's net cash position at 1 March 2008 was therefore £174.0m, an increaseof £113.8m on the opening net cash position at 3 March 2007 of £60.2m. Balance sheet and return on capital _______________________________________________________________________________As at 1 March 2008 3 March 2007 Goodwill 1,922.7 1,878.9 Other intangible assets 83.7 73.4 Property, plant and equipment 731.8 691.6 Inventories 1,004.8 906.4 Instalment receivables 432.0 416.8 Other trading assets 196.8 188.3 ________________________ 4,371.8 4,155.4 Trade and other payables (1,130.8) (1,059.1) Other trading liabilities (101.5) (84.5) ________________________ (1,232.3) (1,143.6) ________________________ Invested capital 3,139.5 3,011.8 Retirement benefit assets 83.7 9.3 Net tax liabilities (52.0) (2.6) Net cash 174.0 60.2 ________________________Reported net assets 3,345.2 3,078.7 _______________________________________________________________________________ Invested capital amounted to £3,139.5m, an increase of £127.7m on the year-endbalance sheet at 1 March 2007. Higher goodwill reflects the Focus DIY storesacquisition, while growth in property, plant and equipment is driven by theincrease in stores. Inventory levels were higher principally due to the growthin operations, increased overseas sourcing and the earlier timing of Easter;this higher inventory was largely offset by the increase in payables. Reported net assets amounted to £3,345.2m, an increase of £266.5m. The furthertwo key drivers of this movement were the £113.8m increase in net cash and the£74.4m improvement in the retirement benefit assets valuation. Total reportednet assets are equivalent to 386p per share, excluding shares held in the ESOT(2007: 354p). Benchmark pre-tax return on invested capital is a key performance measure forthe Group. Benchmark operating profit plus share of post-tax results of jointventures and associates was £399.6m, up £39.5m or 11%, while year-end investedcapital grew by 4%. This led to pre-tax ROIC increasing to 12.7%, representing a70 basis point improvement on the previous balance sheet date. Capital structure The Group finances its operations through a combination of retained profits,property leases and bank borrowings where necessary. The Group's net cash hasvaried throughout the year due to trading seasonality. The Group has significant liabilities through its obligations to pay rents underoperating leases. The capitalised value of these liabilities is £2,758m basedupon a simple eight-times multiple of last year's operating lease charge, or£3,057m based upon discounted cash flows of the expected future operating leasecharges. In common with the credit rating agencies, the Group treats its leaseliabilities as debt when evaluating financial risk. As an independent company, Home Retail Group has demonstrated two years ofstrong profit growth and cash generation. However, since the outlook forconsumer spending looks weaker, the Board is mindful of maintaining flexibilitythrough a prudent balance sheet approach. This will offer further resilienceduring any shorter-term macro-driven slowdown, while not constraining continuedinvestment in value-enhancing longer-term growth opportunities. The Board willcontinue to review its capital structure to ensure that it remains appropriate. Retirement benefit assets The Group provides a number of post-employment benefit arrangements coveringboth funded defined benefit and defined contribution schemes. Pensionarrangements are operated principally through the Home Retail Group PensionScheme, a defined benefit scheme, together with the Home Retail Group StakeHolder Pension Scheme, a defined contribution scheme. The IAS 19 surplus as at 1March 2008 for the UK defined benefit scheme was £83.7m (2007: £9.3m). Liquidity and funding The Group maintains liquidity by arranging funding ahead of requirements andmaintaining sufficient un-drawn committed facilities to meet short-term needs.At 1 March 2008, the Group had un-drawn committed borrowing facilities availableof £700m, which expire in 2012. These facilities are in place to enable theGroup to finance its working capital requirements and for general corporatepurposes. Treasury policy and risk management The Group's treasury function seeks to reduce exposures to foreign exchange,interest rate and other financial risks, and to ensure sufficient liquidity isavailable to meet foreseeable needs and to invest cash assets safely andprofitably. Its policies and procedures are subject to review and approval bythe Board. Counterparty credit risk management The Group's exposure to credit risk is managed by dealing only with banks andfinancial institutions with strong credit ratings and within limits set for eachorganisation. Dealing activity is closely controlled and counterparty positionsare monitored daily. Interest rate risk management The Group's principal objective is to manage the trade-off between the effectiverate of interest and the impact of interest rate volatility. Exposure would bemanaged by the use of fixed and floating rate facilities and by the use ofinterest rate swaps to adjust the balance of fixed and floating rates. Currency risk management The Group's key objective is to reduce the effect of exchange rate volatility onprofits. Transactional currency exposures that could significantly impact theincome statement are hedged using forward purchases of foreign currencies. Share price and total shareholder return The Group's share price ranged from a low of 259.0p to a high of 497.5p duringthe financial year. On 29 February 2008, the closing mid market price was259.0p, giving a market capitalisation of £2.3bn at the year-end. Total shareholder return (the change in the value of a share includingreinvested dividends) has been a decline of 36.4% over the year. This comparesto a decline of 36.0% in the total shareholder return for the FTSE 350 GeneralRetail sector. The wider FTSE 100 saw a more limited decline of 0.4% over thesame period. Accounting standards and use of non-GAAP measures The Group has prepared its consolidated financial statements under InternationalFinancial Reporting Standards for the 52 weeks ended 1 March 2008. The basis ofpreparation is outlined in Note 1 to the Financial Information on page 30. The Group has identified certain measures that it believes provide additionaluseful information on the underlying performance of the Group. These measuresare applied consistently but as they are not defined under GAAP they may not bedirectly comparable with other companies' adjusted measures. The non-GAAPmeasures are outlined in Note 2 to the Financial Information on page 30. Appendix 1. Basis of preparation for prior year pro forma restatement Reporting periodsHome Retail Group previously reported as part of GUS plc on a calendar year-endto 31 March, with half-year results reported as the six months to 30 September.Within this, to avoid distortion in the financial results relating to the timingof Easter, Homebase was consolidated on a non-coterminous 12 months to 28February basis. For half-year results, Homebase was therefore consolidated on aseven months to 30 September basis, with the second half of its financial yearcomprising only a five-month period. As a result of the change in year-end during the previous financial year, HomeRetail Group reported on a statutory basis the financial period ended 3 March2007. This included the results for Homebase from 1 March 2006 (approximately 12months) and the results for the rest of the Group from 1 April 2006(approximately 11 months). The latest financial year, as reported today, is a52-week period commencing 4 March 2007 and ending on 1 March 2008. For comparative purposes, the financial year 2006/07 restated on a pro formabasis is the 52-week period commencing 5 March 2006 and ending on 3 March 2007.A reconciliation between this pro forma and statutory reported period is shownas Appendix 2. Central ActivitiesCentral Activities represents the cost of central corporate functions. As partof GUS, Home Retail Group was not recharged for these types of costs. However,for the purposes of preparing demerger financial information, an approximationwas made of the amount of GUS corporate head office costs to apportion to HomeRetail Group. These apportioned costs were not representative of either thehistorical costs Home Retail Group would have incurred or the costs it willincur going forward. As part of the pro forma restatements, Home Retail Group has thereforeapproximated the additional costs of central corporate functions it would haveincurred over and above that apportioned to it by GUS. This has been done on thebasis that it had operated as a standalone plc through the periods beingrestated. Capital structure and net interestAs part of the demerger, Home Retail Group was allocated pro forma net debt asat 31 March 2006 of £200m. For the purposes of preparing pro forma results, netinterest income has been calculated to illustrate the impact on the Group'sfinancial performance as if this capital structure had existed at 31 March 2006and had been achieved based on the underlying cash flows prior to 31 March 2006.The additional net interest costs attributable to the actual GUS capitalstructure that was in place over the periods are shown separately. Other income statement itemsOther non-trading income statement items have not been restated as they are notimpacted by the change of year-end. These are principally exceptional items,costs related to demerger incentive schemes and financing fair valueremeasurements. Appendix 2. Reconciliation between pro forma and statutory reported period £m Short period Pro forma 52 weeks to to 3 March restatement 3 March 2007 2007 Argos 3,912.8 251.2 4,164.0Homebase 1,606.3 (12.1) 1,594.2Financial Services 87.6 5.6 93.2 ___________________________________Sales 5,606.7 244.7 5,851.4 Cost of sales (3,680.5) (171.7) (3,852.2) ___________________________________Gross profit 1,926.2 73.0 1,999.2 Net operating expenses before exceptional items and costs related to demergerincentive schemes (1,592.5) (47.3) (1,639.8) ___________________________________ Argos 300.9 24.1 325.0Homebase 51.2 2.2 53.4Financial Services 4.5 0.5 5.0Central Activities (22.9) (1.1) (24.0) ___________________________________Benchmark operating profit 333.7 25.7 359.4 Pro forma net interest income (see below) n/a 16.6 16.6Share of post-tax results of joint ventures and associates 0.7 - 0.7 ___________________________________Benchmark PBT n/a 42.3 376.7 Net interest costs attributable to GUS capital structure (see below) (21.0) (18.2) (39.2)Exceptional items included in operating profit (22.7) - (22.7)Costs related to demerger incentive schemes (5.8) - (5.8)Financing fair value remeasurements (0.1) - (0.1)Financing impact on retirement benefit balances 12.1 0.2 12.3 ___________________________________Profit before tax 296.9 24.3 321.2 Taxation (109.5) (8.0) (117.5)of which: taxation attributable to pro forma benchmark PBT n/a n/a (122.1) ___________________________________Profit for the period 187.4 16.3 203.7 Pro forma basic benchmark EPS n/a n/a 29.3p Basic EPS 21.6p 1.8p 23.4p Number of shares for basic EPS 869.6m - 869.6m Net interest reconciliation: Pro forma net interest expense n/a (1.2) (1.2)Financing costs charged to Financial n/a 17.8 17.8Services ___________________________________ Pro forma net interest income n/a 16.6 16.6 Interest costs attributable to GUS capital structure (44.3) (1.8) (46.1)Exceptional finance income 6.9 - 6.9Financing costs charged to Financial Services 16.4 (16.4) - ___________________________________ Net interest costs attributable to GUS (21.0) (18.2) (39.2)capital structure Financing fair value remeasurements (0.1) - (0.1)Financing impact on retirement benefit balances 12.1 0.2 12.3 ___________________________________ Income statement net financing costs (9.0) (1.4) (10.4) ___________________________________ Appendix 3. Future trading statement comparables Q1 13 weeks to 2 June 2007ArgosSales £893mLike-for-like change in sales 0.9%Net new space contribution to sales change 3.6% ___________Total sales change 4.5% ___________Guidance on gross margin movement Up c.150bps HomebaseSales £463mLike-for-like change in sales 2.7%Net new space contribution to sales change 2.5% ___________Total sales change 5.2% ___________Guidance on gross margin movement Up c.300bps Q2 H1 13 weeks to 26 weeks to 1 Sept 2007 1 Sept 2007ArgosSales £942m £1,835mLike-for-like change in sales 1.8% 1.4%Net new space contribution to sales change 3.0% 3.3% ___________ __________ Total sales change 4.8% 4.7% ___________ __________ Guidance on gross margin movement Up c.100bps Up c.125bps HomebaseSales £391m £854mLike-for-like change in sales (8.0%) (2.5%)Net new space contribution to sales change 1.8% 2.2% ___________ __________Total sales change (6.2%) (0.3%) ___________ __________Guidance on gross margin movement Up c.300bps Up c.300bps Q3 YTD 18 weeks to 44 weeks to 5 Jan 2008 5 Jan 2008ArgosSales £1,919m £3,755mLike-for-like change in sales (0.2%) 0.6%Net new space contribution to sales 2.7% 2.9%change ___________ __________ Total sales change 2.5% 3.5% ___________ __________ Guidance on gross margin movement c.0bps Up c.50bps HomebaseSales £498m £1,352mLike-for-like change in sales (6.3%) (3.9%)Net new space contribution to sales change 2.2% 2.2% ___________ __________Total sales change (4.1%) (1.7%) ___________ __________Guidance on gross margin movement Up c.200bps Up c.250bps Q4 H2 FY 8 weeks to 26 weeks to 52 weeks to 1 Mar 2008 1 Mar 2008 1 Mar 2008ArgosSales £566m £2,486m £4,321mLike-for-like change in sales 1.9% 0.3% 0.7%Net new space contribution to sales change 3.5% 2.8% 3.1% __________ __________ __________Total sales change 5.4% 3.1% 3.8% __________ __________ __________ Guidance on gross margin movement Down c.50bps Down c.25bps Up c.50bps HomebaseSales £217m £715m £1,569mLike-for-like change in sales (5.3%) (6.0%) (4.1%)Net new space contribution to sales 4.6% 3.0% 2.5%change __________ __________ __________Total sales change (0.7%) (3.0%) (1.6%) __________ __________ __________Guidance on gross margin movement Up c.150bps Up c.200bps Up c.250bps Consolidated Income StatementFor the 52 weeks ended 1 March 2008 52 weeks ended 1 March 2008 Short period ended 3 March 2007 _____________________________________________________________________________________________________ Before After Before After exceptional Exceptional exceptional exceptional Exceptional exceptional items items items items items items Notes £m £m £m £m £m £m _____________________________________________________________________________________________________Revenue 5,984.8 - 5,984.8 5,606.7 - 5,606.7 Cost of sales (3,881.0) - (3,881.0) (3,680.5) - (3,680.5) _____________________________________________________________________________________________________ Gross profit 2,103.8 - 2,103.8 1,926.2 - 1,926.2 Net operating expenses 3 (1,717.5) 0.8 (1,716.7) (1,598.3) (22.7) (1,621.0)_____________________________________________________________________________________________________ Operating profit 386.3 0.8 387.1 327.9 (22.7) 305.2 _________________________________________________________________________- Finance income 62.3 - 62.3 55.5 6.9 62.4- Finance expense (25.0) - (25.0) (71.4) - (71.4) _________________________________________________________________________Net financing income/(costs) 3, 4 37.3 - 37.3 (15.9) 6.9 (9.0) Share of post-tax profit of joint ventures and associates 1.6 - 1.6 0.7 - 0.7 _____________________________________________________________________________________________________ Profit before tax 425.2 0.8 426.0 312.7 (15.8) 296.9 Taxation 3 (137.1) 5.7 (131.4) (104.2) (5.3) (109.5)_____________________________________________________________________________________________________ Profit for the period attributable to equity shareholders 288.1 6.5 294.6 208.5 (21.1) 187.4 ===================================================================================================== Earnings per share pence pence- Basic 6 34.0 21.6 - Diluted 6 33.6 21.4 ===================================================================================================== pence penceProposed dividend 10.0 9.0per share ===================================================================================================== 52 weeks Short period Non-GAAP measures ended ended Reconciliation of profit before tax 1 March 2008 3 March 2007('PBT') to benchmark PBT Notes £m £m______________________________________________________________________________________________ Profit before tax 426.0 296.9 Effect of exceptional items 3 (0.8) 15.8 Effect of financing fair value remeasurements 4 9.0 0.1Financing impact on retirement benefit balances 4 (13.0) (12.1) Effect of demerger incentive schemes 11.7 5.8 ______________________________________________________________________________________________Benchmark PBT 432.9 306.5============================================================================================== Benchmark earnings per share pence pence - Basic 6 33.9 23.7- Diluted 6 33.6 23.5 Consolidated Statement of Recognised Income and ExpenseFor the 52 weeks ended 1 March 2008 52 weeks Short ended period 1 March ended 2008 3 March 2007 £m £m________________________________________________________________________________________Net income/(expense) recognised directly in equityNet change in fair value of cash flow hedges- Foreign currency forward exchange contracts (17.7) (27.3)Net change in fair value of cash flow hedges transferred toinventory- Foreign currency forward exchange contracts 19.8 24.6Actuarial gains/(losses) in respect of defined benefit pension schemes 73.9 (18.3)Fair value movements on available-for-sale financial assets 0.1 -Currency translation differences 13.5 0.9Tax (charge)/credit in respect of items taken directly to equity (22.8) 10.0________________________________________________________________________________________Net income/(expense) recognised directly in equity for the period 66.8 (10.1)Profit for the period attributable to equity shareholders 294.6 187.4________________________________________________________________________________________Total recognised income for the period attributable to equity shareholders 361.4 177.3======================================================================================== Consolidated Balance SheetAt 1 March 2008 1 March 2008 3 March 2007 Notes £m £m______________________________________________________________________________________________ASSETSNon-current assetsGoodwill 1,922.7 1,878.9Other intangible assets 83.7 73.4Property, plant and equipment 731.8 691.6Investment in joint ventures and associates 7.7 9.2Deferred tax assets 46.6 74.4Trade and other receivables 4.8 18.0Retirement benefit assets 83.7 9.3Other financial assets 14.2 8.5______________________________________________________________________________________________Total non-current assets 2,895.2 2,763.3______________________________________________________________________________________________Current assetsInventories 1,004.8 906.4Trade and other receivables 597.8 569.4Current tax assets 16.9 3.0Other financial assets 4.3 -Cash and cash equivalents 174.0 283.8______________________________________________________________________________________________Total current assets 1,797.8 1,762.6______________________________________________________________________________________________Total assets 4,693.0 4,525.9______________________________________________________________________________________________ LIABILITIESNon-current liabilitiesTrade and other payables (41.3) (34.0)Provisions (72.6) (57.1)Deferred tax liabilities (67.4) (44.8)______________________________________________________________________________________________Total non-current liabilities (181.3) (135.9)______________________________________________________________________________________________ Current liabilitiesTrade and other payables (1,089.5) (1,025.1)Loans and borrowings - (223.6)Provisions (26.1) (25.2)Other financial liabilities (2.8) (2.2)Current tax liabilities (48.1) (35.2)______________________________________________________________________________________________Total current liabilities (1,166.5) (1,311.3)______________________________________________________________________________________________Total liabilities (1,347.8) (1,447.2)______________________________________________________________________________________________Net assets 3,345.2 3,078.7============================================================================================== EQUITYShare capital 7 87.7 87.7Merger reserve 7 (348.4) (348.4)Other reserves 7 3.9 (11.4)Retained earnings 7 3,602.0 3,350.8______________________________________________________________________________________________Total equity 3,345.2 3,078.7============================================================================================== Consolidated Cash Flow StatementFor the 52 weeks ended 1 March 2008 52 weeks Short ended period 1 March ended 2008 3 March 2007 Notes £m £m______________________________________________________________________________________________Cash flows from operating activitiesCash generated from operations 8 564.2 620.9Interest received 18.7 13.6Interest paid (3.6) (51.4)Tax paid (95.1) (101.6)______________________________________________________________________________________________Net cash inflow from operating activities 484.2 481.5______________________________________________________________________________________________Cash flows from investing activitiesPurchase of property, plant and equipment (176.3) (134.1)Proceeds from the disposal of property, plant and equipment 3.4 3.8Purchase of intangible assets (35.0) (28.3)Loan to joint venture - (8.1)Disposal of subsidiary - net of cash disposed - (3.8)Purchase of investments (8.7) -Disposal of investment 3.9 -Acquisition of businesses (41.4) -______________________________________________________________________________________________Net cash used in investing activities (254.1) (170.5)______________________________________________________________________________________________Cash flows from financing activitiesPurchase of own shares - (6.1)Proceeds from the exercise of share options 2.3 -Repayment of amounts to GUS plc - (50.3)Repayment of finance leases (0.1) (1.2)Repayment of loans (225.0) -Home Retail Group share of GUS plc final dividend - (62.0)Dividends paid (118.9) (34.6)______________________________________________________________________________________________Net cash used in financing activities (341.7) (154.2)______________________________________________________________________________________________Net (decrease)/increase in cash and cash equivalents (111.6) 156.8==============================================================================================Movement in cash and cash equivalentsCash and cash equivalents at the beginning of the period 283.8 130.0Effect of foreign exchange rate changes 1.8 (3.0)Net (decrease)/increase in cash and cash equivalents (111.6) 156.8______________________________________________________________________________________________Cash and cash equivalents at the end of the period 174.0 283.8============================================================================================== Analysis of Net Cash/(Debt)At 1 March 2008 1 March 2008 3 March 2007Non-GAAP measures £m £m____________________________________________________________________________________ Financing net cash:Cash at bank and in hand 174.0 283.8Loans and borrowings - (223.6)____________________________________________________________________________________Total financing net cash 174.0 60.2____________________________________________________________________________________ Operating net (debt):Property leases (3,057.1) (2,920.1)____________________________________________________________________________________Total operating net (debt) (3,057.1) (2,920.1)____________________________________________________________________________________Total net (debt) (2,883.1) (2,859.9)====================================================================================Deduct:Operating leases that are off balance sheet 3,057.1 2,920.1____________________________________________________________________________________Total net cash reflected in balance sheet 174.0 60.2==================================================================================== The Group uses the term net cash/(debt) which highlights the Group's aggregatenet indebtedness to banks and other financial institutions together withdebt-like liabilities, notably property leases. The capitalised value of theseproperty leases is £3,057.1m (2007: £2,920.1m) based upon discounting thecurrent rentals at the estimated current long term cost of borrowing of 5.3%(2007: 5.4%). NotesFor the 52 weeks ended 1 March 2008 1. BASIS OF PREPARATION Previously, Home Retail Group (then ARG) prepared its financial information for the financialyear for the 12 months to 31 March except for the results of Homebase which were included forthe 12 months to 28 or 29 February each year, with adjustments to reflect the balance sheetmovements in cash to the end of March. This was done to facilitate comparability of the incomestatement by avoiding the distortions that would arise relating to changes in the timing ofEaster. In order to align the year-end across the Group, the Board of Directors decided toamend the Group's financial year to a 52-week period ending on the Saturday closest to the endof February. Therefore, following the change of accounting reference date in the prior period,the audited accounts have been prepared for the 52 weeks ended 1 March 2008 with comparativesfor the short period ended 3 March 2007. Unless otherwise stated, references to 2007 withinthe notes to the financial statements are for the short period 1 April 2006 to 3 March 2007. The Group consolidated financial statements are presented in sterling, rounded to the nearesthundred thousand. They are prepared on the historic cost basis modified for the revaluation ofcertain financial instruments. The principal accounting policies applied in the preparation ofthese consolidated financial statements are consistent with those described in the AnnualReport and Financial Statements 2007. These policies have been consistently applied to all theperiods presented. Group reorganisation Home Retail Group demerged from its parent company, GUS plc, with effect from 10 October 2006.Shares in Home Retail Group were admitted to the Official List of the Financial ServicesAuthority and to trading on the London Stock Exchange's main market for listed securities on11 October 2006. All Home Retail Group companies which were owned by GUS plc prior to demergerwere transferred under the new ultimate parent company, Home Retail Group plc, prior to 11October 2006. The introduction of this new ultimate holding company constituted a groupreconstruction and was accounted for using merger accounting principles. Therefore, althoughthe Group reorganisation did not become effective until 10 October 2006, the comparativefigures are presented as if the current Group structure had always been in place. 2. NON-GAAP FINANCIAL INFORMATION Exceptional items Items which are both material and non-recurring are presented as exceptional items withintheir relevant income statement line. The separate reporting of exceptional items helpsprovide a better indication of underlying performance of the Group. Examples of items whichmay be recorded as exceptional items are impairment charges, restructuring costs and theprofits/losses on the disposal of businesses. Benchmark profit before tax ('PBT') The Group uses the term Benchmark PBT as a measure which is not formally recognised underIFRS. Benchmark PBT is defined as profit before amortisation of acquisition intangibles, storeimpairment charges, exceptional items, financing fair value remeasurements, financing impacton retirement benefit balances, one-off demerger incentive costs and taxation. This measure isconsidered useful in that it provides investors with an alternative means to evaluate theunderlying performance of the Group's operations. Net debt The Group uses the term net debt which is considered useful in that it provides the Group'saggregate net indebtedness to banks and other financial institutions together with debt-likeliabilities, notably property leases. 52 weeks ended Short period 1 March 2008 ended 3 March 20073. EXCEPTIONAL ITEMS £m £m_______________________________________________________________________________________________ Accrual release relating to incentive schemes (a) 20.2 -Costs relating to the post-acquisition integration of the Focus (9.1) -DIY stores (b)Store impairment charges (c) (10.3) (4.1)Costs relating to the demerger of Home Retail Group and Experian (d) - (11.3)Waiver of loan due from Experian (e) - (7.3)_______________________________________________________________________________________________Exceptional items in operating profit 0.8 (22.7)Exceptional finance income (f) - 6.9_______________________________________________________________________________________________Exceptional items in profit before tax 0.8 (15.8)_______________________________________________________________________________________________ Tax on exceptional items in profit before tax (1.0) (5.3)Exceptional corporation tax credit (g) 12.6 -Exceptional deferred tax charge (h) (5.9) -_______________________________________________________________________________________________Exceptional tax 5.7 (5.3)_______________________________________________________________________________________________ Exceptional profit/(loss) for the period 6.5 (21.1)=============================================================================================== (a) Represents the release of an accrual in respect of previous GUS-related long term incentive schemes which were settled in June 2007. (b) Represents costs relating to the post-acquisition integration of certain of the Focus DIY stores acquired in the period. (c) IFRS requires individual stores to be designated as cash generating units for the purposes of testing for impairment. This resulted in a net impairment charge in respect of the Homebase store portfolio of £10.3m (2007: £4.1m). (d) Demerger-related expenditure including costs in relation to early vesting of share incentive schemes, banking set up fees and other professional fees. (e) Represents a loan due from Experian which was waived as part of the demerger process. (f) Fair value gain made on transfer of interest rate swap novated from GUS plc on demerger. (g) Represents the recognition of a corporation tax credit arising from a reassessment of previous estimates provided for in the Group's tax computations, following the agreement of prior year tax computations. (h) Represents an additional deferred tax charge arising from the re-estimation of qualifying assets in respect of accelerated tax depreciation, following the agreement of prior year tax computations. 52 weeks ended Short period 1 March 2008 ended 3 March 20074. NET FINANCING INCOME/(COSTS) £m £m______________________________________________________________________________________________Finance income: Bank deposits and other interest 18.8 13.8Expected return on retirement benefit assets 43.5 37.8Interest receivable from GUS group companies - 3.9______________________________________________________________________________________________Total finance income 62.3 55.5______________________________________________________________________________________________ Finance expense: Interest cost of perpetual securities (3.3) (11.1)Unwinding of discounts (1.8) (1.9)Financing fair value remeasurements:- net losses on financial instruments (0.9) (0.1)- net exchange losses (8.1) -Interest expense on retirement benefit liabilities (30.5) (25.7)Interest expense on OFT fine - (1.5)Interest payable to GUS group companies - (47.5)______________________________________________________________________________________________Total finance expense (44.6) (87.8)Less: finance expense charged to Financial Services cost of sales 19.6 16.4______________________________________________________________________________________________Total net finance expense (25.0) (71.4)______________________________________________________________________________________________Net financing income/(costs) before exceptional items 37.3 (15.9)Exceptional finance income - 6.9______________________________________________________________________________________________Net financing income/(costs) 37.3 (9.0)______________________________________________________________________________________________ 52 weeks ended Short period 1 March 2008 ended 3 March 20075. DIVIDENDS £m £m________________________________________________________________________________________________ Amounts recognised as distributions to equity holdersFinal dividend of 9.0p per share for the short period 78.1 -ended 3 March 2007Interim dividend of 4.7p per share (2007: 4.0p) 40.8 34.6________________________________________________________________________________________________Ordinary dividends on equity shares 118.9 34.6================================================================================================ A final dividend in respect of the period ended 1 March 2008 of 10.0p per share, amounting to atotal final dividend of £86.8m has been recommended by the Board of Directors, and is subject toapproval by the shareholders at the Annual General Meeting. This would make a total dividend forthe period of 14.7p per share, amounting to £127.6m. The recommended dividend has not beenincluded as a liability at 1 March 2008 in accordance with IAS 10 'Events after the balancesheet date'. It will be paid on 23 July 2008 to shareholders who are on the register of membersat close of business on 23 May 2008. The Home Retail Group Employee Share Ownership Trust('ESOT') has waived its entitlement to dividends in the amount of £1.3m (2007: £0.7m). 6. BASIC AND DILUTED EARNINGS PER SHARE ('EPS') Basic earnings per share is calculated by dividing the profit attributable to the equity holdersof the company by the weighted average number of ordinary shares in issue during the period,excluding ordinary shares held in Home Retail Group's ESOT. Diluted earnings per share iscalculated by adjusting the weighted average number of ordinary shares outstanding to assumeconversion of all potential dilutive ordinary shares. Basic and diluted EPS for 2007 have beencalculated on the basis of the number of shares in issue at the date of demerger for thepre-demerger period together with the weighted average number of shares post demerger, excludingordinary shares held in Home Retail Group's ESOT. 52 weeks ended Short period 1 March 2008 ended 3 March 2007Earnings £m £m________________________________________________________________________________________________ Profit after tax for the financial period 294.6 187.4Effect of exceptional items (0.8) 15.8Effect of financing fair value remeasurements 9.0 0.1Financing impact on retirement benefit balances (13.0) (12.1)Demerger incentive schemes 11.7 5.8Attributable taxation (7.1) 9.2________________________________________________________________________________________________Benchmark profit after tax for the financial period 294.4 206.2================================================================================================ Weighted average number of shares millions millions Number of ordinary shares for the purpose of basic EPS 867.7 869.6Dilutive effect of share incentive awards 9.6 7.6________________________________________________________________________________________________Number of ordinary shares for the purpose of diluted EPS 877.3 877.2================================================================================================ EPS pence pence Basic EPS 34.0 21.6Diluted EPS 33.6 21.4 Basic benchmark EPS 33.9 23.7Diluted benchmark EPS 33.6 23.5 7. RECONCILIATION OF MOVEMENTS IN EQUITY Share Merger Other Retained capital reserve reserves earnings Total £m £m £m £m £m________________________________________________________________________________________________ At 4 March 2007 87.7 (348.4) (11.4) 3,350.8 3,078.7Profit for the financial period - - - 294.6 294.6Net income recognised in equity for the financial period - - 15.2 51.6 66.8Movement in share-based compensation reserve - - - 21.6 21.6Net movement in own shares - - 0.1 2.3 2.4Equity dividends paid during the period - - - (118.9) (118.9)________________________________________________________________________________________________Total equity at 1 March 2008 87.7 (348.4) 3.9 3,602.0 3,345.2________________________________________________________________________________________________ Share Merger Other Retained capital reserve reserves earnings Total £m £m £m £m £m________________________________________________________________________________________________ At 1 April 2006 2,895.6 (348.4) (4.3) 407.0 2,949.9Profit for the financial period - - - 187.4 187.4Share reduction (2,807.9) - - 2,807.9 -Net cost recognised in equity for the financial period - - (1.0) (9.1) (10.1)Movement in share-based compensation reserve - - - 16.3 16.3Net movement in own shares - - (6.1) - (6.1)Equity dividends paid during the period - - - (34.6) (34.6)Other movements - - - (24.1) (24.1)________________________________________________________________________________________________Total equity at 3 March 2007 87.7 (348.4) (11.4) 3,350.8 3,078.7________________________________________________________________________________________________ Merger reserveThe merger reserve arose on the demerger of the Group from GUS plc during 2006 as outlined inNote 1 "Group reorganisation". Other reservesOther reserves principally consist of shares held in trust, the hedging reserve and thetranslation reserve. Net movement in own shares represents the purchase, and subsequent utilisation or sale, ofshares for the purpose of satisfying obligations arising from Home Retail Group plc share-basedcompensation schemes. Shares in Home Retail Group plc are held in the following Trusts whichhave been established since demerger: Home Retail Group Employee Share Ownership Trust ('ESOT') The ESOT provides for the issue of shares to Group employees under share option and share grantschemes (with the exception of the Share Incentive Plan). At 1 March 2008 the ESOT held9,206,387 shares with a market value of £23.8m. The shares in the Trust are held in the balancesheet of the Group at nil value. The shares were acquired as part of the demerger from GUS plcat no cost. 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 Groupemployees under the Share Incentive Plan. At 1 March 2008, the Trust held 1,425,505 shares witha market value of £3.7m. These shares are held in the balance sheet of the Group at a cost of£6.0m. No additional shares were purchased in the period. 8. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 52 weeks ended Short period 1 March 2008 ended 3 March 2007Cash generated from operations £m £m_______________________________________________________________________________________________Profit before tax 426.0 296.9Adjustments for:Share of post-tax profits of joint ventures and associates (1.6) (0.7)Net financing (income)/costs (37.3) 9.0_______________________________________________________________________________________________Operating profit 387.1 305.2 Loss on sale of property, plant and equipment 0.4 0.9Loss on sale of subsidiary - 1.1Depreciation and amortisation 151.6 146.4Impairment losses 10.3 4.1Finance expense charged to Financial Services cost of sales 19.6 16.4 Increase in inventories (98.4) (23.4)Increase in receivables (21.2) (42.7)Increase in payables 71.5 193.3_______________________________________________________________________________________________Movement in working capital (48.1) 127.2 Increase/(decrease) in provisions 9.2 (6.3)Movement in retirement benefits 12.5 10.0Share-based payment expense 21.6 15.9_______________________________________________________________________________________________Cash generated from operations 564.2 620.9=============================================================================================== Reconciliation of net increase in cash and cash equivalents to movement innet debtNet cash/(debt) at beginning of the period 60.2 (178.0)Effect of foreign exchange rate changes 1.8 (3.0)Net (decrease)/increase in cash and cash equivalents (111.6) 156.8Decrease in debt 223.6 84.4_______________________________________________________________________________________________Net cash at the end of the period 174.0 60.2=============================================================================================== Major non-cash transactionsHome Retail Group did not enter into any new finance lease arrangements during the period(2007: £nil). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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