Full-Year Results Part 2

Consolidated income statement

For the 52 weeks ended 26 February 2011

Consolidated statement of comprehensive income

For the 52 weeks ended 26 February 2011

Consolidated balance sheet

At 26 February 2011

Consolidated statement of changes in equity

For the 52 weeks ended 26 February 2011

Further details on equity movements are shown in note 7.Consolidated statement of cash flows

For the 52 weeks ended 26 February 2011

Analysis of net cash/(debt)

At 26 February 2011

The Group uses the term total net debt to highlight the Group's aggregate net indebtedness to banks and other financial institutions together with debt-like liabilities, notably operating leases. The capitalised value of these leases is £2,874.1m (2010: £3,148.1m), based upon discounting the current rentals at the estimated current long-term cost of borrowing of 4.1% (2010: 4.1%).

Current asset investments comprise term cash deposits invested for initial terms of between six and nine months, which mature after the balance sheet date.

Notes

For the 52 weeks ended 26 February 2011

1. BASIS OF PREPARATION

The financial information, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, is derived from the full Group consolidated financial statements for the 52 weeks to 26 February 2011 and does not constitute full accounts within the meaning of Section 435 (1) and (2) of the Companies Act 2006. The Group's Annual Report and Financial Statements 2011, on which the auditors have given an unqualified audit report and which does not contain a statement under Section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies in due course, and made available to shareholders in June 2011.

The Group consolidated financial statements are presented in sterling, rounded to the nearest hundred thousand. They are prepared under the historic cost basis modified for the revaluation of certain financial instruments, share-based payments and post-employment benefits. The principal accounting policies applied in the preparation of these consolidated financial statements are consistent with those described in the Annual Report and Financial Statements 2010. These policies have been consistently applied to all the periods presented.

2. NON-GAAP FINANCIAL INFORMATION

Exceptional items

Items which are both material and non-recurring are presented as exceptional items within their relevant income statement line. The separate reporting of exceptional items helps provide a better indication of underlying performance of the Group. Examples of items which may be recorded as exceptional items are impairment charges, restructuring costs and the profits/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 under IFRS. Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment and onerous lease charges or releases, exceptional items, costs related to demerger incentive schemes, financing fair value remeasurements, financing impact on retirement benefit obligations, the discount unwind on non-benchmark items and taxation. This measure is considered useful in that it provides investors with an alternative means to evaluate the underlying performance of the Group's operations.

Total net debt

The Group uses the term total net debt which is considered useful in that it highlights the Group's aggregate net indebtedness to banks and other financial institutions together with debt-like liabilities, notably operating leases.

Notes

For the 52 weeks ended 26 February 2011

(a) Included within unwinding of discounts is a £6.1m charge (2010: £6.7m) relating to the discount unwind on exceptional onerous lease provisions.

Notes

For the 52 weeks ended 26 February 2011

Notes

For the 52 weeks ended 26 February 2011

The onerous lease provision covers potential liabilities for onerous lease contracts for stores that have either closed, or where projected future trading revenue is insufficient to cover the lower of exit cost or value-in-use. Where the value-in-use calculation is lower, the provision is based on the present value of expected future cash flows relating to rents, rates and other property costs to the end of the lease terms net of expected trading or sublet income. The majority of this provision is expected to be utilised over the period to 2018.

Provision is made at the year-end for the estimated costs of claims incurred by the Group's captive insurance company but not settled at the balance sheet date, including the costs of claims that have arisen but have not yet been reported to the Group. The estimated cost of claims includes expenses to be incurred in settling claims. The majority of this provision is expected to be utilised over the period to 2015.

A number of organisational changes have been undertaken in prior years to improve the operational efficiency of the Group and drive further cost productivity. Actions taken included a streamlining of head office functions across all parts of the Group, restructuring of store-based staff and a consolidation of home delivery warehouses. The majority of this remaining provision is expected to be utilised within one year.

Other provisions include legal claims and other sundry provisions. The majority of this provision is expected to be utilised within one year.

Notes

For the 52 weeks ended 26 February 2011

7. NOTES TO THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Capital redemption reserveThe capital redemption reserve arose as a result of the share buy-back programme that was undertaken during the year. 64,000,000 ordinary shares of 10p each were repurchased and cancelled.

Merger reserve

The merger reserve arose on the demerger of the Group from GUS plc during 2006.

Other reserves

Other reserves principally consist of shares held in trust, the hedging reserve and the translation reserve.

The net debit arising on the movement in own shares of £3.1m (2010: credit of £2.9m) represents the purchase, and subsequent utilisation or sale, of shares for the purpose of satisfying obligations arising from Home Retail Group plc share-based compensation schemes. Shares in Home Retail Group plc are held in the following trusts which have been established since demerger:

Home Retail Group Employee Share Trust (EST)

The EST provides for the issue of shares to Group employees under share option and share grant schemes (with the exception of the Share Incentive Plan). At 26 February 2011, the EST held 14,730,719 (2010: 13,899,537) shares with a market value of £32.7m (2010: £35.4m). The shares in the EST are held within equity of the Group at a cost of £23.5m (2010: £20.0m). During the year 3,000,000 (2010: 3,112,268) shares were acquired for a cost of £6.7m (2010: £9.4m). 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 Group employees under the Share Incentive Plan. At 26 February 2011, the Trust held 910,832 (2010: 1,007,291) shares with a market value of £2.0m (2010: £2.6m). These shares are held within equity of the Group at a cost of £3.8m (2010: £4.2m). No additional shares were purchased during the year.

Notes

For the 52 weeks ended 26 February 2011

9. RELATED PARTIES

The Group's related parties are its joint ventures and associates, key management personnel and the Home Retail Group Pension Scheme.

The Group lent £0.4m (2010: £5.1m) to and invested £nil (2010: £0.5m) in a joint venture, Home Retail Group Personal Finance Limited. This joint venture was disposed of on 13 October 2010, and as a result a loan of £15.6m, which had previously been fully impaired, was waived. At 26 February 2011, the Group was owed £nil (2010: principal of £15.2m, valued at £0.7m after impairment) by Home Retail Group Personal Finance Limited. During the year, impairment totalling £1.1m (2010: £5.1m) was charged against this loan.

During the year, there were no material transactions or balances between the Group and its key management personnel or members of their close families.

During the year, the Group has paid contributions totalling £28.0m (2010: £31.3m) to the Home Retail Group Pension Scheme including £12.0m (2010: £12.0m) as part of the deficit recovery plan agreed with the scheme trustees following the completion of the 31 March 2009 actuarial valuation.

Statement of directors' responsibilities

The directors are responsible for preparing the annual report and the Group financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Group financial statements are required by law to give a true and fair view of the state of affairs and of the profit or loss of the Group for that year.

The preliminary results for the 52 weeks ended 26 February 2011 have been extracted from the annual report and the Group financial statements.

In preparing the Group financial statements, the directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reasonable and prudent;

·; state that the Group financial statements comply with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and

·; prepare the Group financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

A list of current directors of Home Retail Group plc is maintained on the Home Retail Group website, www.homeretailgroup.com.

By order of the Board

Terry Duddy Richard Ashton

Chief Executive Finance Director

20 April 2011 20 April 2011