Interim Results

28th Sep 2005 07:04

Kesa Electricals plc28 September 2005 28.09.05 Interim Results for the Six Months ended 31 July 2005 compiled under IFRS Financial Highlights •Group turnover increased by 4.2% to £1,736.6 million during the period (2.6% in constant currency1). •Group retail profit(2) decreased by 27.3% to £36.3 million (down 28.7% in constant currency). •Profit before tax decreased by 38.1% to £23.1 million. •Capital expenditure increased by 37.6% to £50.5 million. •Basic adjusted earnings per share3 decreased 35.3% to 3.3 pence per share. Basic earnings per share decreased from 4.7 pence to 2.9 pence. •Strong operating cashflow of £58.6 million. •Interim dividend increased by 7.3% to 2.95 pence per share. 1 Constant exchange rate of £1 = Euro 1.4618 2 Retail profit equates to the total operating profit before the effects of theDemerger Award Plan charge, losses on disposal of property, plant and equipmentand the share of joint ventures, associate interest and taxation. 3 Before the effects of the Demerger Award Plan charge and the losses ondisposal of property, plant and equipment Jean-Noel Labroue, Chief Executive, commented: "As we predicted, the retail environment across our core markets has continuedto be difficult, particularly in the UK. Our turnover growth has been driven bythe strong demand for new technology products while sales of white goodsremained weak. "With the key peak trading season still to come, it is too early to judge theoutlook for the full year. Trading in the first weeks of our third quarter hascontinued the overall trend of the first half. As we do not anticipate anychanges to these conditions in the immediate future, we will maintain our focusand commitment to cost control and margin management to help minimise the impacton the group's profitability while continuing to invest for future growth."David Newlands, Chairman, commented: "Despite the very tough conditions across Europe, we continue to demonstrate thestrong cash generative nature of the group which allows us to invest in ourexisting businesses and exploit opportunities in new markets to secure ourfuture growth. In addition, the strength of our cashflow has enabled us toincrease the interim dividend by 7.3 per cent, to 2.95 pence per share." ENDS Enquiries Press: Kesa Electricals plcAnnabel Donaldson +44 (0) 20 7269 1400Guy Lavaud +33 (0) 1 43 18 52 00 FinsburyAbigail Irving-Bell +44 (0) 20 7251 3801 Euro RSCGLaurent Dondey +33 (0) 1 58 47 95 17 Analysts:Kesa Electricals plcSimon Herrick +44 (0) 20 7269 1400Simon Ward +44 (0) 20 7269 1400 There will be a presentation today to analysts and institutions at 09.30am atUBS, 1, Finsbury Avenue, London EC2. This announcement is available on the KESA Electricals website:www.kesaelectricals.com. A live webcast of the presentation to analysts andinstitutions will also be available on the site at 09.30am, and recorded foraccess later in the day. 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 results to differ materiallyfrom any expected future results in forward looking statements KESA Electricals is a specialist electrical retailer. It employs more than28,000 people and trades in nine countries and has an ongoing turnover ofapproximately £4 billion. KESA Electricals is a member of the FTSE 250. Itsordinary shares are listed with the UK Listing Authority and trade on the marketfor listed securities on the London Stock Exchange under the symbol KESA.L. Itis also listed on the Premier Marche of the Paris Stock Exchange. For furtherinformation, please visit the company's website, as above. GROUP OVERVIEW Results as reported in sterling Turnover Turnover Change Retail Retail Change for for profit(1) profit(1) 6 months 6 months for for ended ended 6 months 6 months 31 July 31 July ended ended 2005 2004 31 July 31 July 2005 2004 £m £m £m £mDarty 689.8 653.4 5.6% 35.8 37.6 (4.8)%Comet 623.7 637.7 (2.2)% (3.3) 4.4BUT 259.8 231.7 12.1% 16.1 15.8 1.9%Other* 163.3 144.5 13.0% (5.9) (1.9)Central - - - (6.4) (6.0) (6.7)%Total 1,736.6 1,667.3 4.2% 36.3 49.9 (27.3)%*Includes BCC,New Vanden Borre, Datart, Darty Italy and Darty Switzerland. Results as reported in local currency Turnover Turnover Change Retail Retail Change for for profit(1) profit(1) 6 months 6 months for for ended ended 6 months 6 months 31 July 31 July ended ended 2005 2004 31 July 31 July 2005 2004 m m m mDarty €1,008.3 €977.5 3.2% €52.5 €56.2 (6.6)%Comet £623.7 £637.7 (2.2)% £(3.3) £4.4 -BUT €379.5 €346.6 9.5% €23.5 €23.6 (0.4)%Other* €238.7 €216.0 10.5% •(8.7) •(2.8) -Central - - - •(9.4) •(8.9) (5.6)%Total - - 2.6% - - (28.7)% Retail profit equates to the total operating profit before the effects of theDemerger Award Plan charge, losses on disposal of property, plant and equipmentand the share of joint ventures, associate interest and taxation Financial Highlights Group turnover was £1736.6 million, up 4.2 per cent on last year (2.6 per centin constant currency), down 0.8 per cent on a like for like basis. Group retail profit was £36.3 million, down 27.3 per cent on last year (down28.7 per cent in constant currency), principally as a result of tough trading atComet and the start up losses for Italy and Switzerland. Profit on ordinary activities before interest and taxation was £32.9 million,down 27.4 per cent on last year. The net interest charge was £9.8 million (£8.0 million for the same period lastyear), producing profit before tax and after interest of £23.1 million. The netinterest charge reflects a lower cash interest cost as a result of reduced netdebt, but also includes a one off £2 million write-off of the remainingunamortized fees originally capitalised on the €1,000 million demerger facility.The demerger debt facility was replaced during the period with a significantlyless expensive five-year €800 million fully revolving credit facility. Inspite of the decrease in profit before tax, operating cash flow remainedstrong at £58.6 million reflecting significant improvements in stock management. Net capital expenditure increased to £50.5 million from £36.7 million for theprevious year reflecting our continued investment for future growth. In line with the seasonal profile, net debt was £286.4 million compared to£210.7 million at the year-end and £312.2 million at the end of the first half2004. Net assets have grown from £237.9 million at 31 July 2004 to £274.9million at 31 July 2005. Basic adjusted earnings per share, before the demerger award plan charge andlosses on disposal of property, plant and equipment, decreased 35.3 per cent to3.3 pence per share. Basic and diluted earnings per share were 2.9 pence, downfrom 4.7 pence. The Board has declared an interim dividend of 2.95 pence per share, an increaseof 7.3 per cent. Trading Highlights Sales at all the Group's electrical businesses continued to benefit from thestrong demand for digital products driven by price deflation The higher marginwhite goods market has continued to be weak throughout the period, particularlyin the UK. The combined effect on the product mix has had a negative impact onmargin. Darty continued to grow its overall market share, with particular gains indigital products and flat screen televisions. Like for like sales increased by1.6 per cent despite strong comparatives from last year's Euro 2004. Comet quickly reacted to the UK retail market downturn and put in place aneffective action plan to reduce costs and manage margins to limit the impact onprofit.BUT's stores have seen an improvement in both furniture and electricals sales.Product margin has been adversely affected by the impact of higher sales ofdigital products and the continued growth of BUT's in-house wholesale business. Total sales at the Other businesses, BCC, Vanden Borre and Datart, havecontinued to grow. The overall result has been affected by the start up lossesin Italy and Switzerland. Outlook The December to January peak trading season is still to come and it is too earlyto predict the outcome of the full year. Trading across our core markets since the end of July has not improved. In viewof the continuing decline in consumer confidence across all our markets, we donot anticipate any changes to these conditions in the immediate future. We willmaintain our strong focus and commitment on cost control and margin management. DARTY Results Results Change Results Results Change for for for for 6 months 6 months 6 months 6 months ended ended ended ended 31 July 31 July 31 July 2005 31 July 2005 2004 2004 •m £m £m •mTurnover 689.8 653.4 5.6% 1,008.3 977.5 3.2%Retail profit 35.8 37.6 (4.8)% 52.5 56.2 (6.6)% No of stores 205 200Sales space 265.3 252.9 4.9%(000s sq m) Darty's total turnover rose by 3.2 per cent in local currency on the previousyear, up 1.6 per cent on a like for like basis. Sales were driven by growth inthe new technologies such as MP3 players, laptop computers, flat-screentelevisions and related accessories. In a French electricals market that is estimated to have seen moderate growth,Darty grew its overall market share with particular gains in digital productsand flat screen televisions. The efficiency plan continued with the early completion of the warehouserationalisation and the implementation of the national after sales call centres.However, the impact of product deflation and the pressure on the margin led to adecline in retail profitability. During the first half, Darty piloted new revenue generating services for homeinstallation and customer training for new technology products (WIFI, broadbandinternet etc). The investment in the ongoing store modernisation programme continued. In thefirst half, Darty completed three new store openings, three extensions/refurbishments, three relocations and two closures. For the second half, threenew stores, three extensions/refurbishments, two relocations and one closure areplanned, which will bring the total of Darty stores in the new format to 41 atthe year end. COMET Results Results Change for for 6 months 6 months ended ended 31 July 2005 31 July 2004 £m £mTurnover 623.7 637.7 (2.2)%Retail profit (3.3) 4.4 No of stores 250 247Sales space 258.0 243.9 5.8%(000s sq m) The UK electricals market was estimated to be flat over the period, with aparticular decline in white goods. Comet continued to see strong growth in multimedia, flat-screen televisions,accessories and digital portable audio and lost a small share at the commodityend of the market. Against this background, total turnover at Comet fell by 2.2 per cent comparedto the same period last year with like-for-like turnover decreasing by 4.8 percent. Comet took swift actions to reduce costs and manage margins and, as anticipated,reported a small loss of £(3.3) million in the first half. Developments in Comet's re-positioning continued. The National Customer SupportCentre at Clevedon, which handles all calls relating to home delivery and aftersales service and another integrated Home Delivery and After Sales Serviceplatform, at Wolverhampton, were both opened on schedule. As planned, theRe-branding programme was launched at the end of August. Comet's store modernisation programme continued with the completion of fourtrading mezzanine floor extensions, three store relocations and onerefurbishment In the second half, Comet will open one new store and complete three relocationsand one refurbishment while closing one small store. BUT Results Results Change Results Results Change for for for for 6 months 6 months 6 months 6 months ended ended ended ended 31 July 31 July 31 July 31 July 2004 2005 2004 2005 •m £m £m •mTurnover 259.8 231.7 12.1% 379.5 346.6 9.5%Retail profit 16.1 15.8 1.9% 23.5 23.6 (0.4)% No of stores 105 102Sales space 338.3 316.8 6.8%(000s sq m) BUT grew its total turnover by 9.5 per cent in local currency, with its in-housewholesale business growing by 17.8 per cent and store turnover growing by 7.9per cent, (up 2.2 per cent on a like for like basis). BUT saw positive like forlike sales for both electricals and furniture and gained market share in allproduct categories. The action plan put in place at the start of the year is delivering encouragingresults. Customers are responding well to the contemporary furniture offer andthe re-positioned electricals ranges. In addition, the new store relay isproving a success and the initiatives for better financial control andprocedures are progressing well. BUT's overall profitability was affected by the substantial growth in itsin-house wholesale business and the impact on the margin mix of there-positioning of its electricals offer. During the first half, BUT opened one new store and refurbished three stores. Inthe second half BUT intends to open one new store, refurbish five stores andrelocate one store. OTHER BUSINESSES Results Results Change Results Results Change for for for for 6 months 6 months 6 months 6 months ended ended ended ended 31 July 31 July 31 July 31 July 2005 2004 2005 2004 £m £m •m •mTurnover 163.3 144.5 13.0% 238.7 216.0 10.5%Retail profit (5.9) (1.9) (8.7) (2.8) No of stores 118 108Sales space 133.9 117.2 14.2%(000s sq m) Total turnover for BCC, Vanden Borre, Datart and Darty Italy grew 10.5 per centin local currency. Like-for-like turnover was up by 1.6 per cent helped by goodperformances at both Vanden Borre and Datart. Market conditions continued to be challenging, particularly in Holland, but allthree existing businesses made significant market share gains. In total BCC, Vanden Borre and Datart opened three stores, completed tworelocations and three refurbishments in the period. Retail profit was down by €5.9 million, including €6.4 million of start uplosses for Italy and Switzerland. The Group's new developments progressed well and on schedule. Five stores arenow open in Italy with encouraging early trading and positive customer feedback.The first store in Switzerland opened at the beginning of August, and as planneda further two stores will open by the year end. OPERATING EXCEPTIONAL ITEMS Operating exceptional costs before taxation were £1.8 million relating to theDemerger Award Plan. CASHFLOW Inspite of a decrease in profit, operating cash flow remained strong at £58.6million reflecting a significant improvement in stock management. Net debt atthe end of the period was £286.4 million. CAPITAL EXPENDITURE Net capital expenditure was £50.5 million (£36.7 million for the previous year),which principally included investment in new stores, refurbishments andwarehousing facilities as well as the expansion into Italy and Switzerland. TAXATION The tax charge of £7.6 million represents an effective tax rate of 35.9 per cent(35.9 per cent in the previous full year). DIVIDEND The Directors have declared an interim dividend of 2.95 pence, an increase of7.3 per cent. The ex dividend date will be 9 November 2005, the record date 11November 2005 and payment date 9 December 2005. Group income statement (unaudited)Six months ended 31 July 2005---- ---- ------------ -------------------- ------ --------- --------- --------- --------- Note Six Six Year Six months Months ended months ended ended 31 ended 31 July 31 July January 31 July 2005 2004 2005 2005 £m £m £m •m (i)---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Revenue 2 1,736.6 1,667.3 3,959.1 2,538.6Group Operating 29.1 40.9 181.7 42.5ProfitShare of post tax profit in joint venture and associates 3.8 4.4 9.8 5.6---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Total Operating 2 32.9 45.3 191.5 48.1Profit---- ---- ------------ -------------------- ------- --------- --------- --------- --------- Analysed as:Retail profit (ii) 2 36.3 49.9 199.8 52.9Share of joint venture and associate interest and taxation (1.1) (1.1) (2.6) (1.6)Demerger award plan charge (1.8) (3.3) (4.8) (2.6)Loss on disposal of property, plant and (0.5) (0.2) (0.9) (0.7)equipment ---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Total Operating 2 32.9 45.3 191.5 48.1Profit---- ---- ------------ -------------------- ------- --------- --------- --------- --------- Interest payable and similar charges (14.5) (12.5) (23.5) (21.2)Interest receivable 4.7 4.5 9.3 6.9---------------- -------------------- ------- --------- --------- --------- ---------Profit before tax 23.1 37.3 177.3 33.8Taxation 3 (7.6) (12.7) (61.9) (11.1)---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Profit for the financial period from continuing operations 15.5 24.6 115.4 22.7 --------- --------- --------- ---------Profit attributable to: - Equity shareholders 16.4 24.9 113.9 23.9- Minority interests (0.9) (0.3) 1.5 (1.2) --------- --------- --------- --------- Earnings per share - basic and diluted (pence) 5 2.93 4.65 21.79 4.29--------------------------------- ------- --------- --------- --------- --------- Group statement of recognised income and expense (unaudited)Six months ended 31 July 2005---- ---- ------------ -------------------- ------ --------- --------- --------- --------- Six Six Year Six months months ended months ended ended 31 ended 31 July 31 July January 31 July 2005 2004 2005 2005 £m £m £m •m (i)---------------------------------- ------ --------- --------- --------- ---------Exchange differences - (3.7) (0.4) -Actuarial (losses)/gains on retirement benefit (8.1) 2.9 (17.8) (11.8) obligationsTax on actuarial losses/(gains) on retirement 2.5 (0.9) 5.6 3.7 benefit obligationsFair value gains on available for sale assets 3.9 - - 5.7Tax on fair value gains on available for sale (0.6) - - (0.9)assetsCash flow hedges (1.1) - - (1.6)Tax on cash flow 0.4 - - 0.6hedges---------------------------------- ------ --------- --------- --------- ---------Net loss recognised directly in equity (3.0) (1.7) (12.6) (4.3)---------------------------------- ------ --------- --------- --------- ---------Profit for the period 15.5 24.6 115.4 22.7---------------------------------- ------ --------- --------- --------- ---------Total recognised income for the period 12.5 22.9 102.8 18.4---------------------------------- ------ --------- --------- --------- --------- Attributable to:- Equity shareholders 13.4 23.2 101.3 19.6- Minority interests (0.9) (0.3) 1.5 (1.2)---- ---- ------------ -------------------- ------ --------- --------- --------- --------- 12.5 22.9 102.8 18.4---- ---- ------------ -------------------- ------ --------- --------- --------- --------- Notes (i) Income statement and Statement of recognised income and expense informationin euros is provided for illustrative purposes only and is translated at theaverage exchange rate of €1.4618 for £1. (ii) Retail profit represents total operating profit before the demerger awardplan charge, losses on disposal of property, plant and equipment and the shareof joint venture and associate interest and taxation. Group balance sheet (unaudited)As at 31 July 2005---- ---- ------------ -------------------- ------ --------- --------- --------- --------- Note 31 July 31 July 31 January 31 July 2005 2004 2005 2005 £m £m £m •m (i)---- ---- ------------ -------------------- ------- --------- --------- --------- ---------AssetsNon-current assetsIntangible assets 199.1 189.5 199.5 288.7Property, plant and equipment 533.3 490.0 524.3 773.4Available for sale investments 24.6 5.2 7.0 35.7Investments in joint venture and associates 37.8 31.3 37.1 54.8Other receivables 9.8 9.8 11.2 14.2Deferred tax assets 35.2 23.2 30.8 51.0---- ---- ------------ -------------------- ------- --------- --------- --------- --------- 839.8 749.0 809.9 1,217.8---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Current assetsInventory 565.5 549.7 601.5 820.1Trade and other receivables 219.2 220.0 242.5 317.9Income tax 16.2 16.0 - 23.5Investments 89.9 94.1 95.6 130.3Derivative financial instruments 1.5 - - 2.2Cash and cash equivalents 113.8 101.7 184.9 165.0---- ---- ------------ -------------------- ------- --------- --------- --------- --------- 1,006.1 981.5 1,124.5 1,459.0---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Total assets 1,845.9 1,730.5 1,934.4 2,676.8--------------- -------------------- ------- --------- --------- --------- ---------LiabilitiesCurrent liabilitiesShort-term (3.0) (43.2) (45.1) (4.4)borrowingsIncome tax - - (11.9) -liabilitiesTrade and other payables (701.7) (658.9) (764.1) (1,017.6)Derivative financial instruments (1.8) - - (2.6)---- ---- ------------ -------------------- ------- --------- --------- --------- --------- (706.5) (702.1) (821.1) (1,024.6)---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Non-currentliabilitiesLong-term borrowings (482.5) (460.4) (442.0) (699.7)Other payables (232.5) (221.1) (237.8) (337.2)Deferred tax (27.1) (28.5) (25.0) (39.3)liabilitiesPost-employment benefits (115.6) (80.0) (103.7) (167.6)Derivative financial instruments (6.3) - - (9.1)Provisions (0.5) (0.5) (0.6) (0.7)---- ---- ------------ -------------------- ------- --------- --------- --------- --------- (864.5) (790.5) (809.1) (1,253.6)---- ---- ------------ -------------------- ------- --------- --------- --------- ---------Total liabilities (1,571.0) (1,492.6) (1,630.2) (2,278.2)--------------- -------------------- ------- --------- --------- --------- ---------Net assets 274.9 237.9 304.2 398.6--------------- -------------------- ------- --------- --------- --------- --------- EquityShare capital 6 132.4 132.4 132.4 192.0Other reserves 12 752.2 738.1 741.4 1,090.8Retained earnings 12 (619.9) (641.9) (581.6) (899.0)--------------------------------- ------- --------- --------- --------- ---------Total equity shareholders' funds 7 264.7 228.6 292.2 383.9--------------------------------- ------- --------- --------- --------- ---------Minority interests 10.2 9.3 12.0 14.8--------------- -------------------- ------- --------- --------- --------- ---------Total equity 274.9 237.9 304.2 398.6--------------- -------------------- ------- --------- --------- --------- --------- Note(i) Balance sheet information in euros is provided for illustrative purposesonly and is translated at the closing exchange rate of €1.4502 for £1. Approved by the the Board Jean-Noel Labroue Simon HerrickDirector Director Group cash flow statement (unaudited)Six months ended 31 July 2005---- ---- ------------ -------------------- ------ --------- --------- --------- --------- Note 31 July 31 July 31 January 31 July 2005 2004 2005 2005 £m £m £m •m (i)--------------------------------- ------- --------- --------- --------- ---------Cash flows from operating activitiesCash generated from operations 8 58.6 59.6 268.4 85.7Interest received 4.6 4.0 9.0 6.7Interest paid (9.9) (10.6) (22.2) (14.5)Tax paid (34.6) (33.9) (57.0) (50.6)--------------------------------- ------- --------- --------- --------- ---------Net cash from operating activities 18.7 19.1 198.2 27.3--------------------------------- ------- --------- --------- --------- --------- Cash flows from investing activitiesAcquisition of subsidiaries (net of cash - - (2.8) -acquired)Proceeds from sale of property, plant and 3.0 5.6 6.5 4.4equipmentPurchase of property, plant and equipment (51.8) (42.2) (93.2) (75.7)Proceeds from sale of available for sale 0.4 - - 0.6investmentsPurchase of intangible assets (1.8) (0.1) (0.7) (2.6)Proceeds from sale of intangible assets 0.1 - - 0.1Cash inflow/(outflow) from other short term 5.7 (4.9) (2.8) 8.3deposits and investmentsDividends received from joint ventures 1.0 4.5 8.6 1.5--------------------------------- ------- --------- --------- --------- ---------Net cash used in investing activities (43.4) (37.1) (84.4) (63.4)--------------------------------- ------- --------- --------- --------- --------- Cash flows from financing activitiesFinance lease principal payments (0.5) (1.1) (1.4) (0.7)Proceeds from long term borrowings 472.6 - - 690.8Repayment of long term borrowings (471.4) (2.8) (45.9) (689.1)Dividends paid to shareholders (43.7) (39.8) (54.4) (63.9)Dividends paid to minority interests (0.9) (0.6) - (1.3)--------------------------------- ------- --------- --------- --------- ---------Net cash used in financing activities (43.9) (44.3) (101.7) (64.2)--------------------------------- ------- --------- --------- --------- ----------------------------------------------- --------- --------- --------- ---------Net cash (outflow)/inflow from cash and cash (68.6) (62.3) 12.1 (100.3)equivalents --------- --------- --------- ----------------------------------------------- Transfers and other non-cash items - 21.1 21.1 -Effects of exchange rate changes (2.5) (3.4) 5.4 (3.7)-------------------------------------- --------- --------- --------- ---------Net (decrease)/increase in cash and cash equivalents (71.1) (44.6) 38.6 (104.0)-------------------------------------- --------- --------- --------- --------- Cash and cash equivalents at start of period 11 184.9 146.3 146.3 270.3--------------------------------- ------- -------- -------- -------- --------Cash and cash equivalents at end of period 11 113.8 101.7 184.9 166.3================================= ======= ======== ======== ======== ======== Note(i) Cash flow information in euros is provided for illustrative purposes onlyand is translated at the average exchange rate of €1.4618 for £1. Notes to the interim reportSix months ended 31 July 2005 1. Accounting policies Basis of preparation The financial information set out on pages 1 to 24 comprises the interimconsolidated financial statements of Kesa Electricals Plc for the six months to31 July 2005 prepared in accordance with the accounting policies set out below. From 1 February 2005, Kesa Electricals Plc is required to prepare consolidatedfinancial statements in accordance with accounting standards adopted for use inthe European Union (EU). Kesa Electricals Plc previously reported consolidatedfinancial statements in accordance with UK GAAP until 31 January 2005. Theadjustments required to restate previously reported UK GAAP comparativefinancial information on to an International Financial Reporting Standards(IFRS) basis are set out in notes 13 to 17 of the interim consolidated financialstatements. At this interim stage, the full impact of reporting under IFRS as it will beapplied and reported in Kesa Electricals Plc's first IFRS financial statementsfor the year to 31 January 2006 may be subject to change for the followingreasons: a) As permitted, Kesa Electricals Plc has adopted in these interim consolidatedfinancial statements the amendment to IAS 19 "Employee benefits" published inDecember 2004. This accounting standard has not yet been formally endorsed bythe EU, but is expected to be so by the end of 2005. b) Standards currently in issue and adopted by the EU are subject tointerpretation issued from time to time by the International FinancialReporting Interpretations Committee (IFRIC). c) Further standards may be issued by the International Accounting StandardsBoard (IASB) that will be adopted by the EU for financial years beginning onor after 1 February 2005. d) Practice is continuing to evolve. There is not yet an overall body ofestablished IFRS practice to draw on in forming opinions regardinginterpretation and application. The rules for first time adoption of IFRS are set out in IFRS 1 "First-timeAdoption of International Financial Reporting Standards." IFRS 1 requires theuse of the same accounting policies in the IFRS transition balance sheet and forall periods presented thereafter. The accounting policies must comply with allIFRS's effective at the reporting date and for the first financial reportingunder IFRS. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Theseinterim financial statements have been prepared on the basis of taking thefollowing exemptions: a) Business combinations prior to 1 February 2004 have not been restated tocomply with IFRS 3 "Business Combinations." b) All cumulative actuarial gains and losses with respect to employee benefitshave been recognised in shareholders' equity at 1 February 2004. c) Cumulative translation differences on foreign operations are deemed to bezero at 1 February 2004. Any gains and losses recognised in the consolidatedincome statement on subsequent disposal of foreign operations will thereforeexclude translation differences arising prior to the transition date. d) IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39"Financial Instruments: Recognition and Measurement" have been adopted from 1February 2005, with no restatement of comparative information. The interim report is unaudited and does not constitute statutory financialstatements within the meaning of Section 240 of the Companies Act 1985. Thecomparative figures for the year ended 31 January 2005 are derived from thestatutory accounts filed with the Registrar of Companies and have been restatedfor the adoption of IFRS. Use of adjusted measures Kesa Electricals Plc believes that retail profit (representing total operatingprofit before the demerger award plan charge, losses on disposal of property,plant and equipment and the share of joint venture and associate interest andtaxation) and adjusted earnings per share provides additional useful informationon underlying trends to shareholders. These measures are used by the Group forinternal performance analysis and incentive compensation arrangements foremployees. The term retail profit is not defined by IFRS and may therefore notbe comparable with similarly titled profit measures reported by other companies.It is not intended to be a substitute for, or superior to, GAAP measurements ofprofit. Kesa Electricals plc believes that the separate presentation of thedemerger award plan charge and losses on disposal of property, plant andequipment, and the share of joint venture and associate interest and taxationwithin their relevant consolidated income statement category, helps to provide abetter indication of the Group's underlying business performance. The principal accounting policies applied in the preparation of these interimconsolidated financial statements are set out in note 18. These policies havebeen consistently applied to all the years presented with the exception of IAS32 and IAS 39 which have been adopted from 1 February 2005. Notes to the interim report (continued) 2. Segmental analysisSix months ended 31 July 2005---- ---- -------- --------------- -------------- -------- ---- -------- ---- -------- ---- ------- France United Other Central Group Kingdom costs Darty BUT Comet £m £m £m £m £m £m------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Revenue 689.8 259.8 623.7 163.3 - 1,736.6 Retail profit/ 35.8 16.1 (3.3) (5.9) (6.4) 36.3(loss)Share of joint venture and associate interest and taxation (0.2) (0.9) - - - (1.1)Demerger award plan charge (0.7) (0.1) (0.3) - (0.7) (1.8)(Loss)/profit on disposal ofproperty, plant and equipment (0.1) (0.4) 0.1 (0.1) - (0.5)------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Total operating profit/(loss) 34.8 14.7 (3.5) (6.0) (7.1) 32.9------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Interest payable and similar (14.5)chargesInterest 4.7receivableNet interest (9.8)------------ --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Profit before 23.1tax --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------------------Tax (7.6)------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Profit for the financial period 15.5------------------------- -------- -------- --------- ---- -------- ---- -------- ---- -------- The share of operating profits of joint ventures and associates included within retailprofit for Darty and BUT are £2.4m and £2.5m respectively. Six months ended 31 July 2004 ---- ---- -------- --------------- -------------- -------- ---- -------- ---- -------- ---- ------- France United Other Central Group Kingdom costs Darty BUT Comet £m £m £m £m £m £m------------------------- -------- -------- --------- ---- -------- ---- -------- ---- -------- Revenue 653.4 231.7 637.7 144.5 - 1,667.3 Retail profit/ 37.6 15.8 4.4 (1.9) (6.0) 49.9(loss)Share of joint venture andassociate interest and taxation (0.2) (0.9) - - - (1.1)Demerger award plan charge (1.2) (0.3) (0.6) (0.3) (0.9) (3.3)(Loss)/profit on disposal ofproperty, plant and equipment (0.8) 0.3 0.3 - - (0.2)------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Total operating profit/(loss) 35.4 14.9 4.1 (2.2) (6.9) 45.3------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Interest payable and similar (12.5)chargesInterest 4.5receivableNet interest (8.0)------------ --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Profit before 37.3tax --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------------------Tax (12.7)------ -------- --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Profit for the financial period 24.6------------------------- -------- -------- --------- ---- -------- ---- -------- ---- -------- The share of operating profits of joint ventures and associates included withinretail profit for Darty and BUT are £2.9m and £2.6m respectively. Notes to the interim report (continued) Year ended 31 January 2005 ---- ---- -------- --------------- -------------- -------- ---- -------- ---- -------- ---- ------- France United Other Central Group Kingdom costs Darty BUT Comet £m £m £m £m £m £m------------------------- -------- -------- --------- ---- -------- ---- -------- ---- -------- Revenue 1,536.7 548.6 1,538.1 335.7 - 3,959.1 Retail profit/ 118.8 41.5 48.4 2.6 (11.5) 199.8(loss)Share of joint venture andassociate interest and taxation (0.8) (1.8) - - - (2.6)Demerger award plan charge (1.6) (0.3) (0.9) (0.6) (1.4) (4.8)(Loss)/profit on disposal ofproperty, plant and equipment (1.1) (0.2) 0.4 - - (0.9)------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Total operating profit/(loss) 115.3 39.2 47.9 2.0 (12.9) 191.5------------------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Interest payable and similar (23.5)chargesInterest 9.3receivableNet interest (14.2)------------ --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Profit before 177.3tax --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------------------Tax (61.9)------ -------- --------------- -------- -------- --------- ---- -------- ---- -------- ---- --------Profit for the financial period 115.4------------------------- -------- -------- --------- ---- -------- ---- -------- ---- -------- The share of operating profits of joint ventures and associates included withinretail profit for Darty and BUT are £7.4m and £5.0m respectively. 3a. Taxation---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Six Six Year months months ended ended ended 31 31 July 31 July January 2005 2004 2005 £m £m £m---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------UK Corporation taxCurrent tax on profits in the (6.4) (0.5) 12.9periodAdjustment in respect of prior - - (1.0)periods---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- (6.4) (0.5) 11.9---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Foreign taxCurrent tax on profits for the 11.7 11.0 50.6periodAdjustment in respect of prior - 0.1 0.6periods---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 11.7 11.1 51.2---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Deferred tax 2.3 2.1 (1.2)------------ --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Total taxation 7.6 12.7 61.9------------ --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 3b. Explanation of tax rates ---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Six Six Year months months ended ended ended 31 31 July 31 July January 2005 2004 2005 £m £m £m---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Tax charge per profit and loss (7.6) (12.7) (61.9)accountShare of joint venture and associate (1.1) (1.1) (2.6)taxation -------- -------- -------- ---- -------- ---- -------- ---- --------------------------------Adjusted tax charge (8.7) (13.8) (64.5)------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Profit before tax per profit and loss 23.1 37.3 177.3accountShare of joint venture and associate 1.1 1.1 2.6taxation -------- -------- -------- ---- -------- ---- -------- ---- --------------------------------Adjusted profit before tax 24.2 38.4 179.9------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Effective tax 35.9% 35.9% 35.9%rate ------------------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 4. Equity dividends ---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Six Six Year months months ended ended ended 31 31 July 31 July January 2005 2004 2005 £m £m £m---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Interim - 2004: 2.75p per share - - 14.6Final - 2005: 8.25p per share; 2004 - 7.5p per 43.7 39.8 39.8share---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 43.7 39.8 54.4---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- At 31 July 2005, the 2005 interim dividend had not been approved by the Boardand as such was not included as a liability. Notes to the interim report (continued) 5. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toshareholders by 529.6 million shares (2004: 529.6 million), being the weightedaverage number of Ordinary Shares in issue since demerger. There is no difference between diluted and basic earnings per share.Supplementary adjusted earnings per share figures are presented. These excludethe effects of the Demerger Award Plan charge and losses on disposal ofproperty, plant and equipment. ------------------------- ---------------- -------------------- ------------------------ Six months ended Six months ended Year ended 31 July 2005 31 July 2004 31 January 2005 Earnings Per Earnings Per Earnings Per £m share £m share £m share amount amount amount Pence Pence Pence------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Basic earnings per shareEarnings attributable to ordinary shareholders 15.5 2.93 24.6 4.65 115.4 21.79AdjustmentsDemerger Award Plan charge 1.8 0.34 3.3 0.62 4.8 0.91Loss on disposal of property, plant and equipment 0.5 0.09 0.2 0.04 0.9 0.17Tax effect of adjustments (0.5) (0.09) (1.2) (0.23) (1.6) (0.30)------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Basic - adjusted earnings per share 17.3 3.27 26.9 5.08 119.5 22.57------------------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 6. Called up share capitalAt 31 July 2005, 31 January 2005 and 31 July 2004------------------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Number £m of shares million------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------AuthorisedOrdinary Shares of 25p each 1,000 250.0------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Called up, allotted and fully paidOrdinary Shares of 25p each 529.6 132.4------------------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 7. Reconciliation of movement in equity shareholders' funds---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Note Six Six Year months months ended ended ended 31 31 July 31 July January 2005 2004 2005 £m £m £m---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Profit attributable to shareholders 16.4 24.9 113.9Dividends (43.7) (39.8) (54.4)---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- (27.3) (14.9) 59.5Exchange differences - (3.7) (0.4)Employee share schemes 0.2 (1.0) (0.9)Net fair value gains on available for sale 3.3 - -assetsNet cash flow hedges (0.7) - -Investment in ESOP shares (0.3) - -Net actuarial (loss)/gain on retirement (5.6) 2.0 (12.2)benefit obligationsOpening equity shareholders' funds before adjustment 292.2 246.2 246.2for IAS 39Adjustment for first time adoption of 14 2.9 - -IAS39 ------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Closing equity shareholders' funds 264.7 228.6 292.2------------------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Notes to the interim report (continued) 8. Cash flow from operating activities ---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Six Six Year months months ended ended ended 31 31 July 31 July January 2005 2004 2005 £m £m £m---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- Profit after tax 15.5 24.6 115.4Adjustments for:Tax 8.7 13.8 64.5Depreciation and amortisation 37.9 34.0 69.0Loss on disposal of property, plant and 0.5 0.2 1.7equipmentImpairment of goodwill - - 1.5Interest income (4.7) (4.5) (9.3)Interest expense 14.5 12.5 23.5Share of results of joint ventures before (2.4) (2.5) (5.0)taxationShare of results of associates before (2.5) (3.0) (7.4)taxationChanges in working capital:Decrease/(increase) in inventories 33.4 9.9 (22.3)Decrease in trade and other 23.4 45.0 24.4receivables(Decrease)/increase in payables (65.7) (70.4) 12.4------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Net cash inflow from operating 58.6 59.6 268.4activities -------- -------- -------- ---- -------- ---- -------- ---- -------------------------------- 9a. Reconciliation of net cash flow to movement in net debt - six months ended 31 July 2005---- ---- -------- --------------- -------- -------- -------- ---- --------- ---- --------- --- -------- At Cash Exchange Transfers At 31 July flow differences and 1 2005 £m £m other February £m non-cash 2005 movements £m £m ---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Cash at bank and in hand 53.7 (6.3) (0.6) - 60.6Overdrafts (50.8) 39.8 0.1 - (90.7)Short term deposits and investments 110.9 (102.1) (2.0) - 215.0---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- -------- 113.8 (68.6) (2.5) - 184.9---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Debt falling due within one year (3.0) 41.5 0.6 - (45.1)Debt falling due after one year (482.5) (42.7) 2.2 - (442.0)Finance leases (4.6) 0.5 - (1.0) (4.1)------------ -------------- ------- ------- ---- --------- ---- --------- ---- -------- (490.1) (0.7) 2.8 (1.0) (491.2)---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Other deposits and investments 89.9 (5.7) - - 95.6------------ -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Total net debt (286.4) (75.0) 0.3 (1.0) (210.7)------------ -------------- ------- ------- ------- ---- --------- ---- --------- ---- -------- Notes to the interim report (continued) 9b. Reconciliation of net cash flow to movement in net debt - year ended 31 January 2005---- ---- -------- --------------- -------- -------- -------- ---- --------- ---- --------- --- -------- At Cash Exchange Transfers At 31 January flow differences and 1 2005 £m £m other February £m non-cash 2004 movements £m £m ---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- -------- Cash at bank and in hand 60.6 (3.2) 1.0 - 62.8Overdrafts (90.7) (11.1) (0.2) 21.1 (100.5)Short term deposits and investments 215.0 26.4 4.6 - 184.0---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- -------- 184.9 12.1 5.4 21.1 146.3---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Debt falling due within one year (45.1) 1.9 (0.8) (21.1) (25.1)Debt falling due after one year (442.0) 44.0 (5.7) - (480.3)Finance leases (4.1) 1.4 - (0.3) (5.2)------------ -------------- ------- ------- ---- --------- ---- --------- ---- -------- (491.2) 47.3 (6.5) (21.4) (510.6)---- ---- -------- -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Other deposits and investments 95.6 2.8 2.0 - 90.8------------ -------------- ------- ------- ------- ---- --------- ---- --------- ---- --------Total net debt (210.7) 62.2 0.9 (0.3) (273.5)------------ -------------- ------- ------- ------- ---- --------- ---- --------- ---- -------- 9c. Reconciliation of net cash flow to movement in net debt - six months ended 31 July 2004 ---- --- -------- -------------- ------- ------- ------- --- -------- --- --------- --- ------- At Cash Exchange Transfers At 31 July flow differences and 1 2004 £m £m other February £m non-cash 2004 movements £m £m ---- --- -------- -------------- ------- ------- ------- --- -------- --- --------- --- ------- Cash at bank and in hand 41.7 (18.8) (2.3) - 62.8Overdrafts (50.7) 27.9 0.8 21.1 (100.5)Short term deposits and 110.7 (71.4) (1.9) - 184.0investments---- --- -------- -------------- ------- ------- ------- --- -------- --- --------- --- ------- 101.7 (62.3) (3.4) 21.1 146.3---- --- -------- -------------- ------- ------- ------- --- -------- --- --------- --- -------Debt falling due within one year (43.2) 1.4 1.6 (21.1) (25.1)Debt falling due after one year (460.4) 1.4 18.5 - (480.3) Finance leases (4.4) 1.1 - (0.3) (5.2)----------- -------------- ------- ------- ------- --- -------- --- --------- --- ------- (508.0) 3.9 20.1 (21.4) (510.6)----------- -------------- ------- ------- ------- --- -------- --- --------- --- -------Other deposits and investments 94.1 4.9 (1.6) - 90.8----------- -------------- ------- ------- ------- --- -------- --- --------- --- -------Total net debt (312.2) (53.5) 15.1 (0.3) (273.5)----------- -------------- ------- ------- ------- --- -------- --- --------- --- ------- Short term deposits and investments comprise deposits with banks which maturewithin three months of the date of inception. Other deposits and investments comprise deposits with banks which mature aftermore than three months from the date of inception. Notes to the interim report (continued) 10. Reconciliation of cash flow to movement in net debt------------------------------- -------- -------- ---- -------- ---- -------- ---- ------- At At At 31 July 31 July 31 January 2005 2004 2005 £m £m £m------------------------------- -------- -------- ---- -------- ---- -------- ---- -------Net cash (outflow)/inflow from cash and cash (68.6) (62.3) 12.1equivalentsCash (inflow)/outflow from increase in debt and lease (0.7) 3.9 47.3financingCash (outflow)/inflow from decrease in other short term (5.7) 4.9 2.8deposits and investments------------------------------- -------- -------- ---- -------- ---- -------- ---- -------Change in net debt resulting from cash flows (75.0) (53.5) 62.2------------------------------- -------- -------- ---- -------- ---- -------- ---- ------- Translation differences 0.3 15.1 0.9New finance leases (1.0) (0.3) (0.3)------------------------------- -------- -------- ---- -------- ---- -------- ---- -------Movement in net debt in the period (75.7) (38.7) 62.8------------------------------- -------- -------- ---- -------- ---- -------- ---- ------- Net debt at start of period (210.7) (273.5) (273.5) ------------------------------- -------- -------- ---- -------- ---- -------- ---- -------Net debt at end of period (286.4) (312.2) (210.7)------------------------------- -------- -------- ---- -------- ---- -------- ---- ------- 11. Cash and cash equivalents------ -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- At At At At 31 July 31 July 31 January 31 January 2005 2004 2005 2004 £m £m £m £m ------ -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Cash and cash equivalentsCash at bank and in hand 53.7 41.7 60.6 62.8Bank overdrafts (50.8) (50.7) (90.7) (100.5) Short term deposits and investments 110.9 110.7 215.0 184.0------ -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- -------Total 113.8 101.7 184.9 146.3------ -------- --------------- -------- -------- -------- ---- -------- ---- -------- ---- ------- 12a. Other reserves - six months ended 31 July 2005------------------------ -------- --------- ---- --------- ---- ------- ---- ------- Demerger Translation Available Hedging Total reserve reserve for sale reserve other £m £m investments £m reserves £m £m------------------------ -------- --------- ---- --------- ---- ------- ---- -------At 1 February 2005 741.8 (0.4) - - 741.4First time adoption adjustment in respect of - - 11.7 (3.5) 8.2IAS 39 (see note 14)------------------------ -------- --------- ---- --------- ---- ------- ---- -------Restated balance at 1 February 2005 741.8 (0.4) - 11.7 (3.5) 749.6------------------------ -------- --------- ---- --------- ---- ------- ---- -------Exchange differences - - - - -Net fair value gains on available for sale - - 3.3 - 3.3assetsNet cash flow hedges - - - (0.7) (0.7)------------------------ -------- --------- ---- --------- ---- ------- ---- -------At 31 July 2005 741.8 (0.4) 15.0 (4.2) 752.2------------------------ -------- --------- ---- --------- ---- ------- ---- ------- 12b. Retained earnings - six months ended 31 July 2005------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------- Retained earnings £m------------------------- -------- -------- -------- ---- -------- ---- -------- ---- --------At 1 February 2005 (581.6)First time adoption adjustment in respect of IAS 39 (5.3)(see note 14)------------------------- -------- -------- -------- ---- -------- ---- -------- ---- --------Restated balance at 1 February 2005 (586.9)------------------------- -------- -------- -------- ---- -------- ---- -------- ---- --------Profit for the period 16.4Dividends (43.7)Employee share schemes 0.2Investment in ESOP shares (0.3)Net actuarial loss on retirement benefit (5.6)obligations------------------------- -------- -------- -------- ---- -------- ---- -------- ---- --------At 31 July 2005 (619.9)------------------------- -------- -------- -------- ---- -------- ---- -------- ---- -------- 12c. Other reserves - six months ended 31 July 2004 ------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- Demerger Translation Total reserve reserve other £m £m reserves £m------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- At 1 February 2005 741.8 - 741.8Exchange differences - (3.7) (3.7)------------------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 31 July 2004 741.8 (3.7) 738.1------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- 12d. Retained earnings - six months ended 31 July 2004---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- Retained earnings £m---- ---- -------- --------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 1 February 2005 (628.0)Profit for the period 24.9Dividends (39.8)Employee share schemes (1.0)Net actuarial loss on retirement benefit 2.0obligations------------ --------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 31 July 2004 (641.9)------------ --------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- 12e. Other reserves - year ended 31 January 2005------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- Demerger Translation Total reserve reserve other £m £m reserves £m------------------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 1 February 2004 741.8 - 741.8Exchange differences - (0.4) (0.4)------------------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 31 January 2005 741.8 (0.4) 741.4------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- 12f. Retained earnings - year ended 31 January 2005------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- Retained earnings £m------------------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 1 February 2004 (628.0)Profit for the period 113.9Dividends (54.4)Employee share schemes (0.9)Net actuarial loss on retirement benefit (12.2)obligations------------------------- -------- -------- -------- ---- -------- ---- --------- ---- -------At 31 January 2005 (581.6)------------------------- -------- -------- -------- ---- -------- ---- --------- ---- ------- Notes to the interim report (continued) 13. Reconciliation of profit under UK GAAP to IFRS 13a. Reconciliation of retail profit------------------------------ ----- -------- -------- -------- -------- Note Six Year months ended ended 31 31 July January 2004 2005 £m £m------------------------------ ----- -------- -------- -------- --------Retail profit reported under UK GAAP 54.7 206.7Pensions & Benefits 17(a) (1.9) (4.2)Goodwill 17(b) (1.5) (0.5)Property & Leases 17(c) (1.0) (1.4)Other 17(g) (0.4) (0.8)------------------------------ ----- -------- -------- -------- --------Retail profit reported under IFRS 49.9 199.8------------------------------ ----- -------- -------- -------- -------- 13b. Reconciliation of profit after tax------------------------------ ----- -------- -------- -------- -------- Note Six Year months ended ended 31 31 July January 2004 2005 £m £m------------------------------ ----- -------- -------- -------- --------Profit after tax reported under UK GAAP 27.5 118.6Pensions & Benefits 17(a) (3.5) (5.4)Goodwill 17(b) 0.4 3.2Property & Leases 17(c) (1.0) (1.4)Other 17(g) (0.5) (0.7)Deferred tax 17(e) 1.7 1.1------------------------------ ----- -------- -------- -------- --------Profit after tax reported under IFRS 24.6 115.4------------------------------ ----- -------- -------- -------- -------- 14. Reconciliation of net assets under UK GAAP to IFRS------------------------------ ----- -------- -------- -------- -------- Note At 31 At 31 At 31 July January January 2004 2005 2004 £m £m £m------------------------------ ----- -------- -------- -------- --------Equity reported under UK 328.7 383.0 323.2GAAPPensions & Benefits 17(a) (73.6) (96.9) (73.2)Goodwill 17(b) 1.1 4.7 0.7Property & Leases 17(c) (25.6) (26.8) (23.5)Dividends 17(d) 14.6 43.7 39.7Deferred tax 17(e) (1.0) 3.5 (2.8)Other 17(g) (6.3) (7.0) (7.1)------------------------------ ----- -------- -------- -------- --------Equity reported under IFRS excluding IAS39 237.9 304.2 257.0------------------------------ ----- -------- -------- -------- --------IAS 39 adjustment to Other reserves 12a - 8.2 -IAS 39 adjustment to Retained earnings 12b - (5.3) ------------------------------- ----- -------- -------- -------- --------Total IAS39 adjustments 17(f) - 2.9 ------------------------------- ----- -------- -------- -------- --------Equity reported under IFRS including IAS39 237.9 307.1 257.0------------------------------ ----- -------- -------- -------- -------- 15. Cashflow There are no material changes to the cashflow statement under IFRS. 16. Other information As described in note 1, the implementation of IFRS brings with it an evolvinginterpretation of accounting standards. Therefore, certain adjustments have beenincorporated into the 31 January 2004 and 31 January 2005 balance sheets thatalter the net assets presented on 23rd June 2005. Notes to the interim report (continued) 17. Explanation of reconciling items between UK GAAP and IFRS An explanation of the impact of the principal differences between UK GAAP andIFRS that apply to the Group's consolidated financial statements is set outbelow. (a) Pensions and benefits Retirement benefit obligations Under UK GAAP, the Group adopted the transitional disclosure requirements of FRS17 and disclosed its pension obligations. Under IAS 19, the Group's net pensiondeficit has been booked on the balance sheet. There are certain differences inthe accounting for pensions between IAS 19 and FRS 17. The main differences are: • Pension assets are valued at bid value under IAS 19, whereas a mid market valuation is used under FRS 17. • Under FRS 17 pension balances are presented net of deferred tax. Under IFRS, these balances are grossed up. Other employee benefits Under IAS 19, other long term employee benefits, including long term serviceawards, have been provided for on the balance sheet at their fair value.Furthermore as a result of additional guidance in IAS 19, additional holiday payaccruals have been recorded at fair value in certain circumstances. (b) Goodwill Under UK GAAP, positive and negative goodwill was amortised over its expecteduseful economic life of 20 years. Under IFRS, goodwill is not amortised buttested annually for impairment (including at the transition date) and negativegoodwill is recognised in the income statement in the period in which it arises. (c) Property and leases Lease incentives Under UK GAAP, lease incentives received from lessors or paid to lessees arecapitalised and spread over the shorter of the period to the first break clauseor the length of the lease. Under IAS 17, lease incentives received and paid aredeferred and spread over the length of the lease. Lease classification Under UK GAAP and IFRS, leases are classified as either finance or operatingleases. As a result of further guidance published in IAS 17, some leases thatwere classified as operating leases under UK GAAP have been reclassified asfinance leases under IFRS. Lease premiums Under UK GAAP, lease premiums paid to lessors on taking out a leasehold interestare capitalised and recorded as part of property, plant and equipment. Under IAS17, these premiums are included within prepayments. Store impairment Under UK GAAP impairment testing of property, plant and equipment was performedat the income generating unit level, which was generally at an operating companylevel. Under IAS 36, impairment testing is performed at the lowest cashgenerating unit level, which is generally at an individual store or group ofstores level. (d) Dividends Under UK GAAP, equity dividends were recognised in the period to which theyrelated. Under IFRS, final equity dividends are recognised only when approved bythe shareholders and interim dividends are recognised in the period they arepaid. (e) Deferred tax IAS 12 requires a deferred tax provision to be recognised for all taxabletemporary differences between the tax bases and the associated carrying amountsfor assets and liabilities. In accordance with IAS 12, provision has been madefor deferred tax on owned assets where the asset base for local taxationpurposes differs from the net book value under Group accounting policies. Thiswas not permitted under UK GAAP unless there was a binding commitment to sellthe asset. Under IFRS, deferred tax assets and deferred tax liabilities are presentedseparately as non current assets and non-current liabilities on the balancesheet. (f) IAS 39 adjustment As described in note 1, the following IAS 39 adjustments are relevant for the 31January 2005 balance sheet: Interest rate swaps Under UK GAAP, only accrued interest under interest rate swaps was recognised onthe balance sheet. Under IAS 39, the fair value of interest rate swaps isrecognised on the balance sheet. The interest rate swaps have been designated ascash flow hedges, and the movement in fair value from one period to another istaken to the hedging reserve and will cumulatively net out to zero when theswaps term out. Forward foreign exchange contracts Under UK GAAP, forward foreign exchange contracts were generally only recognisedon settlement. Under IAS 39, the fair value of all forward foreign exchangecontracts is recognised. The forward foreign exchange contracts are designatedas cash flow hedges, and the movement in fair value from one period to anotheris taken to the hedging reserve if the hedge is effective. On expiry of theforward contract, the amount in the hedge reserve is recycled out and recordedagainst the value of stock. If a hedge is deemed ineffective, the amount in thehedge reserve is immediately recycled out to the income statement. Available for sale financial assets Under UK GAAP, available for sale assets were recorded at cost less anydiminution in value. Under IAS 39, these financial assets are recorded at fairvalue and are marked to market, with the movement in fair value going throughequity. On disposal of the asset, the amount taken through equity is recycledout to the income statement. Marked to market of options Call or put options to buy shares from minority shareholders in subsidiaryundertakings have been recorded on the balance sheet at their fair value. Themovement in the fair value of an option between each period-end is taken to theincome statement. Embedded derivatives Under UK GAAP, embedded derivatives were not recognised. Under IAS 39, the fairvalue of embedded derivatives not closely related to their host contracts isrecognised. (g) Other Other adjustments principally comprise of: Intangible assets Under UK GAAP, computer software costs that are not attributable to specificcomputer hardware were capitalised as property, plant and equipment. Under IFRS,these costs are capitalised as intangible assets. Under UK GAAP, intangible assets acquired as part of a business combination weresubsumed within goodwill. Under IFRS, intangible assets acquired as part of abusiness combination are recognised separately when their fair values can bemeasured reliably. Under UK GAAP, all intangible assets had to be amortised over a period notexceeding 20 years. Under IFRS, intangible assets with an indefinite usefuleconomic life are not amortised, but are tested annually for impairment,including at the transition date. Stock As a result of further guidance published in IAS 2, the valuation of stockincludes transportation costs from warehouses to stores, but excludes anystorage costs. 18. Accounting policies Basis of consolidation The interim consolidated financial statements of Kesa Electricals plc have beenprepared in accordance with International Financial Reporting Standards issuedby the IASB and with the Standing Interpretations issued by IFRIC of the IASB. The interim consolidated financial statements have been prepared under thehistorical cost convention, as modified by the revaluation of financial assetsand financial liabilities (including derivative instruments) at fair valuethrough profit or loss as appropriate. All significant consolidated companieshave a 31st January accounting year-end. Consolidation (a) Subsidiaries Subsidiaries are all entities over which the group has the power to control thefinancial and operating policies. The existence and effect of potential votingrights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity. Subsidiaries are fullyconsolidated from the date on which control is transferred to the Group. Theyare de-consolidated from the date that control ceases. The Group uses the purchase method of accounting to account for the acquisitionof subsidiaries. The cost of an acquisition is measured as the fair value of thesettlement including assets, equity instruments and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets and liabilities acquired and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable net assets acquired is recorded as goodwill.If the cost of acquisition is less than the fair value of the net assets of thesubsidiary acquired, the difference is recognised directly in the incomestatement. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated on consolidation. Unrealised losses arealso eliminated unless the transaction provides evidence of an impairment of theasset transferred. Accounting policies of subsidiaries have been changed wherenecessary to ensure consistency with the policies adopted by the Group. (b) Associates and Joint Ventures Associates are all entities over which the Group has the ability to exercisesignificant influence but not control. Joint ventures are all entities overwhich the Group exercises joint control with partners. Investments in associates and joint ventures are accounted for by the equitymethod and are initially recognised at cost. The Group's investment inassociates and joint ventures includes goodwill (net of any accumulatedimpairment loss) identified on acquisition. The Group's share of its associates' and joint ventures' post-acquisitionprofits or losses is recognised in the income statement, its share of post-acquisition valuation movements are adjusted against the carrying amount of theinvestment and its share of post acquisition movements in reserves arerecognised in reserves. When the Group's share of losses in an associate or ajoint venture equals or exceeds its interest in the associate or joint venture,including any other unsecured receivables, the Group does not recognise furtherlosses, unless it has incurred obligations or made payments on behalf of theassociate or joint venture. Unrealised gains on transactions between the Group and its associates and jointventures are eliminated to the extent of the Group's interest in the associatesand joint ventures. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Accounting policiesof associates and joint ventures have been changed where possible to ensureconsistency with the policies adopted by the Group. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The consolidated financialstatements are presented in Sterling, which is the Company's functional andpresentation currency. (b) Transaction and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cashflow hedges. Translation differences on non-monetary items, such as equities held at fairvalue through profit or loss, are reported as part of the fair value gain orloss. Translation differences on non-monetary assets held for sale are included infair value reserves in equity. (c) Group companies The results and financial position of all the group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: i. Assets and liabilities for each balance sheet presented are translated atthe closing rate at the date of that balance sheet; ii. Income and expenses for each income statement are translated at averageexchange rates (unless the average is not a reasonable approximation ofthe cumulative effect of the rates prevailing on the transaction dates, inwhich case income and expenses are translated at the date of transactions); and iii. All resulting exchange differences are recognised as a separate componentof equity from the transition date. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to shareholders' funds. Whena foreign operation is sold, such exchange differences are recognised in theincome statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Segmental information Primary segmental information reflects the Group's management structure. TheBoard of Directors considers that there is no secondary segment by which Kesa ismanaged. A segment is a distinguishable component of the group that is engaged inproviding products and services, which is subject to risk and rewards that aredifferent from those of other segments. The principal activity of the Group is the retail of electrical goods andfurniture, which is managed through the following business segments: • Darty - France• BUT - France• Comet - UK• Others (comprising business units of less than 10% of the Group's overall business) Reported segment results represent the retail profit of each segment.Unallocated items comprise corporate head office expenses and group fundingcosts. Segment assets and liabilities represent the balance sheet carrying values heldat the end of the period. Segment assets comprise property, plant and equipment, goodwill, trade and otherreceivables, inventories, prepayments and accrued income. Segment liabilities comprise trade and other payables, accruals, deferred incomeand post employment benefit obligations. Unallocated assets and liabilities represent corporate balance sheet items and group funding. Eliminations represent intercompany balances between the different segments. Property, Plant and Equipment (Tangible Fixed Assets) Land and buildings comprise mainly retail outlets, warehouses and offices. All tangible fixed assets are stated at historic cost. Subsequent costs are included in an asset's carrying amount or recognised as aseparate asset, as appropriate. Only when it is probable that future economicbenefits associated with an asset will flow to the Group, the cost of the assetcan be measured reliably, the asset's useful life exceeds one full accountingperiod and costs exceed £1,000 in value (or equivalent) are these costs includedin the carrying amount. All other repairs and maintenance are charged to theincome statement during the financial period in which they are incurred. The Group selects its depreciation rates carefully and reviews them regularly totake account of any changes in circumstances. When setting useful economiclives, the principal factor the Group takes into account is the length of timeduring which the assets are expected to be used within the business. Land is not depreciated. Depreciation on other assets is calculated using thestraight-line method to allocate their cost less estimated residual value overtheir estimated useful lives, and the depreciation periods of the principalcategories are as follows: Freehold Buildings 20 years Long Leasehold 20 years or lease term if shorter Short Leasehold over the remaining period of the lease Tenants' fixtures and between five and 20 years improvements Computers and electronic between two and four years equipment Motorcars and commercial between two and five years vehicles The assets' residual values and useful lives are reviewed and adjusted, ifappropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimated recoverable amount.Estimated recoverable amounts are reviewed at least annually. Gains and losses on disposals outside the Group are determined by comparingproceeds with carrying amount. These are included in the income statement. Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiaryor associate at the date of acquisition. Goodwill on acquisitions ofsubsidiaries is included in intangible assets. Goodwill on acquisitions ofassociates is included in the carrying value of investments in associates.Goodwill is tested annually for impairment and carried at cost less impairmentlosses. Gains and losses on the disposal of an entity include the carryingamount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairmenttesting. Each of those cash-generating units represents a separate autonomousunit within the Group, where the management of the unit has independent controland responsibility for managing the cash flow of that unit. (b) Other intangibles Trademarks and licences are shown at historic cost. Trademarks and licences havea finite useful life and are carried at cost less accumulated amortisation. Costs associated with developing or maintaining computer software programmes arerecognised as an expense as incurred. Costs that are directly associated withthe production of identifiable and unique software controlled by the Group, andwhere it is probable that they will generate economic benefits exceeding costsbeyond one year, are recognised as intangible assets. Direct costs include thesoftware development, employee costs and an appropriate portion of relevantoverheads. Amortisation is calculated using the straight-line method to allocate the costof other intangibles over their estimated useful lives of between two to sixyears. Intangible assets with an indefinite useful economic life are notamortised, but are subject to annual impairment reviews. General impairment of assets Assets having an indefinite useful life are not subject to amortisation and aretested annually for impairment. Assets that are subject to amortisation arereviewed for impairment whenever events or changes in circumstances indicatedthat the carrying amount may not be fully recoverable, or that the assets' usemay not generate an economic benefit greater than their carrying value. Animpairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which thereare separately identifiable cash flows. The discount rate is applied based uponthe Group's weighted average cost of capital with appropriate adjustments forthe risks associated with the relevant business. Investments The Group classifies its investments in the followingcategories: • financial assets at fair value through profit or loss, • loans and receivables, • held-to-maturity investments, and • available-for-sale financial assets. The classification depends on the purpose for which the investments wereacquired. Management determines the classification of its investments at initialrecognition and re-evaluates this designation at every reporting date. (a) Financial assets at fair value through profit or loss This category has two sub-categories: • financial assets held for trading, and • those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for thepurpose of selling in the short term, or if so designated by management. Assetsin this category are classified as current assets if they are either held fortrading, or are expected to be realised within 12 months of the balance sheetdate. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group supplies money, goods or services directly to a debtor with nointention of trading the receivable. They are included in current assets, exceptfor maturities greater than 12 months after the balance sheet date. These areclassified as non-current assets. Loans and receivables are included in tradeand other receivables in the balance sheet. (c) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Group's management has thepositive intention and ability to hold to maturity. Loans and receivables andheld-to-maturity investments are carried at amortised cost using the effectiveinterest method. (d) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are eitherdesignated in this category or not classified in any of the other categories.They are included in non-current assets unless management intends to dispose ofthe investment within 12 months of the balance sheet date. Available-for-sale financial assets and financial assets at fair value throughprofit or loss are carried at fair value. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity.When securities classified as available-for-sale are sold or impaired, theaccumulated fair value adjustments are included in the income statement as gainsand losses from investment securities. Purchases and sales of investments are recognised on trade-date - the date onwhich the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs forall financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from theinvestments have expired or have been transferred and the Group has transferredsubstantially all risks and rewards of ownership. Realised and unrealised gains and losses arising from changes in the fair valueof financial assets at fair value through profit or loss are included in theincome statement in the period in which they arise. The fair values of financial assets, including quoted investments, are based oncurrent bid prices. If the market for a financial asset is not active, the Groupestablishes fair value by using valuation techniques such as the use of recentarm's length transactions, reference to other instruments that are substantiallythe same, discounted cash flow analysis, and option pricing models refined toreflect the investment's specific circumstances. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significantor prolonged decline in the fair value of the security below its cost isconsidered in determining whether the securities are impaired. If any suchevidence exists for available-for-sale financial assets, the cumulative loss -measured as the difference between the acquisition cost and the current fairvalue, less any impairment loss on that financial asset previously recognised inprofit or loss - is removed from equity and recognised in the income statement.Impairment losses recognised in the income statement on equity instruments arenot reversed through the income statement. Derivatives All derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at their fair value.All derivatives are categorised as investments held for trading (a sub-categoryof financial assets at fair value through profit or loss) unless they aredesignated as cashflow hedges. As such they are valued at each balance sheetdate and variances in value are charged in full to the income statement. It isGroup policy that we do not enter into derivatives that are not intended for thepurpose of economic cashflow hedging. Derivatives designated as cashflow hedges are tested for their hedgeeffectiveness on a regular periodic basis. Should these derivatives fail therequirements of this test they are immediately reclassified as investments heldfor trading and treated accordingly. To the extent that these derivatives aredemonstrated to be an effective hedge, movements in value are accumulated inequity reserves and are recycled against the benefit or charge made to theincome statement when the hedged transaction is settled. To the extent thatthese derivatives are ineffective as a hedge, any variance in value is chargeddirectly to the income statement. The Group has strict treasury guidelines on derivatives and hedging policy. TheGroup holds two types of derivative instrument as hedges to manage the financialrisk profile of the Group and to limit the Group's economic exposure to non-functional currency and interest rate volatility. 1) Currency derivatives in the form of forward exchange contracts between US$ and functional currency are taken out to build a pool of forward contracts, which match the Group's future US$ currency liability on committed orders for the purchase of product. 2) Interest rate swaps converting a variable rate interest liability into a fixed rate liability covering a significant proportion of the Group's variable rate term borrowings. The Group documents at the inception of the transaction the relationship betweenhedging instruments and hedged items, as well as its risk management objectiveand strategy for undertaking various hedge transactions. The Group alsodocuments its assessment, both at hedge inception and on an on-going basis, ofwhether the derivatives that are used in hedging transactions are highlyeffective in offsetting changes in fair values or cash flows of hedged items. The fair value of financial instruments traded in active markets (such aspublicly traded derivatives, and trading and available for sale securities) isbased on quoted market prices at the balance sheet date. The quoted market priceused for financial assets held by the Group is the current bid price; theappropriate quoted market price for financial liabilities is the current askprice. The fair value of financial instruments that are not traded in an active market(for example, over the counter derivatives) is determined by using valuationtechniques. The Group uses a variety of methods and makes assumptions that arebased on market conditions existing at each balance sheet date. The fair valueof interest rate swaps is calculated as the present value of the estimatedfuture cash flows. The fair value of forward foreign exchange contracts isdetermined using forward exchange market rates at the balance sheet date. The nominal value less estimated credit adjustments of trade receivables andpayables are assumed to approximate their fair values. The fair value offinancial liabilities for disclosure purposes is estimated by discounting thefuture contractual cash flows at the current market interest rate that isavailable to the Group for similar financial instruments. Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined using the weighted average method. The value of inventory includesthe purchase price and transport costs to our warehouses and retail stores. Net realisable value is the estimated selling price in the ordinary course ofbusiness, less applicable variable selling expenses. Costs of inventories include the transfer from equity of any gains/losses onqualifying cash flow hedges relating to purchases of products. A provision for impairment of inventories is established when there is objectiveevidence that the Group will not be able to recover the cost of inventory whensold. Cost of product sales represents the value of stock sold when recognised inrevenue. Trade receivables Trade receivables are recognised initially at fair value and in the event that atrade receivable is only recoverable more than 12 months after the balance sheetdate then it is subsequently measured at amortised cost using the effectiveinterest method, less provision for impairment. A provision for impairment oftrade receivables is established when there is objective evidence that the Groupwill not be able to collect all amounts due according to the original terms ofreceivables. The amount of the provision is the difference between the asset'scarrying amount and the present value of estimated future cash flow, discountedat the effective interest rate. The amount of the movement in provision isrecognised in the income statement. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts for which a right of set off exists.Other bank overdrafts are shown within borrowings in current liabilities on thebalance sheet. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown inequity as a deduction, net of tax, from the proceeds. Incremental costs directlyattributable to the issue of new shares or options, or for the acquisition of abusiness, are included in the cost of acquisition as part of the purchaseconsideration. Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost; any differencebetween the proceeds (net of transaction costs) and the redemption value isrecognised in the income statement over the period of the borrowings using theeffective interest method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. Income tax Income tax on the profit and loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised in equity. Current income tax is the expected income tax payable on the taxable income forthe year, using tax rates enacted at the balance sheet date, and adjustments toincome tax payable in respect of previous years. Deferred income tax is provided in full using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. The followingtemporary differences are not provided for: goodwill not deductible for taxpurposes, the initial recognition of assets or liabilities that affect neitheraccounting nor taxable profit and differences relating to investments insubsidiaries and associates, to the extent that they will probably not reversein the foreseeable future. Deferred income tax is determined using tax rates(and laws) that have been enacted or substantially enacted by the balance sheetdate and are expected to apply when the related deferred income tax asset isrealised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend. Employee benefits (a) Pension obligations Group companies operate various pension schemes, which are supplemental tocontributions paid to mandatory state funded schemes. Company sponsored schemesare generally funded through payments to insurance companies or trustee-administered funds, as determined by periodic actuarial calculations or locallegislation. The Group has both defined benefit and defined contribution plans. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor past service costs which have not yet vested. The defined benefit obligationis calculated annually by independent actuaries using the projected unit creditmethod. The present value of the defined benefit obligation is determined bydiscounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which thebenefits will be paid, and that have terms to maturity approximating to theterms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes inactuarial assumptions are recognised immediately outside the income statement inthe statement of recognised income and expense. Past-service costs are recognised immediately in income, unless changes to thepension plan are conditional on the employees remaining in service for aspecified period of time (the vesting period). In this case, the past-servicecosts are amortised on a straight-line basis over the vesting period. For defined contribution plans, the Group pays contributions to publicly orprivately administered pension insurance plans on a mandatory, contractual orvoluntary basis. The Group has no further payment obligations once thecontributions have been paid. The contributions are recognised as employeebenefit expense when they are due. Prepaid contributions are recognised as anasset to the extent that a cash refund or a reduction in the future payments isavailable. (b) Share-based compensation The Group operates equity-settled, share-based compensation plans. The totalamount expensed over the vesting period is determined by reference to the fairvalue of the shares granted. It recognises the impact of the revision oforiginal estimates, if any, in the income statement, and a correspondingadjustment to equity over the remaining vesting period. (c) Other long term employee benefits Some Group companies provide long-term employment benefits to employees. Theentitlement to these benefits is usually conditional on the employee remainingin service up to retirement age and the completion of a minimum service period.The expected costs of these benefits are accrued over the period of employmentusing an accounting methodology similar to that for defined benefit pensionplans. (d) Termination benefits Termination benefits are payable if employment is terminated before the normalretirement date, or whenever an employee accepts voluntary redundancy inexchange for these benefits. The Group recognises termination benefits when itis demonstrably committed to either terminating the employment of currentemployees according to a detailed formal plan, without possibility of withdrawalor providing termination benefits as a result of an offer made to encouragevoluntary redundancy. Benefits falling due more than 12 months after the balancesheet date are discounted to present value. Provisions Provisions are recognised when: the Group has a present legal or constructiveobligation as a result of past events; it is more likely than not that anoutflow of resources will be required to settle the obligation; and the amounthas been reliably estimated. Provisions are discounted where the time value ofmoney is considered material. Restructuring provisions, comprising of lease termination penalties and employeetermination payments, are only recognised when plans are sufficiently detailedand well advanced, and where appropriate communication to those affected hasbeen undertaken on or before the balance sheet date. Provisions are not recognised for future operating losses. Revenue recognition Revenue comprises the fair value for the sale of goods and services, net ofvalue-added tax, rebates and discounts and after eliminating sales within theGroup. Revenue is recognised as follows: (a) Sales of goods - retail Sales of goods are recognised at the point of sale of a product to the customeror upon delivery to the customer, which ever is the later. Retail sales areusually in cash or by credit card. The recorded revenue excludes intragroup sales, sales taxes, and credit cardfees payable for the transaction. Such credit card fees are included in bankcharges within administrative expenses. Certain companies within the Group sell products with a right of return.Accumulated experience is used to estimate and provide for the value of suchreturns at the time of sale. (b) Sales of services Sales of services are recognised in the accounting period in which the servicesare rendered, by reference to completion of the specific transaction assessed onthe basis of the actual service provided as a proportion of the total servicesto be provided. The Group sells extended warranty contracts. Where the Group has responsibilityfor fulfilling obligations under these contracts, the Group recognises thecorresponding revenue over the period for which cover is provided, excluding anyfree period of manufacturer's warranty. Where the Group sells an extendedwarranty contract and a third party insurance company has responsibility forcontractual obligations, commission revenue for the insured warranty contract isrecognised at the time of sale. Where part of the obligation under thesecontracts is re-insured by the Group, the revenue relating to the re-insuranceis recognised over the period for which re-insurance is provided, excluding anyperiod of manufacturer's warranty. (c) Royalty and Franchise revenue Royalty and Franchise revenue is recognised on an accruals basis in accordancewith the substance of the relevant agreements. Interest Interest income and expense is recognised on a time-proportion basis using theeffective interest method. Leases Leases in which substantially all the risks and rewards of ownership aretransferred to the Group or any of its subsidiaries are classified as financeleases. Finance leases are capitalised at the inception of the lease at the lower of thefair value of the leased asset and the present value of minimum lease payments.Assets capitalised as property, plant and equipment are amortised in accordancewith Group depreciation policy. Payments under such leases are charged againstthe recognised liability and interest costs are charged to the income statementover the full period of the finance lease on a systematic basis. Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any financial incentives received from the lessor) arecharged to the income statement on a straight-line basis over the full period ofthe lease. Charges made in respect of operating leases of property are adjusted from timeto time to reflect the impact of market rent reviews throughout the life of thelease. Dividends Dividend income is recognised when the right to receive payment is established. Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. Interim dividends are recognised in theperiod they are paid. Contingent assets and liabilities Contingent assets and liabilities arise from conditions or situations, theoutcome of which depends on future events. They are disclosed in the notes tothe accounts. Events occurring after the balance sheet date The values of assets and liabilities at the balance sheet date are adjusted ifthere is evidence that subsequent adjusting events warrant a modification ofthese values. These adjustments are made up to the date of approval of theaccounts by the Board of Directors. Other non-adjusting events are disclosed inthe notes to the accounts. Financial risk management Financial risk management is an integral part of the way the Group is managed.The Board establishes the Group's financial policies and the Chief ExecutiveOfficer (CEO) establishes objectives in line with these policies. The FinanceDirector's Committee and the Treasury Committee, under the supervision of theGroup Finance Director (GFD), are then responsible for setting financialstrategies, which are executed by the Central and Operating Company Treasuryteams. Approved Treasury Management Guidelines define and classify risks andalso determine, by category of transaction, specific approval, limit andmonitoring procedures. In the course of its business, the Group is exposed to financial market risks,credit risk, settlement risk and liquidity risk. In accordance with theaforementioned policies, the Group only enters into derivative transactionsrelated to operating and/or financial assets or liabilities or anticipatedfuture transactions. The Group does not enter into trading derivativetransactions without underlying assets or liabilities. Financial market risksare essentially caused by exposures to foreign currencies and interest rates.Foreign currency transaction risk arises because affiliated companies sometimesundertake transactions in foreign currencies such as the purchase of products.Translation exposure arises from the consolidation of the Group accounts intosterling. Interest rate risk comprises the interest price risk that results fromborrowing at variable and fixed rates and the interest cash flow risk thatresults from borrowing. Credit risk arises because a counterparty may fail to perform its obligations.The Group is exposed to credit risks on financial instruments such as liquidassets, derivative assets and its trade receivable portfolios. Credit risk ismanaged by investing liquid assets and acquiring derivatives with high creditquality financial institutions in accordance with the Group's TreasuryManagement Guidelines. The Group is not exposed to concentrations of credit riskon its liquid assets as these are spread over several financial institutions. Asa result of its strong cash flow, the Group does not expect any refinancingissues as current loans agreements expire. Affiliated companies lend their excess cash at bank to Group finance companiesto be invested centrally. The Treasury Committee reviews and decides thecurrency and interest rate framework of Kesa's intragroup loans portfolio on amonthly basis. Principal rates of exchange------------------------- ------- ------- ------- --- ------- --- ------- --- -------- Euro Czech Kr------------------------- ------- ------- ------- --- ------- --- ------- --- --------Average rate - six months to 31 July 1.4959 48.49552004Closing rate - 31 July 2004 1.5156 47.3303------------------------- ------- ------- ------- --- ------- --- ------- --- --------Average rate - year ended 31 January 1.4735 47.14332005Closing rate - 31 January 2005 1.4420 43.0247------------------------- ------- ------- ------- --- ------- --- ------- --- --------Average rate - six months to 31 July 1.4618 43.84432005Closing rate - 31 July 2005 1.4502 44.5831------------------------- ------- ------- ------- --- ------- --- ------- --- -------- Independent review report to Kesa Electricals Plc Introduction We have been instructed by the company to review the financial information forthe six months ended 31st July 2005, which comprises summarised balance sheetinformation as at 31st July 2005, summarised income statement, summarised cashflow statement, statement of recognised income and expense and associated notes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. The rules for first time adoption of IFRS are set out in IFRS 1 "First-timeAdoption of International Financial Reporting Standards." IFRS 1 requires theuse of the same accounting policies in the IFRS transition balance sheet and forall periods presented thereafter. The accounting policies must comply with allIFRS's effective at the reporting date and for the first financial reportingunder IFRS. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in Note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 January 2006 are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31st July 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon28 September 2005 Notes: (a) The maintenance and integrity of the Kesa Electricals Plc web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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DRTY.L