Full-Year Results Part 2

RNS Number : 1974F

Home Retail Group Plc

20 April 2011

 



Consolidated income statement                                               

For the 52 weeks ended 26 February 2011

						52 weeks ended 26 February 2011		52 weeks ended 27 February 2010
				Notes		£m		£m
Revenue						5,851.9		6,022.7
Cost of sales						(3,970.7)		(4,055.6)
Gross profit						1,881.2		1,967.1
Net operating expenses						(1,623.2)		(1,672.6)
Operating profit						258.0		294.5
- Finance income						57.3		46.1
- Finance expense						(50.2)		(45.6)
Net financing income				3		7.1		0.5
Share of post-tax profit/(loss) of joint ventures and associates						0.1		(2.0)
Profit before tax						265.2		293.0
Taxation						(74.3)		(83.2)
Profit for the year attributable to equity holders of the Company						190.9		209.8
Earnings per share						pence		pence
- Basic				5		23.1		24.3
- Diluted				5		23.0		24.1
						pence		pence
Proposed final dividend per share				4		10.0		10.0
Interim dividend per share				4		4.7		4.7
Proposed total dividend per share						14.7		14.7

 

Non-GAAP measures			52 weeks ended  26 February 2011		52 weeks ended  27 February 2010
Reconciliation of profit before tax (PBT) to benchmark PBT	Notes		£m		£m
Profit before tax			265.2		293.0
Adjusted for:
Demerger incentive schemes			-		7.7
Financing fair value remeasurements	3		(5.4)		(2.7)
Financing impact on retirement benefit obligations	3		(4.6)		0.7
Discount unwind on non-benchmark items	3		6.1		6.7
Onerous lease provision releases	6		(7.2)		(12.5)
Benchmark PBT			254.1		292.9
Benchmark earnings per share			pence		pence
- Basic	5		21.3		23.4
- Diluted	5		21.2		23.1

Consolidated statement of comprehensive income

For the 52 weeks ended 26 February 2011

		52 weeks ended  26 February 2011	52 weeks     ended  27 February 2010
		£m	£m
Profit for the year attributable to equity holders of the Company		190.9	209.8
Other comprehensive income:
Net change in fair value of cash flow hedges
- Foreign currency forward exchange contracts		(43.3)	(26.5)
Net change in fair value of cash flow hedges transferred to inventory
- Foreign currency forward exchange contracts		(15.9)	43.0
Actuarial gains in respect of defined benefit pension schemes		1.9	6.6
Fair value movements on available-for-sale financial assets		1.3	3.0
Currency translation differences		(6.1)	(3.6)
Tax credit/(charge) in respect of items taken directly to equity		15.7	(5.9)
Other comprehensive income for the year, net of tax		(46.4)	16.6
Total comprehensive income for the year attributable to equity holders of the Company		144.5	226.4

Consolidated balance sheet

At 26 February 2011

		26 February 2011	27 February 2010
	Notes	£m	£m
ASSETS
Non-current assets
Goodwill		1,541.0	1,541.0
Other intangible assets		107.8	92.7
Property, plant and equipment		523.4	525.1
Investment in joint ventures and associates		8.0	8.2
Deferred tax assets		39.4	61.6
Trade and other receivables		4.3	4.0
Other financial assets		15.2	13.2
Total non-current assets		2,239.1	2,245.8
Current assets
Inventories		1,016.8	935.4
Trade and other receivables		610.3	582.1
Current tax assets		10.9	50.5
Other financial assets		1.4	49.5
Current asset investments		100.0	50.0
Cash and cash equivalents		159.3	364.0
Total current assets		1,898.7	2,031.5
Total assets		4,137.8	4,277.3
LIABILITIES
Non-current liabilities
Trade and other payables		(58.7)	(62.5)
Provisions	6	(187.4)	(198.3)
Deferred tax liabilities		(24.5)	(37.8)
Retirement benefit obligations		(7.5)	(24.9)
Total non-current liabilities		(278.1)	(323.5)
Current liabilities
Trade and other payables		(1,047.5)	(1,042.4)
Provisions	6	(20.4)	(20.8)
Other financial liabilities		(29.4)	(1.8)
Current tax liabilities		(21.2)	(22.2)
Total current liabilities		(1,118.5)	(1,087.2)
Total liabilities		(1,396.6)	(1,410.7)
Net assets		2,741.2	2,866.6
EQUITY
Share capital		81.3	87.7
Capital redemption reserve		6.4	-
Merger reserve		(348.4)	(348.4)
Other reserves		(5.6)	46.6
Retained earnings		3,007.5	3,080.7
Total equity		2,741.2	2,866.6

Consolidated statement of changes in equity

For the 52 weeks ended 26 February 2011

				Attributable to equity holders of the Company
				Capital
			Share	redemption	Merger	Other	Retained
			capital	reserve	reserve	reserves	earnings	Total
			£m	£m	£m	£m	£m	£m
Balance at 28 February 2010			87.7	-	(348.4)	46.6	3,080.7	2,866.6
Profit for the year			-	-	-	-	190.9	190.9
Other comprehensive income			-	-	-	(49.1)	2.7	(46.4)
Total comprehensive income for the year ended 26 February 2011			-	-	-	(49.1)	193.6	144.5
Transactions with owners:
Movement in share-based compensation reserve			-	-	-	-	11.9	11.9
Shares purchased for cancellation			(6.4)	6.4	-	-	(150.2)	(150.2)
Net movement in own shares			-	-	-	(3.1)	(3.2)	(6.3)
Equity dividends paid during the year			-	-	-	-	(123.9)	(123.9)
Other distributions			-	-	-	-	(1.4)	(1.4)
Total transactions with owners			(6.4)	6.4	-	(3.1)	(266.8)	(269.9)
Balance at 26 February 2011			81.3	6.4	(348.4)	(5.6)	3,007.5	2,741.2
				Attributable to equity holders of the Company
				Capital
			Share	redemption	Merger	Other	Retained
			capital	reserve	reserve	reserves	earnings	Total
			£m	£m	£m	£m	£m	£m
Balance at 1 March 2009			87.7	-	(348.4)	35.4	2,983.7	2,758.4
Profit for the year			-	-	-	-	209.8	209.8
Other comprehensive income			-	-	-	8.3	8.3	16.6
Total comprehensive income for the year ended 27 February 2010		-		-	-	8.3	218.1	226.4
Transactions with owners:
Movement in share-based compensation reserve		-		-	-	-	20.4	20.4
Net movement in own shares			-	-	-	2.9	(12.0)	(9.1)
Equity dividends paid during the year			-	-	-	-	(126.3)	(126.3)
Other distributions			-	-	-	-	(3.2)	(3.2)
Total transactions with owners			-	-	-	2.9	(121.1)	(118.2)
Balance at 27 February 2010			87.7	-	(348.4)	46.6	3,080.7	2,866.6

Further details on equity movements are shown in note 7.

Consolidated statement of cash flows

For the 52 weeks ended 26 February 2011

		52 weeks ended  26 February 2011	52 weeks ended  27 February 2010
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	8	278.8	461.0
Tax paid		(11.3)	(107.3)
Net cash inflow from operating activities		267.5	353.7
Cash flows from investing activities
Purchase of property, plant and equipment		(102.2)	(73.7)
Proceeds from the disposal of property, plant and equipment		3.4	1.9
Purchase of other intangible assets		(43.9)	(17.5)
Loan to joint venture		(0.4)	(5.1)
Purchase of investments		(151.4)	(51.6)
Disposal of investments		100.0	75.0
Interest received		2.6	7.2
Net cash used in investing activities		(191.9)	(63.8)
Cash flows from financing activities
Repurchase of own shares		(150.2)	-
Purchase of shares for Employee Share Trust	7	(6.7)	(9.4)
Proceeds from disposal of shares held by Employee Share Trust		0.4	0.3
Dividends paid		(123.9)	(126.3)
Net cash used in financing activities		(280.4)	(135.4)
Net (decrease)/increase in cash and cash equivalents		(204.8)	154.5
Movement in cash and cash equivalents
Cash and cash equivalents at the beginning of the year		364.0	209.4
Effect of foreign exchange rate changes		0.1	0.1
Net (decrease)/increase in cash and cash equivalents		(204.8)	154.5
Cash and cash equivalents at the end of the year		159.3	364.0

Analysis of net cash/(debt)

At 26 February 2011

		26 February 2011	27 February 2010
Non-GAAP measures		£m	£m
Financing net cash:
Cash and cash equivalents		159.3	364.0
Current asset investments		100.0	50.0
Total financing net cash		259.3	414.0
Operating net debt:
Off balance sheet operating leases		(2,874.1)	(3,148.1)
Total operating net debt		(2,874.1)	(3,148.1)
Total net debt		(2,614.8)	(2,734.1)
Adjusted for:
Off balance sheet operating leases		2,874.1	3,148.1
Current asset investments		(100.0)	(50.0)
Total cash and cash equivalents reflected in balance sheet		159.3	364.0

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

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

Notes

For the 52 weeks ended 26 February 2011

1. BASIS OF PREPARATION

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

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

2. NON-GAAP FINANCIAL INFORMATION

Exceptional items

Items which are both material and non-recurring are presented as exceptional items within their relevant income statement line.  The separate reporting of exceptional items helps provide a better indication of underlying performance of the Group.  Examples of items which may be recorded as exceptional items are impairment charges, restructuring costs and the profits/losses on the disposal of businesses.

Benchmark profit before tax (PBT)

The Group uses the term benchmark PBT as a measure which is not formally recognised under IFRS.  Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment and onerous lease charges or releases, exceptional items, costs related to demerger incentive schemes, financing fair value remeasurements, financing impact on retirement benefit obligations, the discount unwind on non-benchmark items and taxation.  This measure is considered useful in that it provides investors with an alternative means to evaluate the underlying performance of the Group's operations.

Total net debt

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

Notes

For the 52 weeks ended 26 February 2011

	52 weeks ended  26 February 2011	52 weeks ended  27 February 2010
3. NET FINANCING INCOME/(EXPENSE)	£m	£m
Finance income:
Bank deposits and other interest	2.6	4.4
Expected return on retirement benefit assets	46.9	34.6
Financing fair value remeasurements - net exchange gains	7.8	7.1
Total finance income	57.3	46.1
Finance expense:
Unwinding of discounts (a)	(8.7)	(9.4)
Financing fair value remeasurements - net exchange losses	(2.4)	(4.4)
Interest expense on retirement benefit liabilities	(42.3)	(35.3)
Total finance expense	(53.4)	(49.1)
Less: finance expense charged to Financial Services cost of sales	3.2	3.5
Total net finance expense	(50.2)	(45.6)
Net financing income	7.1	0.5

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

			52 weeks ended  26 February 2011	52 weeks ended  27 February 2010
4. DIVIDENDS			£m	£m
Amounts recognised as distributions to equity holders
Final dividend of 10.0p per share (2010: 10.0p) for the prior year			(85.8)	(85.7)
Interim dividend of 4.7p per share (2010: 4.7p) for the current year			(38.1)	(40.6)
Ordinary dividends on equity shares			(123.9)	(126.3)
A final dividend in respect of the year ended 26 February 2011 of 10.0p per share, amounting to a total final dividend of £79.9m, has been proposed by the Board of Directors, and is subject to approval by the shareholders at the Annual General Meeting.  This would make a total dividend for the year of 14.7p per share, amounting to £118.0m.  The proposed dividend has not been included as a liability at 26 February 2011 in accordance with IAS 10 'Events after the Balance Sheet Date'. It will be paid on 20 July 2011 to shareholders who are on the register of members at close of business on 20 May 2011. The Home Retail Group Employee Share Trust (EST) has waived its entitlement to dividends in the amount of £1.9m (2010: £2.7m).

Notes

For the 52 weeks ended 26 February 2011

5. BASIC AND DILUTED EARNINGS PER SHARE (EPS)
Basic earnings per share is calculated by dividing the profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares held in Home Retail Group’s share trusts, net of vested but unexercised share awards.  Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares.
			52 weeks ended  26 February 2011			52 weeks ended  27 February 2010
Earnings			£m			£m
Profit after tax for the financial year			190.9			209.8
Adjusted for:
Demerger incentive schemes			-			7.7
Financing fair value remeasurements			(5.4)			(2.7)
Financing impact on retirement benefit obligations			(4.6)			0.7
Discount unwind on non-benchmark items			6.1			6.7
Onerous lease provision releases			(7.2)			(12.5)
Attributable taxation			1.8			(0.6)
Non-benchmark tax credit in respect of prior years			(5.0)			(7.6)
Benchmark profit after tax for the financial year			176.6			201.5
Weighted average number of shares			millions			millions
Number of ordinary shares for the purpose of basic EPS			827.4			862.9
Dilutive effect of share incentive awards			3.9			9.3
Number of ordinary shares for the purpose of diluted EPS			831.3			872.2
EPS			pence			pence
Basic EPS			23.1			24.3
Diluted EPS			23.0			24.1
Basic benchmark EPS			21.3			23.4
Diluted benchmark EPS			21.2			23.1

 

Notes

For the 52 weeks ended 26 February 2011

			Onerous leases	Insurance	Restructuring	Other	Total
6. PROVISIONS			£m	£m	£m	£m	£m
At 28 February 2010			(163.9)	(32.7)	(14.8)	(7.7)	(219.1)
Charged to the income statement			-	(3.7)	-	(4.0)	(7.7)
Released to the income statement			7.2	1.0	-	0.2	8.4
Transfer			(2.0)	-	-	0.5	(1.5)
Utilised during the year			9.7	3.5	7.0	0.9	21.1
Discount unwind			(8.9)	-	-	(0.1)	(9.0)
At 26 February 2011			(157.9)	(31.9)	(7.8)	(10.2)	(207.8)
						2011	2010
Analysed as:						£m	£m
Current						(20.4)	(20.8)
Non-current						(187.4)	(198.3)
						(207.8)	(219.1)

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

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

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

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

Notes

For the 52 weeks ended 26 February 2011

7. NOTES TO THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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

Merger reserve

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

Other reserves

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

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

Home Retail Group Employee Share Trust (EST)

The EST provides for the issue of shares to Group employees under share option and share grant schemes (with the exception of the Share Incentive Plan).  At 26 February 2011, the EST held 14,730,719 (2010: 13,899,537) shares with a market value of £32.7m (2010: £35.4m).  The shares in the EST are held within equity of the Group at a cost of £23.5m (2010: £20.0m).  During the year 3,000,000 (2010: 3,112,268) shares were acquired for a cost of £6.7m (2010: £9.4m). Dividends on these shares are waived.

Home Retail Group Share Incentive Scheme Trust

The Home Retail Group Share Incentive Scheme Trust provides for the issue of shares to Group employees under the Share Incentive Plan.  At 26 February 2011, the Trust held 910,832 (2010: 1,007,291) shares with a market value of £2.0m (2010: £2.6m).  These shares are held within equity of the Group at a cost of £3.8m (2010: £4.2m). No additional shares were purchased during the year.

8. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
		52 weeks ended  26 February 2011	52 weeks ended  27 February 2010
Cash generated from operations		£m	£m
Profit before tax		265.2	293.0
Adjustments for:
Share of post-tax (profit)/loss of joint ventures and associates		(0.1)	2.0
Net financing income		(7.1)	(0.5)
Operating profit		258.0	294.5
Loss on sale of property, plant and equipment		0.7	2.5
Depreciation and amortisation		127.5	130.1
Finance expense charged to Financial Services cost of sales		3.2	3.5
Increase in inventories		(81.4)	(5.1)
(Increase)/decrease in receivables		(27.5)	11.5
Increase in payables		19.0	63.2
Movement in working capital		(89.9)	69.6
Decrease in provisions		(20.3)	(40.8)
Movement in retirement benefit obligations		(10.9)	(15.6)
Share-based payment expense (net of dividend equivalent payments)		10.5	17.2
Cash generated from operations		278.8	461.0

Notes

For the 52 weeks ended 26 February 2011

9. RELATED PARTIES

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

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

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

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

Statement of directors' responsibilities

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

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

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

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

·  select suitable accounting policies and then apply them consistently;

·  make judgements and estimates that are reasonable and prudent;

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

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

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

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

By order of the Board

Terry Duddy                                                   Richard Ashton

Chief Executive                                               Finance Director

20 April 2011                                                  20 April 2011

 

END

 

 

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