Interim Results

Home Retail Group Plc 21 November 2006 21 November 2006 Home Retail Group plc Interim Results Home Retail Group, the UK's leading home and general merchandise retailer, today announces its Interim Results for the six months ended 30 September 2006. These results reflect the fact that it was wholly owned by its former parent company, GUS plc, throughout the period under review and continued to be so until the demerger became effective on 10 October 2006. These results are not therefore representative of the capital structure that Home Retail Group operated under from the date the demerger occurred. Certain pro forma information has been provided to illustrate the effect of the demerger on Home Retail Group. Group operating highlights * Strong growth in consumer electronics, furniture and kitchens * Capitalising on extensive product portfolio and market leadership; Extension of Argos 'Home' catalogue and Homebase 'big book of home furnishings' trials * Further supply chain benefits delivered through the leverage of group scale * Increased customer reach with 31 new stores opened across the Group * Multi-channel leadership enhancing growth; Argos Internet orders now representing 15% of its total sales; multi-channel skills being leveraged to support the Homebase proposition Financial highlights * Sales up 8% to Â£2,820m (2005: Â£2,618m) * Benchmark operating profit1 up 2% to Â£106.9m (2005: Â£105.3m); reported operating profit of Â£90.5m * Pro forma benchmark profit before tax2 of Â£112.6m; reported profit before tax of Â£66.2m * Pro forma basic benchmark earnings per share3 of 8.7p; reported basic earnings per share of 4.8p * Interim dividend of 4.0p per Home Retail Group share Oliver Stocken, Chairman of Home Retail Group, commented: 'We are delighted that our successful demerger has created the opportunity for investors to invest directly in what we believe is an extremely well-positioned and focused business. In particular, I would like to welcome some 30,000 employees as new shareholders in their business.' Terry Duddy, Chief Executive Officer of Home Retail Group, commented: 'Home Retail Group has delivered a good performance in the first half against a backdrop of challenging conditions in some of our markets. While we remain cautious on the short-term outlook for UK consumer spending, we will continue to drive our businesses forward for long-term growth. We have set out a clear strategy to achieve this, including leveraging the strength and breadth of our product offering and our unique multi-channel skills.' 1. Benchmark operating profit is defined as operating profit before amortisation of acquisition intangibles, store impairment charges, exceptional items and costs related to demerger incentive schemes. 2. Benchmark profit before tax ('PBT') is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items, costs related to demerger incentive schemes, financing fair value remeasurements, financing impact on retirement benefit balances and attributable taxation. It includes Home Retail Group's share of post-tax results of associates. Pro forma benchmark PBT for the six months ended 30 September 2006 is also presented to illustrate the impact on the Group's financial performance as if the demerger capital structure had existed from 1 April 2006. 3. Basic benchmark earnings per share ('EPS') is defined as Benchmark PBT less taxation attributable to Benchmark PBT, divided by the number of shares in issue at the date of demerger (excluding Home Retail Group shares that will be held in its Employee Share Ownership Trust ('ESOT')). Pro forma benchmark EPS for the six months ended 30 September 2006 is also presented to illustrate the impact on the Group's financial performance as if the demerger capital structure had existed from 1 April 2006. Enquiries Analysts and investors (Home Retail Group) Richard Ashton Finance Director 01908 600 291 Stuart Ford Head of Investor Relations Press (Finsbury) Rupert Younger 020 7251 3801 Rollo Head There will be a presentation today at 8.30am to analysts and investors at King Edward Hall, Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ. The presentation can be viewed live on the Home Retail Group website www.homeretailgroup.com. The supporting slides and an indexed replay will also be available on the website later in the day. Home Retail Group's Third Quarter Trading Update will be on 17 January 2007. Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements. Page 2 FINANCIAL SUMMARY Sales (Â£m) Profit (Â£m) Six months ended 30 September 2006 2005 2006 2005* Argos 1,794.1 1,608.6 72.4 59.2 Homebase 979.1 966.0 40.8 52.4 Financial Services 46.7 43.6 4.1 3.5 Central Activities - - (10.4) (9.8) Sales and benchmark operating profit 2,819.9 2,618.2 106.9 105.3 Pro forma net interest income# 5.7 n/a Share of post-tax results of associates - - Pro forma benchmark PBT 112.6 n/a Net interest costs attributable to GUS capital structure# (35.7) (18.9) Benchmark PBT 76.9 86.4 Exceptional items (16.4) (11.9) Financing fair value remeasurements (0.9) (3.7) Financing impact on retirement benefit balances 6.6 1.0 Profit before tax 66.2 71.8 Taxation attributable to benchmark PBT (25.9) (30.2) Other taxation 1.0 4.4 Profit for the period 41.3 46.0 Pro forma basic benchmark EPS 8.7p n/a Basic benchmark EPS 5.9p 6.5p Basic EPS 4.8p 5.3p Number of ordinary shares for the purpose of basic EPS 869.0m 869.0m Financial information in the above table and throughout this announcement has been prepared in accordance with the basis of preparation as set out in note 1 on page 18. * 2005 benchmark operating profit has been restated to reflect clearer IFRS interpretation on certain issues and the resegmentation of Central Activities. See Appendix 1 for details. # As part of the demerger, Home Retail Group was allocated pro forma net debt as at 31 March 2006 of Â£200m. For the six months ended 30 September 2006, pro forma net interest income has therefore been calculated to illustrate the impact on the Group's financial performance as if this capital structure had existed from 1 April 2006. The additional net interest costs attributable to the actual GUS capital structure that was in place for the six months ended 30 September 2006 are shown separately. Page 3 FINANCIAL SUMMARY (Continued) Sales up 8% to Â£2,820m, reflecting growth of 12% at Argos and 1% at Homebase. Benchmark operating profit up 2% to Â£106.9m, comprising a Â£13m increase at Argos (a Â£2m increase adjusting for Â£11m of one-off costs incurred in the first half last year), offset by the impact of continued difficult trading conditions at Homebase which saw its benchmark operating profit reduced by Â£12m. Pro forma benchmark PBT of Â£112.6m, being benchmark operating profit after crediting only the calculated net interest income reflective of being allocated pro forma net debt as at 31 March 2006 of Â£200m. Reported profit before tax of Â£66.2m. An effective tax rate based on pro forma benchmark PBT of 32.5%. This reflects an estimate of the effective tax rate for the financial year as if the pro forma capital structure had existed from 1 April 2006. Effective tax rate based on benchmark PBT of 33.7%. Reported effective tax rate of 37.6%. Pro forma basic benchmark EPS of 8.7p. Basic benchmark EPS of 5.9p. Basic EPS of 4.8p. All basic EPS figures have been calculated using 869.0m shares, being Home Retail Group's number of shares in issue on demerger (877.4m), less the number of shares that will be held in Home Retail Group's ESOT (8.4m). Interim dividend of 4.0p per Home Retail Group share announced. Net cash of Â£34.4m at 30 September 2006. This reflects the seasonality of cash flows from the allocated pro forma net debt as at 31 March 2006 of Â£200m, together with an improved working capital position. Change of financial year-end from 31 March to end of February. This will align year-end reporting dates across the rest of the Group to that of Homebase, which already has an end of February year-end to avoid distortions in its financial results relating to the timing of Easter. Page 4 DIVISIONAL REVIEWS Argos Six months ended 30 September 2006 2005* Sales (Â£m) 1,794.1 1,608.6 Benchmark operating profit (Â£m) 72.4 59.2 Benchmark operating margin 4.0% 3.7% Like-for-like change in sales 4.6% (2.7%) New space contribution to sales change 6.9% 6.3% Total sales change 11.5% 3.6% Benchmark operating profit change 22% (38%) Number of stores at period end 673 636 Of which Argos Extra stocked-in 218 167 * 2005 benchmark operating profit has been restated as set out in Appendix 1. As the UK's leading general merchandise retailer, Argos provides a highly successful and unique offer of choice, value and convenience. Argos - operational review Increased choice through Argos Extra continues to benefit sales growth. Argos has around 17,000 product lines available nationally across all stores and channels following last year's national roll-out of Argos Extra. The Extra ranges contributed approximately 2% to like-for-like growth in the half, as awareness of the wider offering continued to build. 218 stores now stock-in the additional products, up from 167 last year, with all remaining stores offering customers the option to either order-in for later collection from store or to have goods delivered direct to home. Extension of the separate 'Home' catalogue trial. In response to the encouraging early performance, Argos has extended its trial to now include approximately 200 stores. The second edition has 340 pages and contains over 3,000 products, presenting furniture and home accessories in a more aspirational way. In the latest Home catalogue, increased emphasis has been given to housewares, including new sections for bathroom and kitchen ranges. Argos continues to lower prices for consumers. An overall price reduction on reincluded lines has continued in the latest edition of the Argos catalogue, despite the impact of increases in certain raw material prices, particularly gold. In addition, Argos also typically lowers around 20% of prices during the life of a catalogue and communicates this through its 'non stop price drop' messaging. The Argos promotional programme includes flyers and brochures being distributed typically to around seven million homes a month to communicate current deals and permanent price drops. Argos has added a second national direct importing distribution centre. This 700,000 square foot facility opened in June and will build up to full capacity over the next 18 months. Page 5 Store portfolio growth to improve customer reach continues. There were 20 store openings and 4 store closures during the half, bringing the total at the end of the period to 673 stores. The sales growth contribution from net new stores was 7%, of which 2% came from last year's 33 acquired Index stores; the Index stores have now all been trading for over a year. Of the 20 store openings, one was a relocation, 7 were in new catchments with the remaining 12 being additional stores in an existing catchment. Argos expects to open a further 10 to 15 stores during the second half, in line with its ongoing plan to open around 30 stores a year. Argos' unique fully-integrated multi-channel capability continues to drive convenience for its customers. Check and Reserve is Argos' fastest growing channel segment and gives customers the flexibility to reserve products by phone or the Internet for later collection in store. Check & Reserve grew by over 50% and represented 10% of total sales in the first half. A further 8% of total sales were ordered over the Internet for delivery to home via Argos Direct, growing by over 40% on the same period last year. Argos Direct represented 25% of total sales, with orders placed in store for later home delivery representing approximately half of all Argos Direct orders. Argos continues to increase convenience for customers with developments to its proposition. Average sales participation in stores with kiosks is now approximately 12%. With around 250 kiosks being added in readiness for peak trading, there will be over 1,000 in operation by Christmas. Argos - financial review Sales in the first half of the financial year increased by 11.5% in total. Of this, 6.9% came from new space while like-for-like sales increased by 4.6%. The like-for-like performance was boosted by very strong growth in the lead up to and during the World Cup, with sales of flat panel TV packages and set top boxes growing particularly strongly. Video game systems and bedroom furniture performed well throughout the period. In the later months there was also strong growth in child safety and other nursery-related lines, while sales of seasonal products grew strongly with warmer weather. This overall strong sales performance in the half was, however, substantially offset by a related reduction in gross margin particularly in the earlier months of the period. This was driven by the shift in the product mix and by the popularity of Argos' promotional offers, partially countered by the benefits obtained from ongoing supply chain initiatives. Benchmark operating profit in the half was Â£72.4m, a Â£13.2m growth on the previous year. However, there were Â£11m of one-off charges incurred in the first half of last year relating to the transitional costs of the Index acquisition and restructuring costs associated with changing staffing arrangements in-store. Excluding these, benchmark operating profit grew 3%. Underlying operating cost inflation was about 4%, net of cost saving initiatives. A further 7% growth in operating costs (excluding the Â£11m of one-off charges) reflects the direct costs of higher sales, new space including the incremental operating costs of the acquired Index stores, and additional supply chain infrastructure. Page 6 Homebase Seven months ended 30 September 2006 2005* Sales (Â£m) 979.1 966.0 Benchmark operating profit (Â£m) 40.8 52.4 Benchmark operating margin 4.2% 5.4% Like-for-like change in sales (2.7%) (3.7%) New space contribution to sales change 4.1% 2.6% Total sales change 1.4% (1.1%) Benchmark operating profit change (22%) (36%) Number of stores at period end 305 293 Of which contain a mezzanine floor 158 134 * 2005 benchmark operating profit has been restated as set out in Appendix 1. Homebase is successfully executing its strategy to position itself as the UK's leading home enhancement retailer despite challenging conditions in its market. Homebase - operational review Homebase continues to differentiate itself further from its competitors with an enhanced and extended home furnishings offer. The 90 page Furniture Extra home delivery catalogue has over 700 lines and is available in all stores, with around 190 stores now having an edited product display. A new extended 270 page catalogue, the Homebase 'big book of home furnishings', features the Furniture Extra ranges plus a further 180 pages of wider home enhancement product categories. With the trial now rolled out to 100 stores, the catalogue presents to customers room settings, design themes and style-led coordination across numerous Homebase product categories. The initiative is also a further example of leveraging the existing sourcing and supply chain skills of Home Retail Group. Trials have begun to roll out the proven home enhancement offering throughout the Homebase chain. The development of new product ranges and the expansion of space through mezzanines are delivering returns above Home Retail Group's investment hurdle rate. The opportunity remains to provide a comprehensive and compelling set of merchandise ranges in a consistent manner throughout the store portfolio. Around one third of the portfolio has received minimal or no store refurbishment investment for a number of years. Initial trials have therefore recently begun to review how best to reconfigure space for additional ranges and improve customer perception in these stores. Homebase continues to add new space to improve customer reach and enhance the product offering. Including two store relocations, Homebase opened 11 new stores and closed 3, bringing the total at the end of the period to 305 stores. The majority of the new stores were of a smaller store format in new catchments. Homebase expects to open approximately 5 stores during the second half, in line with its ongoing plan to open around 15 stores a year. Page 7 At 30 September, 158 stores had a mezzanine floor, an increase of 14 over the period. Four mezzanines were added to existing stores, with the balance coming from the new store opening programme. Homebase - financial review Sales in the seven months ended 30 September increased by 1.4% in total, of which 4.1% came from new stores. Like-for-like sales declined by 2.7%. Sales of furniture and kitchens showed strong growth throughout the period, while core DIY and decorating ranges remained weak. The improvement in sales in the later months of the period was largely driven by warmer weather encouraging purchases of seasonal categories, particularly air conditioning and horticulture. As planned, gross margin was ahead of the previous year due to a reduced level of promotional activity in the earlier months of the period, together with the benefits obtained from supply chain initiatives. Benchmark operating profit in the period was Â£40.8m, an Â£11.6m decline on the previous year. Underlying operating cost inflation, net of cost saving initiatives, was about 4%, with a further 4% of cost growth reflecting additional investment largely in new space. Page 8 Financial Services Six months ended 30 September 2006 2005 Sales (Â£m) 46.7 43.6 Benchmark operating profit before financing costs 12.4 12.5 Financing costs (8.3) (9.0) Benchmark operating profit (Â£m) 4.1 3.5 Store card gross receivables (Â£m) 394 356 Personal loans gross receivables (Â£m) 38 78 Financial Services works in conjunction with Argos and Homebase to provide their customers with the most appropriate credit offers to drive product sales, while retaining the maximum possible profit from the transaction within Home Retail Group. Credit offers are supporting initiatives in the retail businesses such as the trial of the 'Home' catalogue in Argos and growing kitchen sales in Homebase. Store card gross receivables grew by Â£38m versus 12 months ago (Â£16m in the half), driven by further success of 'buy now pay later' credit offers. The store cards funded approximately 8% of Group retail sales. The continued planned run-off in personal loans saw a Â£40m reduction in gross receivables over the last 12 months (Â£17m in the half). This therefore offset the growth in the store card receivables, resulting in the total combined receivables being broadly unchanged. Growth in benchmark operating profit before financing costs was held back by an increase in bad debt provisioning reflecting conditions seen across the industry. The financing cost charged to Financial Services cost of sales reduced slightly as a result of the total gross receivables being at a lower average level half-on-half. Page 9 Central Activities Six months ended 30 September 2006 2005* Central Activities (Â£m) (10.4) (9.8) * 2005 Central Activities have been derived as set out in Appendix 1. Central Activities represents the cost of central corporate functions. As part of GUS Group, Home Retail was not historically recharged for these types of costs, but for the purposes of preparing this financial information, an approximation was made of the amount of shared corporate head office costs attributable to Home Retail which have been charged to it by GUS. These costs were affected by the historic arrangements in the GUS Group and are not therefore representative of the costs going forward. In addition, annual costs of Â£5m have been transferred from Argos to Central Activities for the year ended 31 March 2006, of which Â£2.5m was transferred in the first half. Pro forma net interest costs Six months ended 30 September 2006 2005 Pro forma net interest expense (2.6) n/a Financing costs charged to Financial Services cost of 8.3 9.0 sales Pro forma net interest income 5.7 n/a Net interest costs of capital structure under GUS (35.7) (18.9) Total net interest expense charged in benchmark PBT (30.0) (18.9) Financing fair value remeasurements (0.9) (3.7) Financing impact on retirement benefit balances 6.6 1.0 Income statement net financing costs (Â£m) (24.3) (21.6) For the purposes of arriving at benchmark PBT, the financing impact on retirement benefit balances is now excluded. The ongoing accounting charge, which Home Retail Group believes to be a fairer reflection of the cost of providing retirement benefits, is already reflected in benchmark operating profit. Pro forma net interest income in the six months ended 30 September was Â£5.7m. This reflects Â£2.6m of estimated net interest expense on Home Retail Group's net debt/cash position on the basis of a pro forma allocation of Â£200m net debt as at 1 April 2006. Against this is the credit of Â£8.3m reflecting the financing costs charged within Financial Services' benchmark operating profit. Page 10 OTHER INCOME STATEMENT ITEMS Exceptional items As disclosed in the demerger documentation, demerger-related costs of around Â£15m are expected to be incurred by Home Retail Group. These include costs in relation to early vesting of GUS plc share incentive schemes, banking set-up fees and other professional fees. Â£9.1m of this has been charged in the first half of this year, with the remainder expected to be incurred in the second half. An additional exceptional cost on demerger of Â£7.3m in relation to the waiver of a loan due from Experian has also been taken in the first half of this financial year. Financing fair value remeasurements Changes in the fair value of certain derivative instruments are recognised in the income statement within net financing costs. These amounted to charges of Â£0.9m (2005: Â£3.7m). Financing impact on retirement benefit balances The credit through net financing costs in respect of the excess of expected return on retirement benefit assets over the interest expense on retirement benefit liabilities amounted to Â£6.6m in the period (2005: Â£1.0m). The increase in the credit is principally as a result of the actuarial valuation of the defined benefit retirement schemes moving into modest surplus as a result of the special contribution of Â£100m which occurred in March 2006. Taxation The effective tax rate based on pro forma benchmark PBT is 32.5%. This reflects an estimate of the effective tax rate for the financial year assuming the pro forma capital structure of Â£200m net debt had existed from 1 April 2006. Taxation attributable to pro forma benchmark PBT for the six months ended 30 September 2006 is Â£36.6m. The effective tax rate based on benchmark PBT is 33.7% (2005: 35.0%), representing a tax expense of Â£25.9m (2005: Â£30.2m). The reported effective tax rate is 37.6% (2005: 35.9%), representing a total tax expense of Â£24.9m (2005: Â£25.8m). Page 11 NUMBER OF SHARES AND EARNINGS PER SHARE As previously announced, on demerger Home Retail Group was admitted to the Official List and to trading on the London Stock Exchange's market for listed securities with 877.4m issued ordinary shares. The number of shares for the purpose of calculating earnings per share in both periods has been taken as the number of shares in issue at the date of demerger, excluding 8.4m ordinary shares that will be held in Home Retail Group's ESOT. The calculation of diluted EPS reflects the potential dilutive effect of employee share incentive schemes in place post demerger. This increases the number of shares for diluted EPS purposes by 7.6m. DIVIDENDS As indicated at the time of demerger, a policy whereby the full year dividend is ordinarily covered at least twice by basic benchmark EPS has been established by the Board. For the current financial year, cover will be based on pro forma benchmark EPS. An interim dividend of 4.0p is today being announced and will be paid on 24 January 2007 to shareholders on the register at the close of business on 15 December 2006. Interim dividend payments are ordinarily expected to be approximately one-third of the anticipated full year dividend. However, for the current financial year, the final dividend payment will reflect the change of year end and the fact that the Group will report an approximate eleven month period. CASH FLOW AND NET DEBT As part of the demerger, Home Retail Group was allocated pro forma net debt of Â£200m as at 31 March 2006. Cash flows from operating activities (before incurring outflows related to interest, tax, investing and financing activities) were Â£392.1m in the period (2005: Â£193.7m). Cash generation in the first half is consistent with normal cash flow characteristics of the Group, but in the first half of this year has additionally benefited from good management of working capital and the difference in timing of Easter on the Group's 1 April opening balance sheet positions. There has also been a lower level of capital expenditure at Â£90.1m in the period (2005: Â£144.0m). Movement in net debt was an inflow of Â£234.4m from the pro forma net debt of Â£200m as at 31 March 2006. It is expected that an element of this movement will reverse in the second half. Page 12 CHANGE OF YEAR END Homebase currently has a 28 February year-end to avoid distortions in its financial results relating to the timing of Easter. This is non-coterminous with the 31 March year-end for the rest of the Group. Home Retail is therefore changing its financial year-end from 31 March to the end of February with immediate effect to align year-end reporting dates across the Group. Home Retail will also move to reporting on a 52 week financial year basis ending on the Saturday closest to the end of February. The Group will therefore report the financial period ended 3 March 2007. This will include the results for Homebase from 1 March 2006 (approximately 12 months) and the results for the rest of the Group from 1 April 2006 (approximately 11 months). Based on Argos' actual trading performance for the four week period over March 2006, it is estimated that the impact of not reporting the result for the period 4 March 2007 to 31 March 2007 on the results for the current year will be a reduction of Â£25m in terms of benchmark operating profit. In addition, the cost of Central Activities will be approximately Â£2m lower than on a full year basis. The impact on the rest of the Group will not be material. To assist with analysis and comparison, sales and profits for the 52 weeks to 3 March 2007 will be provided as part of the Preliminary Results to be announced on 2 May 2007. In advance of this, as part of the Second Half Trading Update, Home Retail Group will also provide sales and profits for the 52 weeks to 4 March 2006 and the 26 weeks to 2 September 2006. Trading Updates are expected to be provided covering the 14 weeks to 6 January 2007 on 17 January 2007, and the 22 weeks to 3 March 2007 on 14 March 2007. Page 13 Appendix 1. Restatement of benchmark operating profit for the six months ended 30 September 2005 As reported Lease Depreciation Central Restated November 2005 adjustment1 adjustment2 Activities3 Â£m Argos 57.3 (0.6) - 2.5 59.2 Homebase 48.1 - 4.3 - 52.4 FS 3.5 - - - 3.5 Sub-total 108.9 (0.6) 4.3 2.5 115.1 Central Activities3: - GUS apportionment (7.3) - Argos transfer (2.5) (9.8) Total 105.3 1 As previously announced at the full year results in May 2006, benchmark operating profit was reduced as a result of clearer IFRS interpretation regarding certain elements of lease accounting, namely the treatment of Guaranteed Rental Uplifts payable on certain leased premises. The full year adjustment was a charge of Â£1.2m and the equivalent adjustment required for the first six months of last year was a charge of Â£0.6m. 2 As previously announced at the full year results in May 2006, there was a lower depreciation charge in Homebase as a result of clearer IFRS interpretation regarding store impairment on transition to IFRS at 1 April 2004. The equivalent adjustment required for the first seven months of last year was a lower depreciation charge of Â£4.3m. 3 As disclosed in the demerger prospectus in September 2006, an approximation was made of the amount of GUS shared corporate head office costs attributable to Home Retail Group. For the year ended 31 March 2006, these were Â£11.2m. For the six months ended 30 September 2005 they were Â£7.3m. Additionally, it was disclosed that Â£5m of annual costs previously incurred by Argos would be transferred to Central Activities. The equivalent adjustment required for the first six months of last year was Â£2.5m. Page 14 HOME RETAIL GROUP PLC UNAUDITED COMBINED FINANCIAL INFORMATION COMBINED INCOME STATEMENT For the six months ended 30 September 2006 Year to Six months Six months to to 31.3.06 30.9.06 30.9.05 Â£m Notes Â£m Â£m 5,548.0 Revenue 4 2,819.9 2,618.2 (3,686.5) Cost of sales (1,851.2) (1,723.5) 1,861.5 Gross profit 968.7 894.7 (1,523.8) Operating expenses before exceptional items (861.8) (789.4) (24.7) Exceptional items 5 (16.4) (11.9) (1,548.5) Total operating expenses (878.2) (801.3) 313.0 Operating profit 4 90.5 93.4 (31.1) Net financing costs 6 (24.3) (21.6) (4.2) Share of post-tax results of associates - - 277.7 Profit before tax 66.2 71.8 (96.9) Total tax expense 7 (24.9) (25.8) 180.8 Profit for the period attributable to equity 41.3 46.0 shareholders pence Earnings per share 8 pence pence 20.8 - Basic 4.8 5.3 20.6 - Diluted 4.7 5.2 - Proposed dividend per share 9 4.0 - All activities relate to continuing operations Year to Six months Six months to to 31.3.06 Non-GAAP measures 30.9.06 30.9.05 Â£m Reconciliation of profit before tax to benchmark Â£m Â£m profit before tax (PBT) 277.7 Profit before tax 66.2 71.8 24.7 Effect of exceptional items 16.4 11.9 2.4 Effect of financing fair value remeasurements 0.9 3.7 (2.6) Financing impact on retirement benefit balances (6.6) (1.0) 302.2 Benchmark PBT 76.9 86.4 pence Benchmark earnings per share 8 pence pence 22.8 - Basic 5.9 6.5 22.6 - Diluted 5.8 6.4 Page 15 HOME RETAIL GROUP PLC COMBINED BALANCE SHEET At 30 September 2006 31.3.06 30.9.06 30.9.05 Â£m Notes Â£m Â£m ASSETS Non-current assets 1,878.9 Goodwill 1,878.9 1,878.9 61.5 Other intangible assets 83.3 56.3 696.8 Property, plant and equipment 685.9 673.0 0.6 Investment in associates 0.5 5.2 108.8 Deferred tax assets 109.0 110.0 43.1 Trade and other receivables 24.9 78.8 8.4 Other financial assets 13.0 11.5 25.9 Retirement benefit assets 21.9 - 2,824.0 Total non-current assets 2,817.4 2,813.7 Current assets 881.0 Inventories 932.5 901.0 1,581.1 Trade and other receivables 10 508.1 1,082.2 6.7 Current tax assets 7.0 - 1.9 Financial assets - 9.6 130.6 Cash at bank and in hand 264.0 140.0 2,601.3 Total current assets 1,711.6 2,132.8 5,425.3 Total assets 4,529.0 4,946.5 LIABILITIES Non-current liabilities (27.8) Trade and other payables (33.8) (61.6) (221.6) Loans and borrowings (229.2) (224.8) (67.2) Deferred tax liabilities (66.6) (45.8) - Retirement benefit obligations - (86.9) (316.6) Total non-current liabilities (329.6) (419.1) Current liabilities (864.3) Trade and other payables 11 (1,104.4) (970.5) (1,327.3) Loans and borrowings 12 (0.4) (795.2) (89.0) Provisions (92.8) (86.5) - Other financial liabilities (9.3) - (53.4) Current tax liabilities (45.0) (55.8) (2,334.0) Total current liabilities (1,251.9) (1,908.0) (2,650.6) Total liabilities (1,581.5) (2,327.1) 2,774.7 Net assets 2,947.5 2,619.4 EQUITY 2,774.7 GUS investment in Home Retail Group 13 2,947.5 2,619.4 Page 16 HOME RETAIL GROUP PLC COMBINED CASH FLOW STATEMENT For the six months ended 30 September 2006 Year to Six Six months to months to 31.3.06 30.9.06 30.9.05 Â£m Notes Â£m Â£m Cash flows from operating activities 364.6 Cash generated from operations 14 392.1 193.7 (51.5) Interest paid on bonds, bank loans and overdrafts (33.4) (18.1) 19.0 Interest received 9.0 5.1 (91.0) Tax paid (31.2) (28.9) 241.1 Net cash inflow from operating activities 336.5 151.8 Cash flows from investing activities (231.3) Purchase of property, plant and equipment (75.1) (136.0) 4.2 Proceeds from the disposal of property, plant and 2.1 2.5 equipment (23.3) Purchase of intangible assets (15.0) (8.0) (5.5) Purchase of investment - - (45.1) Acquisition of businesses - (45.0) (301.0) Net cash flows used in investing activities (88.0) (186.5) Cash flows from financing activities (8.8) Movement in invested capital (56.6) 5.3 - Home Retail Group share of GUS plc final dividend 9 (62.0) - 179.7 New borrowings - 154.3 (1.0) Repayment of finance leases (0.8) (0.8) 169.9 Net cash flows (used in)/generated from financing (119.4) 158.8 activities 110.0 Net increase in cash and cash equivalents 129.1 124.1 Movement in cash and cash equivalents 20.0 Cash and cash equivalents at 1 April 130.0 20.0 - Exchange and other movements 4.9 (4.1) 110.0 Net increase in cash and cash equivalents 129.1 124.1 130.0 Cash and cash equivalents at end of the financial period 264.0 140.0 COMBINED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30 September 2006 Year to Six months to Six months to 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m Net (expense)/income recognised directly in equity 1.1 Fair value (losses)/gains (6.1) 8.9 6.1 Actuarial (losses)/gains in respect of defined (4.5) (6.2) retirement benefit schemes 1.5 Currency translation differences (0.4) (1.7) 2.0 Tax credit/(charge) in respect of items taken directly 3.2 (0.8) to equity 10.7 Net (expense)/income recognised directly in equity (7.8) 0.2 180.8 Profit for the period attributable to shareholders 41.3 46.0 191.5 Total recognised income for the period attributable to 33.5 46.2 shareholders Page 17 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 1. Basis of preparation The unaudited interim combined financial information comprises the results for the six months ended 30 September 2006 and 2005 and the audited combined results for the twelve months ended 31 March 2006. Homebase Limited results are included for the seven months to 30 September and for the 12 months to 28 February 2006 with adjustments to reflect the balance sheet movements in cash to 31 March 2006. This approach has been followed to facilitate comparability of the income statement by avoiding the distortions that would arise relating to changes in the timing of Easter. Home Retail Group has announced their intention to align year end across the group to end of February from the current financial year. The combined financial information for the 12 months ended 31 March 2006 has been extracted from the prospectus of Home Retail Group plc, dated 14 September 2006. The interim combined financial information is not audited and does not constitute statutory accounts. These financial statements have been formally reviewed by the Group's auditors, PricewaterhouseCoopers LLP, and their report is set out on page 25. Home Retail Group reorganisation Home Retail Group demerged from its parent company, GUS plc, with effect from 10 October 2006. Shares in Home Retail Group were admitted to the Official List of the Financial Services Authority and to trading on the London Stock Exchange's market for listed securities on 11 October 2006. At 30 September 2006, Hampden Group Limited, an intermediate holding company within the GUS Group, owned all Home Retail Group companies existing at that date. Ownership of Hampden Group Limited transferred from GUS plc to Home Retail Group plc (formerly known as ARG Holdings (UK) plc) post 30 September 2006 but prior to admission and the demerger will be accounted for using merger accounting principles. This combined financial information presents the financial records of those businesses which were held by Home Retail Group plc as at the date of admission of the shares of Home Retail Group plc to the Official List and to trading on the London Stock Exchange. The combined financial information has been prepared, using merger accounting principles, by combining the individual financial returns of the companies that comprise the Hampden Group Limited for the year ended 31 March 2006 and the six months ended 30 September 2006 and 2005. The individual financial returns were prepared for GUS plc consolidation purposes and have been adjusted for relevant items previously only recorded at the GUS Group level. Internal transactions within Home Retail Group have been eliminated on combination. Home Retail Group did not form a separate legal group at 30 September 2006, 30 September 2005 or 31 March 2006 and therefore it is not possible to show share capital or an analysis of reserves for Home Retail Group. The net assets of Home Retail Group are represented by the cumulative investment of GUS in Home Retail Group (shown as 'GUS investment in Home Retail Group'). The following summarises the principles applied in preparing the unaudited interim combined financial information: - Where a balance is interest bearing and has the characteristics of debt, it has been presented as debt in the balance sheet, with the interest taken to the income statement. Accordingly, the interest income and expense recorded in the combined income statement have been affected by the financing arrangements within the GUS Group and are not necessarily representative of the interest income and expense that would have been reported had Home Retail Group been independent. They are not necessarily representative of the interest income and expense that may arise in the future. - The GUS Group had not historically recharged corporate head office costs comprising administration, management and other services including, but not limited to, management information, accounting and financial reporting, treasury, taxation, cash management, employee benefit administration, investor relations and professional services to its underlying businesses. However for the purposes of the preparation of the combined financial information an approximation has been made of the amounts of shared corporate head office costs attributable to Home Retail Group. These costs were affected by the arrangements that existed in the GUS Group and are not necessarily representative of the costs that may prevail in the future. - The GUS Group has historically operated a central cash account whereby certain cash costs are settled centrally by the GUS Group on behalf of Home Retail Group such as tax. For the purposes of preparation of the combined financial information, such centrally settled cash costs have been allocated to Home Retail Group and reflected in the cash flow statement in line with the reallocation of the related balances to Home Retail Group in the balance sheets and income statement as described above. - Tax charges in this combined financial information have been determined based on the tax charge recorded by Home Retail Group companies in their local statutory accounts as well as certain adjustments made for GUS Group consolidation purposes. Page 18 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 - All trading balances between Home Retail Group and other GUS Group companies have been presented in either debtors or creditors. - Where a GUS Group balance is unconnected with a trading relationship, is long term and non-interest bearing it has been reclassified from debtors and creditors and presented as equity within the 'GUS investment in Home Retail Group'. Accordingly, the GUS investment in Home Retail Group comprises: (a) Long term loans due to and from other GUS Group companies; (b) Assets and liabilities not forming part of Home Retail Group on demerger; and (c) Share capital and reserves of Home Retail Group companies. IFRS This interim combined financial information has been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee ('IFRIC') interpretations as adopted by the European Union and with parts of the Companies Act 1985 applicable to companies reporting under IFRS and complies with the requirements of the Listing Rules issued by the Financial Services Authority. This interim combined financial information has been prepared under the historical cost convention as modified by the revaluation of certain financial instruments. Home Retail Group has chosen not to adopt IAS 34 'Interim Financial Statements' in preparing the interim combined financial information. Accounting policies The accounting policies adopted by Home Retail Group are set out in the prospectus of Home Retail Group plc dated 14 September 2006, which is available on Home Retail Group's website www.homeretailgroup.com. These policies have been consistently applied for all periods presented. 2. Use of non-GAAP measures Home Retail Group has identified certain measures that it believes will assist understanding of the performance of the business. The measures are not defined under IFRS and they may not be directly comparable with other companies' adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance but Home Retail Group has included them as they consider them to be important comparables and key measures used within the business for assessing performance. The following are the key non-GAAP measures identified by Home Retail Group: 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 the underlying performance of the combined business. 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 PBT Home Retail Group uses benchmark PBT as a measure of underlying performance. Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items, costs related to demerger incentive schemes, financing fair value remeasurements and financing impact on retirement benefit balances. Average Closing Six months Six months Year to to to 3. Foreign currency 30.9.06 30.9.05 31.3.06 30.9.06 30.9.05 31.3.06 The principal exchange rates used were as follows: Sterling to US dollar 1.84 1.82 1.79 1.87 1.76 1.74 Sterling to euro 1.45 1.47 1.46 1.47 1.47 1.44 Assets and liabilities of overseas undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date and the income statement is translated into sterling at average rates of exchange. Page 19 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 4. Segmental information Home Retail Group's primary reporting format is by business segment. This is in line with the current management structure, which reflects the different risks associated with the different businesses. The Group is organised into three main business segments: Argos, Homebase and Financial Services. Central Activities represents the cost of central corporate functions. Six months ended 30 September 2006 Financial Central Argos Homebase Services Activities Total Notes Â£m Â£m Â£m Â£m Â£m Revenue 1,794.1 979.1 46.7 - 2,819.9 Operating profit Operating profit before exceptional 72.4 40.8 4.1 (10.4) 106.9 items Exceptional items 5 - - - (16.4) (16.4) Segmental result 17 72.4 40.8 4.1 (26.8) 90.5 Six months ended 30 September 2005 Financial Central Argos Homebase Services Activities Total Notes Â£m Â£m Â£m Â£m Â£m Revenue 1,608.6 966.0 43.6 - 2,618.2 Operating profit Operating profit before exceptional 59.2 52.4 3.5 (9.8) 105.3 items Exceptional items 5 - (11.9) - - (11.9) Segmental result 17 59.2 40.5 3.5 (9.8) 93.4 The results for Financial Services are after deducting funding costs of Â£8.3m (2005: Â£9.0m). The result for Argos has been restated for the six months ended 30 September 2005 by reallocating Â£2.5m of costs to Central Activities. 12 months ended 31 March 2006 Financial Central Argos Homebase Services Activities Total Notes Â£m Â£m Â£m Â£m Â£m Revenue 3,892.6 1,561.8 93.6 - 5,548.0 Operating profit Operating profit before exceptional 296.0 51.8 6.1 (16.2) 337.7 items Exceptional items 5 - (24.7) - - (24.7) Segmental result 17 296.0 27.1 6.1 (16.2) 313.0 The results for Financial Services are after deducting funding costs of Â£15.8m. The result for Argos has been restated for the 12 months ended 31 March 2006 by reallocating Â£5.0m of costs to Central Activities. Page 20 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 5. Exceptional items Year to Six months to Six months to 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m - Costs relating to the demerger of Home Retail Group and 9.1 - Experian(a) - Waiver of loan from Experian(b) 7.3 - 11.9 Re-organisation costs(c) - 11.9 12.8 Store impairment charges - - 24.7 Total exceptional items 16.4 11.9 (a) Demerger-related expenditure including costs in relation to early vesting of share incentive schemes, banking set up fees and other professional fees. (b) Represents a loan due from Experian which has been waived as part of the demerger process. (c) In 2005, Home Retail Group (then ARG), undertook a reorganisation whereby approximately 500 Homebase roles, including the merchandising and buying functions previously based in Wallington, Surrey, relocated to the Group's head office in Milton Keynes. The costs of the move have totalled Â£11.9m in 2006. 6. Net financing costs Year to Six months to Six months to 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m Finance income 10.3 Interest receivable from GUS Group companies 4.0 5.3 8.7 Bank deposits 4.8 - 27.5 Expected return on retirement benefit assets 20.7 14.0 46.5 Total finance income 29.5 19.3 Finance expense (9.2) Perpetual securities interest (4.6) (4.7) (2.4) Financing fair value remeasurements (0.9) (3.7) (0.8) Bank loans and overdrafts 0.8 1.0 (55.6) Interest payable to GUS Group companies (40.7) (29.1) (0.5) Discount unwind on provisions (1.4) (0.4) (24.9) Interest expense on retirement benefit liabilities (14.1) (13.0) - Interest expense on OFT fine (1.2) - (93.4) Total finance expense (62.1) (49.9) 15.8 Less: finance expense charged to Financial Services 8.3 9.0 cost of sales (77.6) Total net finance expense (53.8) (40.9) (31.1) Net financing costs (24.3) (21.6) 7. Taxation Year to Six months Six months to to 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m Tax expense (95.3) - UK (23.9) (25.8) (1.6) - Overseas (1.0) - (96.9) (24.9) (25.8) The tax charge for the period of Â£24.9m (2005: Â£25.8m) is based on an estimated effective rate of tax of 37.6% (2005: 35.9%). The effective rate of tax based on benchmark PBT, defined as the total tax expense, adjusted for the tax impact of non-bench mark items, divided by benchmark PBT of Â£76.9m (2005: Â£86.4m), is 33.7% (2005: 35.0%). Page 21 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 8. Basic and diluted earnings per share ('EPS') Basic and diluted EPS for all reported periods have been completed on the basis of the number of Home Retail Group plc ordinary shares in issue at the date of demerger, excluding ordinary shares that will be held in Home Retail Group's Employee Share Option Trust ('ESOT'). The calculation of basic and diluted EPS is based on the following data: Year to Six months Six months to to 31.3.06 30.9.06 30.9.05 Â£m Note Â£m Â£m Earnings 180.8 Profit after tax for the financial period 41.3 46.0 24.7 Effect of exceptional items 5 16.4 11.9 2.4 Effect of financing fair value remeasurements 0.9 3.7 (2.6) Financing impact on pension balances (6.6) (1.0) (7.3) Attributable taxation (1.0) (4.4) 198.0 Benchmark profit after tax for the financial 51.0 56.2 period m Number of shares m m 870.5 Number of ordinary shares for the purpose of 870.5 870.5 basic EPS 7.6 Dilutive effect of shares incentive awards 7.6 7.6 878.1 Number of ordinary shares for the purpose of 878.1 878.1 diluted EPS pence EPS pence pence 20.8 Basic EPS 4.8 5.3 22.8 Basic benchmark EPS 5.9 6.5 20.6 Diluted EPS 4.7 5.2 22.6 Diluted benchmark EPS 5.8 6.4 9. Dividend An interim dividend of 4.0 pence per Home Retail Group plc ordinary share has been proposed (but not provided) and will be paid on 24 January 2007 to shareholders on the register at the close of business on 15 December 2006. The amount absorbed by this first dividend of Home Retail Group plc is Â£35m. In August 2006, Â£62m was paid to GUS plc as Home Retail Group's share of the GUS plc final dividend in respect of the year ended March 06. 10. Trade and other receivables - current 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m 516.8 Trade and other receivables - external 508.1 481.1 1,064.3 Trade and other receivables - GUS Group companies - 601.1 1,581.1 Total trade and other receivables 508.1 1,082.2 11. Trade and other payables - current 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m 863.1 Trade and other payables - external 1,089.9 970.5 1.2 Trade and other payables - GUS Group companies 14.5 - 864.3 Total trade and other payables 1,104.4 970.5 Page 22 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 12. Loans and borrowings - current 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m 1.8 Loans and borrowings - external 0.4 1.4 1,325.5 Loans and borrowings - GUS Group companies - 793.8 1,327.3 Total loans and borrowings 0.4 795.2 13. Reconciliation of movement in invested capital 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m 180.8 Profit for the period attributable to shareholders 41.3 46.0 (12.0) Dividends paid and proposed to other GUS Group companies (7.1) (5.9) (6.3) Other movements 0.4 (17.0) 10.7 Movements in Statement of Recognised Income and Expense (7.8) 0.2 - Capitalisation of loans and other GUS Group balances 200.0 - - Home Retail Group share of GUS plc final dividend (62.0) - 9.6 Share Scheme 8.0 4.2 182.8 Net change in investment in Home Retail Group 172.8 27.5 2,591.9 Opening investment in Home Retail Group 2,774.7 2,591.9 2,774.7 Closing investment in Home Retail Group 2,947.5 2,619.4 14. Cash generated from operations Year to Six months to Six months to 31.3.06 30.9.06 30.9.05 Â£m Â£m Â£m 313.0 Operating profit 90.5 93.4 1.0 Loss on sale of property, plant and equipment - - 134.9 Depreciation and amortisation 77.0 69.1 7.6 (Increase)/decrease in stocks (51.5) (12.5) 5.8 (Increase)/decrease in debtors 22.3 (2.3) (33.1) Increase/(decrease) in creditors 235.7 25.8 13.8 Increase/(decrease) in provisions for liabilities and 3.9 (0.6) charges (88.0) Movement in retirement benefits 6.2 10.7 9.6 Movements in share reserve 8.0 10.1 364.6 Cash generated from operations 392.1 193.7 15. Post balance sheet events (a) Group reorganisation Home Retail Group was demerged from GUS plc with effect from 10 October 2006 whereupon Home Retail Group plc became the ultimate parent company of Home Retail Group companies. Shares in Home Retail Group plc were admitted to listing on the London Stock Exchange on 11 October 2006. (b) OFT fine On 19 October 2006, the Court of Appeal dismissed Argos' appeal against the penalty imposed on Argos by the Office of Fair Trading. Argos is seeking leave to appeal to the House of Lords. A provision of Â£16.2m in relation to the fine and associated interest costs was charged in the year ended 31 March 2005 and this was increased by a further Â£1.2m for associated interest costs in the six months ended 30 September 2006. Page 23 HOME RETAIL GROUP PLC NOTES TO THE COMBINED FINANCIAL INFORMATION For the six months ended 30 September 2006 16. Home Retail Group website The maintenance and integrity of the Home Retail Group website, www.homeretailgroup.com, is the responsibility of the Company's directors. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Combined Financial Information since it was initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. 17. Reconciliation of segmental result A reconciliation between the segmental result of Home Retail Group presented in the financial statements of GUS plc and the segmental result shown in note 5 above is set out below: Year to Six months Six months to to 31.3.06 30.9.06 30.9.05 Â£m Notes Â£m Â£m 336.1 Home Retail Group segment - as previously reported 108.9 by GUS plc 5.0 Costs allocated to Central Activities((a)) 2.5 Further IFRS adjustments for: - lease accounting (0.6) - depreciation relating to store impairment charges 4.3 341.1 Home Retail Group segment - as reported on 21 117.3 115.1 November 2006 (16.2) Costs allocated to Central Activities((a)) (10.4) (9.8) (11.9) Exceptional item relating to reorganisation costs 5 - (11.9) - Exceptional items relating to the demerger 5 (16.4) - 313.0 Segmental result 4 90.5 93.4 (a) For the purposes of preparation of the Combined Financial Information an allocation has been made in respect of shared corporate head office costs between GUS plc, Experian and Home Retail Group, based on estimated usage of services; together with a re-allocation of central costs from Argos to Central Activities. Page 24 HOME RETAIL GROUP PLC INDEPENDENT REVIEW REPORT TO HOME RETAIL GROUP PLC Introduction We have been instructed by the Company to review the financial information for the six months ended 30 September 2006 which comprises the combined interim balance sheet as at 30 September 2006 and the related combined interim statements of income, cash flows and recognised income and expense for the six months then ended and related notes. This financial information has been prepared on the basis set out in note 1 to the financial information. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in 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 the Company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2006. PricewaterhouseCoopers LLP Chartered Accountants London 21 November 2006 Notes: (a) The maintenance and integrity of the Home Retail Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. Page 25 HOME RETAIL GROUP PLC SHAREHOLDER INFORMATION Registrar Enquiries concerning holdings of the Company's shares and notification of the holder's change of address should be referred to Lloyds TSB Registrars, the Causeway, Worthing, West Sussex, BN99 6DA (telephone: 0845 603 9903). Electronic communications Shareholders can arrange to receive future Home Retail Group plc annual and interim reports electronically and to submit voting instructions on line at shareholder meetings by registering at www.shareview.co.uk. The service is provided by Lloyds TSB Registrars and gives access to a comprehensive range of shareholder information, including dividend payment details. Home Retail Group plc website A full range of investor information on Home Retail Group is available at www.homeretailgroup.com. This includes webcasts of results presentations given to analysts and fund managers together with the slides accompanying those presentations. Dividend Reinvestment Plan The Home Retail Group Dividend Reinvestment Plan ('DRIP') enables shareholders to use their cash dividends to purchase Home Retail Group shares. Shareholders who wish to participate in the DRIP for the first time, in respect of the interim dividend to be paid on 24 January 2007, should return a completed and signed DRIP mandate form to be received by the Registrar, by no later than 3 January 2007. For further details, please contact Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA (telephone: 0870 241 3018). Share price information The latest Home Retail Group share price is available on the Home Retail Group website, as well as through other information services such as Ceefax, Teletext and also on the Financial Times Cityline Service telephone 0906 843 2740 (calls charged at 60p per minute). Share dealing facility Existing or potential investors can buy or sell Home Retail Group ordinary shares using an Internet or telephone share dealing service provided by Lloyds TSB Registrars by logging onto www.shareview.co.uk or by calling 0870 850 0852 between 8.30am and 4.30pm weekdays. Financial calendar Interim ex-dividend date 13 December 2006 Third quarter trading update 17 January 2007 Interim dividend to be paid 24 January 2007 Second half trading update 14 March 2007 Preliminary results for the period to 3 March 2007 2 May 2007 Final ex-dividend date 23 May 2007 First quarter trading update 13 June 2007 Final dividend to be paid 25 July 2007 Registered office Home Retail Group plc, Avebury, 489 - 499 Avebury Boulevard, Milton Keynes MK9 2NW Page 26 This information is provided by RNS The company news service from the London Stock Exchange

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