Group financial review
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Number of shares and earnings per share
The number of shares for the purpose of calculating basic earnings per share (EPS) is 867.7m (2007: 869.6m), representing the weighted average number of issued ordinary shares of 877.4m (2007: 877.4m), less the weighted average ordinary shares held in Home Retail Group’s Employee Share Ownership Trust (ESOT) of 9.7m (2007: 7.8m).
The calculation of diluted EPS reflects the potential dilutive effect of employee share incentive schemes in place post demerger. This increases the number of shares for diluted EPS purposes by 9.6m (2007: 7.6m) to 877.3m (2007: 877.2m).
Basic benchmark EPS is 33.9p (2007 pro forma: 29.3p), with diluted benchmark EPS of 33.6p (2007 pro forma: 29.0p). Reported basic EPS is 34.0p (2007: 21.6p), with reported diluted EPS of 33.6p (2007: 21.4p).
Dividends
Home Retail Group’s dividend policy remains to target dividend cover over the medium term of around two times, based on full-year basic benchmark EPS.
A final dividend of 10.0p (2007: 9.0p) is being recommended by the Board, making 14.7p for the year (2007: 13.0p). Based on basic benchmark EPS of 33.9p (2007 pro forma: 29.3p), this represents cover of 2.31 times (2007 pro forma: 2.25 times). Based on reported basic EPS of 34.0p (2007: 21.6p), it represents cover of 2.31 times (2007: 1.66 times).
The final dividend, subject to approval by shareholders at the AGM, is to be paid on 23 July 2008 to shareholders on the register at the close of business on 23 May 2008.
Cash flow and closing net cash position
| Period to | 1 March 2008 (52 weeks) £m |
3 March 2007 (short period) £m |
|---|---|---|
| Benchmark operating profit | 398.0 | 359.4 |
| Change of year-end pro forma adjustments | – | (25.7) |
| Exceptional items within operating profit | 0.8 | (22.7) |
| Demerger incentive scheme costs | (11.7) | (5.8) |
| Statutory operating profit after exceptional items | 387.1 | 305.2 |
| Depreciation and amortisation | 151.6 | 146.4 |
| Statutory EBITDA | 538.7 | 451.6 |
| Movement in working capital | (48.1) | 127.2 |
| Finance expense charged to FS cost of sales | 19.6 | 16.4 |
| Adjustments for other non-cash operating items | 54.0 | 25.7 |
| Cash flows from operating activities | 564.2 | 620.9 |
| Net interest | 15.1 | (37.8) |
| Taxation | (95.1) | (101.6) |
| Net capital expenditure | (207.9) | (158.6) |
| Acquisitions and disposals | (46.2) | (3.8) |
| Loan to joint venture | – | (8.1) |
| Cash inflow before financing activities | 230.1 | 311.0 |
| Dividends paid | (118.9) | (34.6) |
| Share of GUS plc final dividend | – | (62.0) |
| Repayment of amounts to GUS plc | – | (50.3) |
| Repayment of borrowings | (225.1) | (1.2) |
| Other financing activities | 2.3 | (6.1) |
| Net (decrease)/increase in cash and cash equivalents | (111.6) | 156.8 |
| Opening cash and cash equivalents | 283.8 | 130.0 |
| Net cash (outflow)/inflow | (111.6) | 156.8 |
| Effect of foreign exchange rate changes | 1.8 | (3.0) |
| Closing cash and cash equivalents | 174.0 | 283.8 |
| Closing borrowings | – | (223.6) |
| Closing net cash | 174.0 | 60.2 |
Cash flow and closing net cash position
Cash flows from operating activities were £564.2m (2007: £620.9m). As the prior year was a short period of approximately 11 months due to the change in year-end, there was a benefit in the prior year from the exclusion of March, which is typically a significant cash outflow month in terms of working capital. Excluding this, underlying growth in operating cash flow was therefore driven principally by the growth in profits.
A net interest inflow of £15.1m (2007: outflow of £37.8m) reflects improved cash generation and higher rates of interest earned, together with the removal of the impact from the previous GUS capital structure up to the point of demerger.
Net capital expenditure was £207.9m (2007: £158.6m), with the increase principally driven by a full 52-week period together with an additional £19m in relation to the expected £30m programme to refit the acquired Focus DIY stores. Overall, a broadly similar level of Group capital expenditure is expected in the next financial year.
Cash outflows in relation to acquisitions and disposals reflects £39.6m to purchase 27 store properties from Focus DIY, £6.8m to acquire a 33% holding in the Irish homewares business ‘home store + more’, proceeds of £3.9m from the disposal of the Group’s 33% holding in AAGUS, and associated costs related to these transactions.
Cash flows in relation to financing activities in the year principally reflect dividend payments to shareholders, together with the use of cash balances to repay in full a £225m borrowing arrangement inherited from GUS plc on demerger. The Group’s net cash position at 1 March 2008 was therefore £174.0m, an increase of £113.8m on the opening net cash position at 3 March 2007 of £60.2m.
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