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Home Retail Group H OME R E TAIL GR TAIL O UP UP PLC Visit our 2014 annual report and corporate Annual Report and Financial Statements 2014 Statements Financial and Report Annual responsibility report at www.homeretailgroup.com Annual Report and Financial Statements 2014 HOME RETAIL GROUP PLC Avebury 489–499 Avebury Boulevard Milton Keynes MK9 2NW Tel: 0845 603 6677 www.homeretailgroup.com ‘‘ The Group has delivered a good financial performance in the year and it has maintained its strong financial position.” John Coombe Chairman ‘‘ We’ve made good progress with our strategic plans in both businesses, which will become increasingly important in a competitive retail environment where shopping behaviours are changing rapidly.” John Walden Chief Executive Our online reporting suite We’re always looking to make life easy. All our corporate Corporate website reports are available online, which helps us to minimise our Find our latest news, reports and images quickly environmental impact and save cost. The websites below contain and easily, along with information about our a wealth of information about Home Retail Group and our latest corporate responsibility activities. corporate website is updated throughout the year, so this, especially, is a good way of keeping up to date. www.homeretailgroup.com Annual report View an online version of the Annual Report and Financial Statements and download a full PDF version too. www.homeretailgroup.com/ar/2014/ Corporate responsibility You’ll find a summary of our corporate responsibility activities on pages 22 and 23 of this report, but you’ll find much more information and be able to download a summary PDF version at: Design Print Paper saslondon.com Printed by CPI Colour This has been printed on Cocoon Offset paper. The paper has been www.homeretailgroup.com/cr/ awarded the NAPM 100% Recycled Mark. Produced at a mill that is Board photography certified with the ISO14001 environmental management standard. Iain Crockart FSC® Recycled Product supporting responsible use of forest If you’re a shareholder, you can receive information James Johnson resources. The fibre source is 100% de inked post consumer waste. more quickly and help us save paper and money by Ben Normington The pulp is bleached using a totally chlorine free (TCF) process and registering for all future shareholder communications the inks used are all vegetable oil based. online at www.homeretailgroup-shares.com Home Retail Group Annual Report 2014 3 STRATEGIC REPORT 04 Our business model 05 Our strategy 06 Our product markets 07 Chairman’s statement 08 Chief Executive’s statement 10 Group performance 12 Argos review 16 Homebase review 20 Financial Services review 22 Responsible retailing 24 Principal risks and uncertainties 26 Financial summary 27 Group financial review GOVERNANCE 32 Board of Directors and Operating Board 34 Corporate governance 39 Nomination Committee report 40 Audit Committee report 44 Directors’ remuneration report 60 Directors’ report 63 Statement of directors’ responsibilities FINANCIAL STATEMENTS 64 Independent auditors’ report – Group 68 Consolidated income statement 69 Consolidated statement of comprehensive income 70 Consolidated balance sheet 71 Consolidated statement of changes in equity 72 Consolidated statement of cash flows 73 Analysis of net cash/(debt) 74 Notes to the financial statements 114 Independent auditors’ report – Parent 116 Parent Company balance sheet 117 Parent Company statement of changes in equity 117 Parent Company statement of cash flows 118 Notes to the Parent Company financial statements 121 Group five-year summary ADDITIONAL INFORMATION 123 Shareholder information 125 Index Home Retail Group 4 Annual Report 2014 Our business model We aim to provide outstanding value and convenience for our customers through the operation of our two retail brands; Argos and Homebase. Customers are at the heart of our business, with over 180m transactions during the year. We use the insight that our many customers provide to add value to our business model. Retail brands Financial Sourcing and strength Outstanding value infrastructure and convenience for our customers Financial Products Services Colleagues Multi-channel retailer Retail brands advantage of developments in technology that have brought about We are one of the UK’s leading home and general merchandise retailers, a fundamental and permanent shift in the way our customers shop. bringing together two of the UK’s most recognisable retail brands – Our successful internet and mobile channels help make us a market leader Argos and Homebase. in multi-channel retailing. This is supported with a national network of over 1,000 stores which provides customers with local pick-up points, giving us Sourcing and infrastructure both digital leadership and local presence which we believe gives us a We source our products both locally and globally. The scale of the signifi cant competitive advantage over our pure-play internet competitors. combined sourcing synergy of Argos and Homebase allows us to offer great choice and value to our customers. We have a strong supply chain which, Colleagues together with our logistics infrastructure, enables us to provide products Our ability to deliver our business model is underpinned by our 47,000 for our customers for either store pick-up or home delivery. dedicated colleagues who serve our customers every day and we are committed to their ongoing training and development. Products We offer a comprehensive range of over 80,000 products across home and Financial Services general merchandise. We support our offer of well-known product brands Both Argos and Homebase are supported by an in-house fi nancial with a portfolio of own and exclusive brands such as Habitat, Bush, Alba, services offer, which provides a range of credit products for our customers. Chad Valley and Odina. Financial strength Multi-channel retailer The Group has strong operational cash-generating characteristics and is in We are a multi-channel retailer in that we offer our customers a number of a strong fi nancial position, with £331m of cash. This supports our strategy convenient ways in which they can purchase their products. We are taking for growth. FINANCIAL ADDITIONAL Home Retail Group STRATEGIC REPORT GOVERNANCE STATEMENTS INFORMATION Annual Report 2014 5 Our strategy Home Retail Group operates with a clear scale advantage, derived from a In Homebase this means: well-invested infrastructure which has been built up over a period of many Enhanced products and brands years. Our strategy has been developed with the intention of creating .Create clear points of customer differentiation and competitive long-term value for our stakeholders by delivering sustainable growth in advantage our retail brands. .Develop and extend the reach of both exclusive and own brands Our vision is to build successful businesses that bring outstanding value .Showcase product displays to help our customers with ideas and convenience to our customers, whether shopping at home or on and inspiration the move. Each of our retail brands has its own clear strategic plans to .Expert service and advice both in-store and online achieve this vision. In October 2012 we outlined the fi ve-year strategic ‘Transformation plan’ to reinvent Argos as a digital retail leader. The Digital leadership and accelerating multi-channel Homebase ‘Renewal plan’ is a strategy designed to position the business We are taking advantage of developments in technology that have brought as a clearly differentiated multi-channel home enhancement retailer. about a fundamental and permanent shift in the way customers shop. Our Group strategy is focused on the following pillars, which support Increasingly customers choose to shop online or on the move through both our vision and each of the operating businesses’ strategies. mobile devices, principally for pick-up in a local store but also for home delivery. This multi-channel experience is core to what we do and is the Compelling customer offer reason we have an ongoing focus on developing our successful internet We are committed to utilising our scale advantage to source products for and mobile commerce channels to meet this customer demand. We will our customers, enabling us to offer them a broad choice of products at prioritise future investment to these multi-channel capabilities to satisfy competitive prices. Our logistics network is based on a well-developed customers in whichever way they want to interact and shop with us. We infrastructure that allows us to continue to focus on improving the speed will continue to support this with the convenience of immediate product at which products can be both sourced and delivered to our customers, collection via our national store network. through whichever channel they choose to shop with us. For Argos and Homebase this means: In Argos this means: .Create world-class digital customer experiences More choice available faster .Investment in platforms to drive online sales growth .Leverage the existing store network and replenishment routes .Exploit the strategic advantage of having effi cient collection points .Introduce market-leading fulfi lment options to complement the in local markets immediacy of in-store collection .Innovation of store experience .Provide high levels of availability to our customers .Shift the paper catalogue in Argos to a supporting role in the digital offer, and develop a market-leading digital catalogue Reposition channels for a digital future .Develop large-scale customer data collection, insight and .Innovation of the store experience, including fast-track collection personalisation capabilities and web-based browsers .Create engaging experiences online and in-store .Expand customer reach and build loyalty In Homebase this means: Store investment programme Financial Services .Rollout of a radically different store format, providing clear competitive Both Argos and Homebase are supported by an in-house fi nancial services differentiation offer. Our Financial Services business offers a range of credit products .Space reconfi guration which make it easy for our customers to buy the products they want, when .Introduction of mini Habitat store-in-store they want.
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