Annual Report and Financial Statements 2015 “ Home Retail Group is in a sound financial position thanks to a good set of financial results and its continued focus on liquidity.” John Coombe Chairman “ The Group delivered a good overall performance in FY15, achieving like-for-like sales growth in both businesses for a second consecutive year.” 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/2015/ 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: www.homeretailgroup.com/cr/ If you’re a shareholder, you can receive information more quickly and help us save paper and money by registering for all future shareholder communications online at www.homeretailgroup-shares.com STRATEGIC REPORT 04 Our business model 05 Our strategy 07 Chairman’s statement 08 Chief Executive’s statement 10 Group performance 12 Argos business review 16 Homebase business review 20 Financial Services business review 22 Responsible retailing 24 Principal risks and uncertainties 26 Financial summary 27 Group financial review GOVERNANCE 32 Board of Directors and Group Executive Board 34 Corporate governance 39 Nomination Committee report 40 Audit Committee report 44 Directors’ remuneration report 62 Directors’ report 65 Statement of directors’ responsibilities FINANCIAL STATEMENTS 66 Independent auditors’ report – Group 72 Consolidated income statement 73 Consolidated statement of comprehensive income 74 Consolidated balance sheet 75 Consolidated statement of changes in equity 76 Consolidated statement of cash flows 77 Analysis of net cash/(debt) 78 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 2015 Our business model We aim to provide outstanding value and convenience for our customers by building an infrastructure of market-leading retail capabilities, which can be leveraged by our retail brands – Argos and Homebase – to provide leading offers across multiple channels. Customers are at the heart of our business, with around 180m transactions during the year. We use the insight that our many customers provide to add value to our business model. Financial services Financial strength Mobile devices Digital development Building Online Store Retail brands formats market-leading deliver leading multi-channel retail Technology convenience capabilities infrastructure Click & Contact Engaged collect colleagues centres Partnerships Products Sourcing & distribution Building market-leading retail capabilities Engaged colleagues Retail brands deliver leading multi-channel Sourcing and distribution Our ability to deliver our business model is convenience We source our products both locally and globally. underpinned by our 47,000 dedicated colleagues We are one of the UK’s leading home and general The scale of the combined sourcing synergy of who serve our customers every day and we are merchandise retailers, bringing together two Argos and Homebase allows us to offer great committed to their ongoing training and of the UK’s most recognisable retail brands – choice and value to our customers. We have a development. Argos and Homebase. We are a multi-channel strong supply chain which, together with our retailer in that we offer our customers a number logistics infrastructure, enables us to provide Financial Services of convenient ways in which they can both products for our customers cost-effectively Both Argos and Homebase are supported by an purchase and physically obtain their products. through a national distribution network. in-house financial services offer, which provides We are taking advantage of developments a range of credit products for our customers. in digital technology that have brought about a Products fundamental and permanent shift in the way our We offer a comprehensive range of over 90,000 Financial strength customers shop. Our successful Online and products across home and general merchandise. The Group has strong operational cash- Mobile channels help make us a market leader We support our offer of well-known product generating characteristics and is in a strong in multi-channel retailing. This is supported brands with a portfolio of own and exclusive financial position, with £309m of cash. with a national network of over 1,000 stores brands such as Habitat, Heart of House, Bush, This supports our strategy for growth. in various Store Formats, including ‘big box’ Alba, Chad Valley and Odina. speciality retail stores and a range of Argos Digital development formats. Our store network can offer not only Technology infrastructure The internet has inspired a revolution in the a selection of shopping options, but also a Many modern and innovative retail capabilities way customers shop, with digital channels leading Click & Collect service for customers depend on new technologies. Technology is such as online and mobile representing a who order a product on a digital channel and central to our multi-channel business model, growing share of business. Our business model collect it in-store. In addition to store collection, where information of interest to customers prioritises the rapid development of customer we offer Home Delivery options for products must be maintained securely and be available features on these digital channels. of all shapes and sizes, and Contact Centres to whenever and wherever a customer needs it. provide our customers with personalised service. Increasingly, we are entering into Partnerships to help us access new customers online or through store concessions. FINANCIAL ADDITIONAL Home Retail Group STRATEGIC REPORT GOVERNANCE STATEMENTS INFORMATION Annual Report 2015 5 Our strategy Home Retail Group’s strategy is to create long-term value by offering leadership in convenience and choice for customers in an emerging digital age. The strategy uses Argos as a base with which Convenience This Plan has four principal components: to build contemporary, market-leading retail In a digital world convenience is being redefined Universal customer appeal capabilities and a leading customer offer across to mean the ability for customers to obtain – Ensure competitive pricing and value the many ways customers shop, purchase and our products at the location and the time they – Extend product ranges to build both obtain goods – including digital (online and desire. The presence of a local store remains authority and choice mobile), store formats and home delivery. critical for many customers, to meet traditional – Strengthen both exclusive and These capabilities and multi-channel offer shopping needs and as locations from which to own-brand offer through fewer, can be extended to Homebase, Habitat ‘click & collect’ items previously ordered online. cross-category own brands and potential partners to accelerate their Home delivery options are equally important – Enhance product quality and design competitiveness and achieve long-term to customers. Home Retail Group operates a to meet the needs of new growth for Home Retail Group. nationwide distribution network across multiple customer segments The Group strategy is built around five distribution centres and over 1,000 stores. – Reposition brand and customer elements of a competitively advantaged and Our logistics network is based on a well- experiences differentiated customer proposition: product developed infrastructure that allows us to – Expand customer reach and build loyalty choice, digital, convenience, human and continue to focus on improving the speed – Develop large-scale customer data financial services. at which products can be delivered to our collection, insight and personalisation customers, through whichever channel they capabilities Product choice choose to shop with us. Reposition channels for a digital future The scale and strength of our retail brands – Create market-leading digital customer drives market leadership in general merchandise Human experiences product categories. Home Retail Group offers Our 47,000 colleagues working in stores, – Invest in systems to drive online over 90,000 products across Argos and home delivery, distribution and contact sales growth Homebase, including a substantial element of centres are fundamental to how our customers – Innovation of the store experience, exclusive and own-brand lines such as Habitat, experience our brands. They are a key factor in including fast-track collection and is continually expanding its offer to build building trust with customers, particularly in an and tablet