Income Statement

Sales and operating profit

Sales for the Group grew 3% to £2,736.5m (2006 pro forma: £2,656.4m) and benchmark operating profit grew 34% to £136.1m (2006 pro forma: 101.7m). Group benchmark operating margin was 5.0% (2006 pro forma: 3.8%). The drivers of this performance have been analysed as part of the preceding business reviews.

Net interest income

Net interest income was £14.0m (2006 pro forma: £5.5m). Interest income of £4.4m (2006 pro forma: expense of £3.1m) was earned on Home Retail Group’s improved net cash position. A further credit of £9.6m (2006 pro forma: £8.6m) reflects the financing costs charged within Financial Services’ benchmark operating profit.

In the first half of last year, interest costs attributable to the GUS capital structure prior to the demerger were £35.7m and have been excluded from 2006 pro forma benchmark PBT.

Share of post-tax results of joint ventures and associates

These amounted to a loss of £0.3m (2006: nil). The movement is principally due to the initial start-up costs incurred by the joint venture with Barclays Bank PLC.

Costs related to demerger incentive schemes

These amounted to £5.9m (2006: nil). As previously announced, these costs are expected to amount to a maximum of £40m, to be charged to the income statement over the three-year period commencing from the date of demerger, and are excluded from benchmark PBT.

Exceptional items

An exceptional income of £20.2m was recorded in the first half of the year. This represents the release of an accrual in respect of previous GUS-related long-term incentive schemes which were settled in June 2007. In the first half of last year, an exceptional cost of £16.4m was incurred in relation to demerger-related costs and the waiver of a loan due from Experian.

In the second half of the year, an exceptional item of approximately £15m is expected to be recorded in relation to the transitional costs of integrating the acquired Focus DIY store properties.

Financing fair value remeasurements

Changes in the fair value of certain financial instruments are recognised in the income statement within net financing costs. These amounted to charges of £1.2m (2006: £0.9m).

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 £6.4m (2006: £6.6m).

The current service cost, which Home Retail Group believes to be a fairer reflection of the cost of providing retirement benefits, is already reflected in benchmark operating profit.

Profit before tax

Benchmark profit before tax grew 40% to £149.8m (2006 pro forma: £107.2m). Reported profit before tax was £169.3m (2006: £59.7m).

Taxation

Taxation attributable to benchmark PBT was £48.0m (2006 pro forma: £34.8m), representing an effective tax rate (excluding joint ventures and associates) of 32.0% (2006: 32.5%). The improvement in the effective rate largely reflects a growth in profits while the absolute level of disallowable expenditure for tax purposes has remained broadly level.

The reported effective tax rate is 32.4% (2006: 42.0%), representing a total tax expense for the period of £54.8m (2006: £25.1m).

Number of shares and earnings per share

The number of shares for the purpose of calculating basic earnings per share in the half is 868.2m (2006: 869.0m), representing the weighted average number of issued ordinary shares of 877.4m (2006: 877.4m), less the weighted average ordinary shares held in Home Retail Group’s Employee Share Ownership Trust (ESOT) of 9.2m (2006: 8.4m).

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 8.7m (2006: 7.6m) to 876.9m (2006: 876.6m).

Basic benchmark EPS is 11.7p (2006 pro forma: 8.3p), with diluted benchmark EPS of 11.6p (2006 pro forma: 8.3p). Reported basic EPS is 13.2p (2006: 4.0p), with reported diluted EPS of 13.1p (2006: 3.9p).

Dividends

Home Retail Group’s dividend policy is to progressively reduce dividend cover over the medium term to around two times, based on full-year basic benchmark EPS. There will be an approximate one-third, two-third split between interim and final dividend payments.

An interim dividend of 4.7p (2006: 4.0p) is today being announced, representing growth of 18%. This will be paid on 23 January 2008 to shareholders on the register at the close of business on 16 November 2007 (an ex-dividend date of 14 November 2007).

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