Notes to the Condensed Half-Yearly Financial Information

The unaudited condensed half-yearly financial information comprises the results for the 26 weeks ended 1 September 2007 and six months ended 30 September 2006, and the audited consolidated results for the period from 1 April 2006 to 3 March 2007 (the 'short period').

Previously, Home Retail Group prepared its financial information for the financial year for the 12 months to 31 March except for the results of Homebase which were included for the 12 months to 28 or 29 February each year, with adjustments to reflect the balance sheet movements in cash to the end of March. This was done to facilitate comparability of the income statement by avoiding the distortions that would arise relating to changes in the timing of Easter. In order to align the year end across the Group, the Board of Directors decided to amend the Group’s financial year to a 52-week period ending on the Saturday closest to the end of February. Therefore, following the change of accounting reference date, the most recent audited financial statements were prepared for the short period ended 3 March 2007.

Prior to this change in accounting reference date, the Group’s half-yearly financial information was prepared for the six months to 30 September. In line with the change in the Group’s financial year to a 52-week period ending on the Saturday closest to the end of February, the unaudited condensed half-yearly financial information included within this report comprises the results for the 26-week period ended 1 September 2007, with comparatives representing the six months ended 30 September 2006.

In the comparative period for the six months ended 30 September 2006, Homebase results were included for the seven months from 1 March 2006 to 30 September 2006. This approach was followed prior to the above change in accounting reference date, to facilitate comparability of the income statement by avoiding the distortions that would arise relating to changes in the timing of Easter.

The audited consolidated financial information for the short period from 1 April 2006 to 3 March 2007 has been extracted from Home Retail Group plc’s Annual Report and Financial Statements, which was approved by the Board of Directors on 2 May 2007 and delivered to the Registrar of Companies. The report of the Group’s auditors, PricewaterhouseCoopers LLP, on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 237 of the Companies Act 1985.

The condensed half-yearly financial information is not audited and does not constitute statutory accounts. This financial information has been formally reviewed by the Group’s auditors, PricewaterhouseCoopers LLP, and their report is set out in the Independent Review Report to Home Retail Group plc.

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. All Home Retail Group companies which were owned by GUS plc prior to demerger were transferred under the new ultimate parent company, Home Retail Group plc, prior to 11 October 2006. The introduction of this new ultimate parent company constituted a group reconstruction and has been accounted for using merger accounting principles. Therefore, although the Group reorganisation did not become effective until 10 October 2006, the financial information for the comparative periods, the short period from 1 April 2006 to 3 March 2007 and the six months ended 30 September 2006, are presented as if the current Group structure had always been in place.

On 12 October 2006, the nominal amount of the Company’s 877,445,001 issued ordinary shares was reduced from 330p to 10p by way of a court-approved capital reduction scheme in accordance with section 135 of the Companies Act 1985.

IFRS and accounting policies

This condensed consolidated half-yearly financial information for the 26 weeks ended 1 September 2007 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, ‘Interim financial reporting’ as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with Home Retail Group plc’s Annual Report and Financial Statements for the short period from 1 April 2006 to 3 March 2007, which have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) and International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations as adopted by the European Union.

The accounting policies adopted by Home Retail Group are set out in Home Retail Group plc’s Annual Report and Financial Statements, dated 2 May 2007, which is available on Home Retail Group's website www.homeretailgroup.com. These policies have been consistently applied for all periods presented.

Changes in accounting standards

A number of new standards, amendments and interpretations are effective for the current period, but have had no material impact on the results or financial position of the Group, as disclosed within this report.

IFRS 7, ’Financial instruments: Disclosures’ and IAS 1, the ‘Capital disclosure amendment’ to IAS 1 ‘Presentation of financial statements’ are both effective for annual periods beginning on or after 1 January 2007. As this half yearly financial information contains only condensed financial statements, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be given in the annual financial statements.

IFRIC 8, ‘Scope of IFRS 2’ and IFRIC 11, ‘IFRS 2 - Group and Treasury Share Transactions’ have not had any impact on the recognition of share-based payments in the Group.

IFRIC 9, ‘Re-assessment of embedded derivatives’ and IFRIC 10, ‘Interim Financial Reporting and Impairment’ have not had any impact on the Group.

At the balance sheet date a number of new standards, amendments and interpretations were in issue but not yet effective.

The Group has not early-adopted IFRS 8, ‘Operating segments’, which is effective for annual periods beginning on or after 1 January 2009, subject to EU endorsement. This standard will be fully considered in due course.

IFRIC 12, ‘Service Concession Arrangements’ is effective for periods beginning on or after 1 January 2008 but will not have any impact on the Group.

IFRIC 13, ‘Customer Loyalty Programmes’ and IFRIC 14, ‘IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ are effective for periods beginning on or after 1 July 2008 and 1 January 2008 respectively. The impact of these interpretations on the Group will be fully considered in due course.

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 it considers 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 Group. 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 profit before tax (‘PBT’)

The Group uses the term benchmark PBT as a measure which is not formally recognised under IFRS. Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items, financing fair value remeasurements, financing impact on retirement benefit balances and one-off demerger incentive costs.

Net debt

The Group uses the term net debt which is considered useful in that it provides the Group’s aggregate net indebtedness to banks and other financial institutions together with debt-like liabilities, notably property leases.

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.

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 and the investment costs of new development opportunities.

26 weeks ended 1 September 2007

The Group repaid loans and borrowings totalling £225.0m in June 2007.

The tax charge for the period of £54.8m (2006: £25.1m) is based on an estimated effective rate of tax of 32.4% (2006: 42.0%).

The effective rate of tax based on benchmark PBT, defined as the total tax expense, adjusted for the tax impact of non-benchmark items, divided by benchmark PBT (excluding joint ventures and associates), is 32.0% (2006: 37.1%). The benchmark effective tax rate excludes a one-off £0.4m deferred tax charge for the prospective reduction in the UK corporation tax rate from 30% to 28%.

The calculation of basic and diluted EPS is based on the following data:

Basic and diluted EPS have been calculated on the basis of the number of Home Retail Group plc ordinary shares in issue at the date of demerger for the pre-demerger period together with the weighted average number of shares post demerger, excluding ordinary shares held in Home Retail Group’s Employee Share Option Trust (‘ESOT’).

An interim dividend of 4.7 pence (2006: 4.0 pence) per Home Retail Group plc ordinary share has been proposed (but not provided) and will be paid on 23 January 2008 to shareholders on the register at the close of business on 16 November 2007. The amount absorbed by this dividend is £40.8m (2006: £34.6m).

In July 2007, a final dividend of 9.0 pence per Home Retail Group plc ordinary share was paid to shareholders. The amount absorbed by this dividend was £78.1m. In August 2006, £62m was paid to GUS plc as Home Retail Group's share of the GUS plc final dividend in respect of the year ended 31 March 2006.

In the period, there were additions to intangible assets of £14.2m (2006: £15.0m).

In the period, there were additions to property, plant and equipment of £57.6m (2006: £75.1m) and disposals of property, plant and equipment generated proceeds of £1.3m (2006: £2.1m).

Capital commitments contracted but not provided for by the Group amounted to £69.8m.

As at the balance sheet date, the obligation in respect of the Argos defined benefit pension plans was £599.1m (3 March 2007: £628.0m) and the market value of the plan assets was £658.6m (3 March 2007: £637.3m), resulting in a net surplus on the plans of £59.5m (3 March 2007: £9.3m).

The increase in the value of the surplus arises almost entirely due to changes in the underlying actuarial assumptions. The assumed discount rate has increased to 5.5% (3 March 2007: 4.9%), giving rise to a decrease to the defined benefit obligation. This reduction is partly offset by the impact of increases in the assumptions for the rate of inflation, to 3.3% (3 March 2007: 3.1%), and for the rate of increases for salaries, to 4.6% (3 March 2007: 4.4%), which results in a net £50.0m actuarial gain reported in the Statement of Recognised Income and Expense. There has been no change in the mortality assumptions used.

During the period, the Group has paid contributions totalling £7.0m (2006: £7.3m) to the Argos defined benefit pension plans.

The retail sales for Argos and Homebase are subject to seasonal fluctuations. Demand for Argos products is highest during the months of November and December, whilst demand for Homebase products is highest through the spring, at Easter and during the summer months and, for big ticket items, during the January sales.

The Group’s related parties are its joint ventures and associates, key management personnel and the Argos defined benefit pension plans. The only material transactions between the Group and any of these parties were in relation to the Argos defined benefit pension plans, and are set out in note 11.

In the prior periods, GUS plc and other GUS related companies were related parties until the demerger which came into effect on 10 October 2006. In the six months to 30 September 2006 the Group purchased services totalling £5.6m from these related parties and was charged £7.0m in respect of corporate head office costs borne by GUS plc. At 30 September 2006 a balance of £10.0m was owed to the Group by these related parties. Following the demerger these companies are no longer related parties, however this balance remains outstanding at the balance sheet date.

On 11 October 2007, the Group announced that it had signed a contract for the purchase of 27 leasehold properties from Focus DIY, for a purchase price of £40m in cash. The properties are expected to be transferred to Home Retail Group over the period up to 31 December 2007. No other infrastructure and no merchandise stock are being acquired as part of the transaction. The re-fit capital investment is expected to amount to approximately £30m. There will also be an amount of transitional operating costs incurred from the date of transfer to the re-commencement of trading the properties. The current estimate of the level of these costs to be incurred in the second half of this financial year is approximately £15m. Staff previously employed by Focus will be transferred from Focus and continue employment with Homebase. It is impracticable to provide further information regarding this acquisition at this time due to the proximity of the transaction to the date of this report.

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 condensed half-yearly 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.

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