Halfords Regulatory News (HFD)

24 Nov 2005 07:02

Halfords Group PLC24 November 2005 24 November 2005 HALFORDS GROUP PLC ("HALFORDS") INTERIM RESULTS TO 30 SEPTEMBER 2005 Strong sales growth and cash generation Halfords, the UK's leading auto, leisure and cycling products retailer, todayannounces its interim results for the 26 weeks to 30 September 2005. Financial Highlights • Revenue up 4.7% to £337.7m (2004: £322.7m) • Like-for-like1 sales up 2.6% • Operating profit up 8.7% to £46.0m (2004: £42.3m) • Pre-tax profit up 20.6% to £40.4m (2004: £33.5m) • Strong cash generation reduces net bank borrowings by £11.6m • Interim dividend up 8.1% to 4.0 pence per share (2004: 3.7 pence) Operational Highlights • Strong sales growth in Car Enhancement and Cycling • Store portfolio now 402 stores with further expansion planned in the Republic of Ireland • On track to deliver 100 supermezzanine stores by the year end • Tight cost control Ian McLeod, Chief Executive commented: "Our growth strategy, underpinned by our unique service proposition, hascontinued to deliver positive results despite a challenging retail environment.In the six weeks since 30 September 2005 Halfords' like-for-like salesperformance has continued to strengthen, particularly within cycling and in-cartechnology, giving us confidence for the second half of our financial year". Notes: 1. Like-for-like sales growth is based upon 374 stores, which reached their opening anniversary at or before 1 April 2005. 2. From 2 April 2005 the Group is required to prepare its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). These interim results for the period ending 30 September 2005 have been prepared in accordance with the accounting policies which have been adopted under IFRS and which are published on the Halfords website (www.halfordscompany.com). Enquiries Halfords Group plc on Thursday 24 November only 0207 190 1705Ian McLeod, Chief ExecutiveNick Carter, Finance DirectorTony Newbould, Investor Relations Gainsborough Communications 0207 190 1703Andy CorneliusJulian Walker Halfords Group plc Halfords is the UK's leading auto, leisure and cycling products retailer with402 stores and nearly 10,000 employees. The Group sells 11,000 different product lines ranging from car parts and cyclesthrough to the latest in-car technology, alloy wheels, child seats, roof boxesand the latest outdoor leisure and camping equipment. Halfords' own brandsinclude Ripspeed, for car enhancement, and Bikehut, for cycles and cyclingaccessories, including the Apollo and Carrera brands. Stores offer a "We'll FitIt" service for car parts, child seats, satellite navigation and in-cartechnology systems, together with newer concepts such as Kidszone. Halfords is a FTSE 250 company. It was established in 1892 and was successfullyfloated on the London Stock Exchange in June 2004. www.halfordscompany.comwww.halfords.com Overview Halfords is the UK's leading auto, leisure and cycling products retailer, with402 stores across the UK and the Republic of Ireland. The strong tradingperformance in the first six months of the year has been underpinned by theCompany's unique position as a destination retailer, offering niche productssupported by a superior service offering. Adherence to our growth strategy, with a focus on maximising sales andincreasing cash margin, has generated increases in revenue and gross profit. TheCompany's sales mix is changing as Halfords moves into new growth markets, whichhas had some adverse impact upon gross profit percent. The Company benefits fromoperating margins in the top quartile of the retail sector and its strong cashgeneration has enabled a further reduction in bank borrowing. Summary of Group Results-----------------------------------------------------------------Unaudited 26 weeks to ----------------------------------- 30 September 1 October Change 2005 2004 £m £m-----------------------------------------------------------------Revenue 337.7 322.7 4.7%Gross profit 173.8 170.8 1.8%Gross profit % 51.5% 52.9%Operating profit 46.0 42.3 8.7%Profit before tax 40.4 33.5 20.6%Basic earnings per share 12.1 pence 11.7 pence 3.4% Financial Review Income Statement The unaudited results for the 26 weeks to 30 September 2005 are the firstHalfords has prepared under IFRS. Comparative results disclosed in this reporthave been restated and further information regarding the impact of thetransition from UK GAAP to IFRS has been included in the Accounting Policies inthe notes to the interim report and the Appendix. Halfords' business remains resilient against the backdrop of a challengingretail environment. Sales during the period rose by 4.7% to £337.7m (2004:£322.7m) and like-for-like sales increased by 2.6%. The timing of Easter in the last two years means that in the current financialyear there is no Easter, whereas in the comparable financial year there were twoEaster trading periods. Adjusting for Easter, underlying like-for-like saleswere up 4.1% in the period. Gross profit for the first half of this financial year at £173.8m (2004:£170.8m) was 1.8% up on the comparable period last year and gross profit as apercentage of turnover was 51.5% (2004: 52.9%). There continues to be a changein sales mix, driven by a strong sales performance from the Car Enhancement andCycling categories, where the margins tend to be lower than other productcategories. Whilst the mix factor has resulted in a dilution of gross profitpercent by 140 basis points the overall trading performance has continued todeliver improvements in both cash generation and gross margin contribution. During the half year Halfords has kept firm control of costs, with net operatingexpenses before exceptional items as a percentage of turnover falling from 38.5%to 37.8%. Although selling and distribution costs have increased year-on-year by3.8%, administrative expenses have fallen by 2.7%. Our focus on labour costs andin-store efficiency has proved successful in driving down the level of storepayroll as a percentage of turnover from 11.7% reported in the first half oflast year to 11.2% in the corresponding period this year. Halfords has continuedto leverage its investment in a series of We'll Fit It training programmes toensure our competitive service advantage is maintained. Proactive management ofthe property estate has facilitated higher landlord contributions to supporteither a store downsize or relocation. This activity is likely to continue andhelps to manage rental costs and support mezzanine installations. Operating profit for the period has grown by 8.7% to £46.0m. Net finance costs for the first half of this financial year was £5.6m (2004:£8.8m). The year-on-year decrease is attributable to the Company's continuedability to generate a strong cash flow from its operating activities and thehigher levels of debt prior to the IPO in June 2004. The taxation charge is based on an estimated effective tax rate of 31.7% onprofit for the 52-week period ending 31 March 2006. The tax charge exceeds thecharge based on the statutory rate of UK corporation tax of 30%, principally dueto the non-deductibility of depreciation charged on capital expenditure inrespect of mezzanine floors and other store infrastructure. Balance Sheet and Cash Flow Capital additions for the 26 weeks to 30 September 2005 was £13.9m (2004:£13.8m). The cost of opening new stores and store conversions accounted for£11.7m (2004: £8.7m), of which £5.2m (2004: £5.1m) was in respect of 20 stores(2004: 22 stores) converted to the supermezzanine format. Net cash flow generated from operations was £61.0m (2004: £62.7m). At 30September 2005 the net value of stock was £149.0m (2004: £116.9m), reflectingthe Company's forward investment in stock levels of high average selling priceproducts and in-car technology units, where action was taken to secure productin a market which has seen consumer demand moving ahead of market supply. Thisyear-on-year increase has substantially reduced since the half year and willcontinue to do so ahead of the financial year end. A working capital inflow of£1.9m was generated during the first half of the financial year, with theincrease in creditors more than offsetting the increase in stock and debtors. Due to strong cash generation, net debt, excluding finance leases, at the end ofthe first half has reduced by £11.6m to £157.5m (2004: £169.1m).Reclassification of the head office operating lease to a finance lease underIFRS has added £12.6m to total net debt. At 30 September 2005 total net debt was£170.7m (2004: £182.4m). Dividend In light of the strong half year performance and the Board's confidence for thesecond half of the year, an increased interim dividend 4.0 pence per share (3.7pence per share for the 26 weeks ended 1 October 2004) will be paid on 9 January2006 to those shareholders on the share register as at 2 December 2005. Operating Review The retail environment is currently challenging and, whilst not immune to thecurrent economic conditions, Halfords continues to demonstrate that it possessesresilient qualities. The performance of Car Maintenance has demonstrated the resilient nature ofproducts within this category, where we have seen further growth in the firstsix months of this year. The introduction of quality Far East sourced tools andstorage, together with the introduction of a Trade Card, has enabled Halfords tomaintain its market leading position in this sector. During the period, launches of a new, upgraded, range of Apollo cycles and aBikehut branded range of cycle accessories have both been well received. Withthe launch in October of a new premium cycle range under the Carrera brand, theCompany is well placed to optimise performance from the Cycling category in thesecond half of the year. Following the broadening of our child safety range, supported by the free fitservice for child safety seats, Kidszone has benefited from further extendingthe range into child strollers, as the Company continues to leverage the brandinto this sector. This is particularly true in supermezzanine format storeswhere space is available for improved displays. The growth of ride-on toys hasbeen encouraging during the period and we anticipate that it will follow thesame trend as last year when sales grew considerably from gift purchases as weentered the Christmas trading period. Our ranges have been broadened and sourceddirectly from the Far East in support of the forecast growth for the year. The largest growth area within Halfords continues to be in the Car Enhancementcategory. This growth has been underpinned by the Ripspeed brand and a strongsales performance from in-car technology products. Leveraging our brands intonew product categories remains a key element of the Company's strategy toincrease like-for-like sales. Halfords has realigned space in all stores toreflect the change in consumer demand for in-car technology and has investedheavily in training colleagues in-store to offer sound advice, product set-updemonstration and a product fitting service. This strategy of providing a strongrange and service combination has enabled Halfords to establish marketleadership in this sector. The market for downloading music from the internet into MP3 hardware has beengrowing significantly and the Company has identified an opportunity to supply asolution to the challenge of playing MP3 downloads with quality and safetyin-car. Consequently, from November onwards, Halfords will be marketing a newrange of audio systems, which can connect with MP3 players, such as the iPod,for in-car use. We will also be introducing a fully fitted iPod connectivitysolution to enable the use of these devices with existing in-car audio units,further exploiting the competitive advantage of our service proposition. In July Halfords signed a Memorandum of Understanding with Autobacs Seven ofJapan ("Autobacs") with the intention of seeking opportunities through sharedlearning and the joint sourcing of products from the Far East. As part of thiscollaborative agreement Halfords has introduced a limited store trial of apreviously unavailable range of Japanese branded car accessories. Theseaccessories will be introduced into 150 Halfords stores prior to Christmas.Management will continue to seek areas of synergy with Autobacs which operate tothe mutual benefit of the two companies. The We'll Fit It service proposition differentiates Halfords from itscompetitors and continues to attract new customers to its stores. Colleaguetraining programmes, both off-site and in-store, continue to support technologyset-up and installation, bike care maintenance and child safety seat fitting, aswell as fitting basic car maintenance consumables. The comprehensive fittingservice is to be further promoted during the second half of the year,externally, through the launch of a five-point car health check plan and,internally, by colleagues improving consumer awareness of our fitting service incar bulbs, wiper blades and batteries. The Company continues to make progress in increasing the volume of products thatit imports directly, particularly from the Far East. This has reduced costprices and has allowed the Company to re-invest some of these savings in lowerretail prices, thereby offering better value to our customers. Store Portfolio At 30 September 2005 Halfords was trading from 402 stores. During the period thecompany opened seven new stores and closed three, a net increase of four stores.In addition, a store was relocated and converted from a blue fascia superstoreto the supermezzanine format. Space from new stores contributed 2.1% (2004:2.1%) to first half sales growth. New and converted stores have addedapproximately 100,000 square feet to the portfolio, which now stands at 3.3million square feet. The Company converted 31 (2004: 31) stores during the first half of the year, ofwhich 20 (2004: 22) were stores converted into the supermezzanine format. Withfour new store openings and one store relocation the estate now has 82supermezzanines compared to 57 at the financial year end and 39 at the end ofthe equivalent period last year. Supermezzanine stores that have been converted during the last 12 months accountfor 1.6% of the sales growth in the 26 weeks to 30 September 2005. The Companyis pleased by the ongoing performance of the supermezzanine format. Stores thathave reached their conversion anniversary are trading at a small premium to therest of the estate, which compares favourably to the supermezzanine investmentcase, whereby it was prudently assumed that on its anniversary a converted storewould trade in line with the rest of the estate. Second Half Outlook and Current Trading The Christmas period provides Halfords with the opportunity for capitalising onsales within gift related sectors such as cycles and also within new productareas such as ride-on toys and in-car technology. The season is therefore animportant period for the Company but not a critical one, with December typicallyaccounting for approximately one and half times average monthly sales. In the six weeks since 30 September 2005 Halfords' like-for-like salesperformance has continued to strengthen, particularly within cycling and in-cartechnology. This sales growth, combined with like-for-like sales comparativesreducing from 10.6% in the first half of the year to 7.0% in the second half,provides an encouraging outlook, which therefore gives us confidence for theremainder of our financial year. HALFORDS GROUP PLC Consolidated Income Statement 26 weeks to 30 September 2005 26 weeks to 26 weeks to 52 weeks to 30 September 2005 1 October 2004 1 April 2005 Unaudited Unaudited Unaudited Notes £m £m £m Revenue 337.7 322.7 628.4 Cost of sales (163.9) (151.9) (290.7)---------------------------------------------------------------------------------------------------Gross profit 173.8 170.8 337.7 Operating expenses (127.8) (128.5) (247.1)---------------------------------------------------------------------------------------------------Operating profit 46.0 42.3 90.6 ---------------------------------------------------------------------------------------------------Operating profit before exceptional items 46.0 46.5 90.8Exceptional items 2 - (4.2) (0.2)---------------------------------------------------------------------------------------------------Operating profit 46.0 42.3 90.6--------------------------------------------------------------------------------------------------- Net finance costs 3 (5.6) (8.8) (15.0)---------------------------------------------------------------------------------------------------Profit before tax 40.4 33.5 75.6 Taxation 4 (12.8) (9.6) (23.2) ---------------------------------------------------------------------------------------------------Profit attributable to equity shareholders 27.6 23.9 52.4--------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------Earnings per shareBasic 6 12.1p 11.7p 24.3pDiluted 6 12.1p 11.7p 24.3p Earnings per share before exceptional itemsBasic 6 12.1p 12.6p 23.9pDiluted 6 12.1p 12.6p 23.9p--------------------------------------------------------------------------------------------------- The directors have approved an interim dividend of 4.0 pence per share inrespect of the 26 weeks ended 30 September 2005 (3.7 pence per share for the 26weeks ended 1 October 2004). HALFORDS GROUP PLC Balance Sheet As at 30 September 2005 30 September 1 October 1 April 2005 2004 2005 Unaudited Unaudited Unaudited £m £m £m Non-current assetsGoodwill 253.1 253.1 253.1Intangible assets 6.0 5.8 6.2Property, plant and 101.3 93.6 97.8equipment---------------------------------------------------------------------------- 360.4 352.5 357.1 Current assetsStock 149.0 116.9 112.2Trade and other 29.5 24.3 23.6receivablesDerivative financial 1.4 - -instrumentsCash and cash 4.9 0.9 1.1equivalents---------------------------------------------------------------------------- 184.8 142.1 136.9 Current liabilitiesBorrowings (45.1) (47.1) (53.0)Derivative financial (3.6) - -instrumentsTrade and other (143.9) (109.9) (99.3)payablesCurrent tax liabilities (14.4) (11.4) (13.3)Provisions (1.4) (1.1) (1.6)---------------------------------------------------------------------------- (208.4) (169.5) (167.2) Net current liabilities (23.6) (27.4) (30.3) Non-current liabilitiesBorrowings (130.5) (150.2) (130.5)Deferred tax (4.8) (5.0) (5.1)liabilitiesOther non-current (14.6) (10.9) (11.6)liabilities---------------------------------------------------------------------------- (149.9) (166.1) (147.2) ----------------------------------------------------------------------------Net assets 186.9 159.0 179.6---------------------------------------------------------------------------- Shareholders' equityOrdinary shares 2.3 2.3 2.3Share premium 133.1 132.9 132.9Fair value and other (0.6) 0.4 1.0reservesRetained earnings 52.1 23.4 43.4 ----------------------------------------------------------------------------Total equity 186.9 159.0 179.6---------------------------------------------------------------------------- HALFORDS GROUP PLC Consolidated Statement of Changes in Shareholder Equity 26 weeks to 30 September 2005 Share Share Fair value Retained Total capital premium and earnings equity other reserves £m £m £m £m £m-------------------------------------------------------------------------------Balance at 2 April 2004 - 0.1 - (4.7) (4.6) Profit for the period - - 23.9 23.9Shares issued 2.3 134.6 - - 136.9Bonus issue in respect of - (1.8) - - (1.8)ordinary sharesMovement arising from the - - - 4.2 4.2issue of share optionsEmployee share options - - 0.4 - 0.4Dividends - - - - --------------------------------------------------------------------------------Balance at 1 October 2004 2.3 132.9 0.4 23.4 159.0------------------------------------------------------------------------------- -------------------------------------------------------------------------------Balance at 2 April 2004 - 0.1 - (4.7) (4.6) Profit for the period - - - 52.4 52.4Shares issued 2.3 134.6 - - 136.9Bonus issue in respect of - (1.8) - - (1.8)ordinary sharesMovement arising from the - - - 4.2 4.2issue of share optionsEmployee share options - - 1.0 - 1.0Dividends - - - (8.5) (8.5)-------------------------------------------------------------------------------Balance at 1 April 2005 2.3 132.9 1.0 43.4 179.6------------------------------------------------------------------------------- -------------------------------------------------------------------------------Balance at 1 April 2005 as 2.3 132.9 1.0 43.4 179.6previously reportedApplication of IAS 39Fair value at opening - - (2.9) - (2.9)balance sheet-------------------------------------------------------------------------------Balance at 1 April 2005 2.3 132.9 (1.9) 43.4 176.7restated Profit for the period - - - 27.6 27.6Shares issued - 0.2 - - 0.2Cash flow hedges net of - - 0.7 - 0.7taxEmployee share options 0.6 - 0.6Dividends - - - (18.9) (18.9)-------------------------------------------------------------------------------Balance at 30 September 2.3 133.1 (0.6) 52.1 186.92005------------------------------------------------------------------------------- HALFORDS GROUP PLC Consolidated Cash Flow Statement 26 weeks to 30 September 2005 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2005 2004 2005 Unaudited Unaudited Unaudited Notes £m £m £m------------------------------------------------------------------------------------------- Cash flows from operating activitiesCash generated from operations 7 61.0 62.7 117.0Interest received - 0.3 0.4Interest paid (5.4) (6.7) (12.5)Taxation paid (11.9) (8.4) (20.1)-------------------------------------------------------------------------------------------Net cash from operating activities 43.7 47.9 84.8------------------------------------------------------------------------------------------- Cash flows from investing activitiesPurchase of property, plant and equipment (12.9) (13.8) (27.6)-------------------------------------------------------------------------------------------Net cash used in investing activities (12.9) (13.8) (27.6)------------------------------------------------------------------------------------------- Cash flows from financing activitiesProceeds from issue of ordinary shares 0.2 135.1 135.1Repayment of borrowings (26.0) (194.8) (217.6)Finance lease principal payments (0.1) (0.1) (0.2)Issue costs of new bank loan - (3.1) -Dividends paid to shareholders (18.9) - (8.5)-------------------------------------------------------------------------------------------Net cash used in financing activities (44.8) (62.9) (91.2)------------------------------------------------------------------------------------------- Net decrease in cash and bank overdrafts (14.0) (28.8) (34.0)Cash and bank overdrafts at beginning of period 8 (15.5) 18.5 18.5-------------------------------------------------------------------------------------------Cash and bank overdrafts at the end of the period 8 (29.5) (10.3) (15.5)------------------------------------------------------------------------------------------- These interim statements should be read in conjunction with the following notes. HALFORDS GROUP PLC Notes to Interim Report 26 weeks to 30 September 2005 Accounting Policies Basis of Preparation The interim financial report and accounts for the 26 weeks to 30 September 2005and for the comparative 26 weeks to 1 October 2004 are unaudited and do notconstitute statutory accounts within the meaning of section 240 of the CompaniesAct 1985. From 2 April 2005 Halfords Group plc is required to prepare its consolidatedfinancial statements in accordance with International Financial ReportingStandards ("IFRS") endorsed by the European Union. Reconciliations anddescriptions of the effect of the transition from UK GAAP to IFRS on the Group'sequity and its income statement are provided in the Appendix to the interimreport. The financial information set out in this interim report has been prepared inaccordance with the accounting policies under IFRS published on the HalfordsGroup website (www.halfordscompany.com). These policies are expected to befollowed in the full financial statements for the year ended 31 March 2006. Standards currently in issue and adopted by the EU are subject to interpretationissued from time to time by the International Financial ReportingInterpretations Committee ("IFRIC"). Further standards may be issued by theInternational Accounting Standards Board that may be adopted for financial yearsbeginning 2 April 2005. Additionally, IFRS is currently being applied in theUnited Kingdom and in a large number of countries simultaneously for the firsttime. Furthermore, due to a number of new and revised Standards included withinthe body of the Standards that comprise IFRS there is not yet a significant bodyof established practice on which to draw in forming options regardinginterpretation and application. Accordingly, practice is continuing to evolve.At the preliminary stage, therefore, the full financial effect of reportingunder IFRS as it will be applied and reported on in the Company's first IFRSfinancial statements for the 52 weeks ending 31 March 2006 may be subject tochange. The principal adjustments arising from the adoption of IFRS are: • Goodwill is no longer amortised, but is subject to impairment review, in line with IFRS 3 " Business Combinations" and IAS 36 "Impairment of Assets" • Recognition of the cost of share based payments granted after 7 November 2002, in line with IFRS 2 "Share Based Payments", which had not vested by 2 April 2005 • Dividends are recognised in the period when they are approved, in line with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" • Tax implications, in accordance with IAS 12 "Income Taxes" • Recognition of holiday pay benefits under IAS 19 "Employee Benefits" • The recognition of the fair value of derivative financial instruments, in accordance with IAS 39 "Financial Instruments: Recognition and Measurement" UK GAAP to IFRS Reconciliations --------------------------------------------- 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2005 2004 2005 £m £m £m--------------------------------------------------------------------------------Operating profit under UK GAAP 38.9 34.9 78.3 Goodwill amortisation 6.9 6.9 13.7Share based payment (0.6) (0.4) (1.0)Holiday pay 1.3 1.3 -Reclassification of assets from 0.2 0.2 0.4operating to finance leasesLease incentives (0.3) (0.6) (0.8)Retranslation of trade creditors (0.4) - - ---------------------------------------------IFRS adjustments 7.1 7.4 12.3 --------------------------------------------- Operating profit under IFRS 46.0 42.3 90.6-------------------------------------------------------------------------------- --------------------------------------------- 30 September 1 October 1 April 2005 2004 2005 £m £m £m--------------------------------------------------------------------------------Net assets under UK GAAP 168.0 151.7 156.3 Goodwill amortisation 20.6 6.9 13.7Holiday pay accrual 0.8 0.8 (0.5)Reclassification of assets from (0.7) (0.2) (0.5)operating to finance leasesLease incentives (6.7) (6.3) (6.4)Tax on above adjustments (1.6) (2.4) (1.9)Dividend recognition 9.1 8.5 18.9Retranslation of trade creditors (0.4) - -Recognition of foreign exchange 1.4 - -cash flow hedgesRecognition of interest rate (3.6) - -swap cash flow hedge ---------------------------------------------IFRS adjustments 18.9 7.3 23.3 ---------------------------------------------Net assets under IFRS 186.9 159.0 179.6-------------------------------------------------------------------------------- Further details of the IFRS restatement are given in the Appendix to this report"Transition to International Financial Reporting Standards". HALFORDS GROUP PLC Notes to Interim Report 26 weeks to 30 September 2005 1. Segmental Reporting The Group has one main business segment, which is retail, and one maingeographical segment, which is the United Kingdom. The business segmentreporting format reflects the Group's management and internal reportingstructure. 2. Exceptional Items 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2005 2005 2004 £m £m £mEmployee share options1 - (4.2) (4.2)Lease incentive premium2 - - 4.0 --------------------------------------------- - (4.2) (0.2) --------------------------------------------- Notes:1. Operating exceptional items in the 26 weeks to 1 October 2004 relate to a non-cash charge of £4.2m in respect of employee share options, which were exercised at the time of the IPO. 2. In August 2001 Halfords Limited sold its garaging servicing business to the AA. Under the terms of the sale 124 garage premises were sublet to GB Gas Holdings by way of an underlease agreement from Halfords Limited. On 16 November 2004 the Group entered into an agreement with GB Gas Holdings Limited and the AA, under which the Group received a £4.0m premium in consideration for providing consent to the assignment of the above underlease from GB Gas Holdings Limited to the AA and the subsequent subletting by the AA of 49 premises to Nationwide Autocentres Limited. The Group's tax charge for the periods to 1 October 2004 and 1 April 2005include credits of £2.0m and £0.8m respectively for the above exceptional items. 3. Net Finance Costs 26 weeks to 26 weeks to 52 weeks to 30 September 1 October 1 April 2005 2005 2004 Unaudited Unaudited Unaudited £m £m £mFinance costs:Bank borrowings (4.6) (7.3) (12.4)Premium on deep discounted bond - (1.5) (1.5)Amortisation of issue costs on loans (0.4) (0.3) (0.8)and deep discounted bondsExceptional amortisation of issue - (1.7) (1.7)costs on loans and deep discountedbonds1Exceptional swap close out2 - 2.2 2.2Commitment and guarantee fees (0.2) (0.2) (0.4)Interest payable on finance leases (0.4) (0.4) (0.8)-----------------------------------------------------------------------------Finance costs (5.6) (9.2) (15.4)----------------------------------------------------------------------------- -----------------------------------------------------------------------------Finance income - 0.4 0.4----------------------------------------------------------------------------- -----------------------------------------------------------------------------Net finance costs (5.6) (8.8) (15.0)----------------------------------------------------------------------------- Notes:1. At IPO, on 8 June 2004, Halfords Group plc redeemed and replaced all of its existing borrowings. As a consequence, a charge of £1.7m was made in respect of accelerated amortisation of the issue costs associated with these borrowings. 2. On repayment of the existing borrowings the Group hedged its new borrowing facilities during the 52 weeks ending 1 April 2005 using new interest rate swaps and received £2.2m of exceptional income on the termination of its existing interest rate swaps. 4. Taxation The taxation charge in the 26 weeks to 30 September 2005 is based on anestimated effective tax rate of 31.7% on profit before tax for the 52-weekperiod ended 31 March 2006. The tax charge exceeds the charge based on the statutory rate of UK corporationtax of 30%, principally due to the non-deductibility of depreciation charged oncapital expenditure in respect of mezzanine floors and other storeinfrastructure. 5. Dividends The directors have approved an interim dividend of 4.0 pence per share (3.7pence per share for the 26 weeks ended 1 October 2004), which equates to £9.1m(2004: £8.5m) and will be paid on 9 January 2006 to those shareholders on theshare register at the close of business on 2 December 2005. 6. Earnings Per Share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period. For diluted earnings per share the weighted average number of ordinary shares inissue is adjusted to assume conversion of all dilutive potential ordinaryshares. These represent share options granted to employees where the exerciseprice is less than the average market price of the Company's ordinary sharesduring the 26 weeks to 30 September 2005. 26 weeks 26 weeks 52 weeks to to to 30 September 1 October 1 April 2005 2004 2005 Unaudited Unaudited Unaudited m m m Weighted average number of shares in 227.5 204.2 215.6issueWeighted average number of dilutive 0.2 - 0.1shares options -----------------------------Total number of shares for calculating 227.7 204.2 215.7diluted earnings per share The alternative measure of earnings per share is provided because the directorsbelieve that it reflects the Group's underlying trading performance by excludingthe effect of exceptional items. 26 weeks 26 weeks 52 weeks to to to 30 September 1 October 1 April 2005 2004 2005 Unaudited Unaudited Unaudited £m £m £mBasic earnings 27.6 23.9 52.4Exceptional items net of tax: Operating profit (see note 2) - 2.2 (0.6) Interest - (0.3) (0.3)------------------------------------------------------------------------Underlying earnings before exceptional 27.6 25.8 51.5items Diluted earnings 27.6 23.9 52.4------------------------------------------------------------------------ Underlying diluted earnings before 27.6 25.8 51.5exceptional items------------------------------------------------------------------------ 7. Cash Generated from Operations 26 weeks to 26 weeks to 52 weeks to 30 September 2005 1 October 2004 1 April 2005 Unaudited Unaudited Unaudited £m £m £m Operating profit 46.0 42.3 90.6Depreciation 9.8 8.8 17.7Amortisation 0.9 0.4 0.8Non cash charge for employee share schemes - 4.2 4.2Share option scheme charges 0.6 0.4 1.0Loss on sale of property, plant and equipment - - 0.4Increase in stock (36.8) (9.8) (5.1)Increase in debtors (5.9) (0.8) (0.1)Increase in creditors 46.4 17.2 7.5 -------------------------------------------------------------------------------------------Net cash inflow from operating activities 61.0 62.7 117.0------------------------------------------------------------------------------------------- 8. Reconciliation of Movement in Net Debt At 1 April Cash flow Other non At 30 2005 cash changes September 2005 Unaudited Unaudited £m £m £m £mCash in hand and at bank 1.1 3.8 - 4.9Bank overdraft (16.6) (17.8) - (34.4)----------------------------------------------------------------------------------- (15.5) (14.0) - (29.5)Debt due within one year (35.3) 26.0 (0.4) (9.7)Debt due after one year (118.3) - - (118.3)-----------------------------------------------------------------------------------Total net debt excluding (169.1) 12.0 (0.4) (157.5)finance leases Finance leases due within one (1.1) 0.1 (0.1) (1.1)yearFinance leases due after one (12.2) - 0.1 (12.1)year-----------------------------------------------------------------------------------Total finance leases (13.3) 0.1 - (13.2) -----------------------------------------------------------------------------------Total net debt (182.4) 12.1 (0.4) (170.7)----------------------------------------------------------------------------------- The total debt cash outflow consists of £26.0m net repayment of borrowings and£0.1m repayment of finance lease obligations, offset by an increase inoverdrafts of £14.0m. Non-cash changes relate to the finance costs of £0.4m in relation to theamortisation of capitalised debt issue costs. 9. Interim Report Copies of the interim report are available from the registered office ofHalfords Group plc, Icknield Street Drive, Washford West, RedditchWorcestershire, B98 0DE. Independent Review Report to Halfords Group plc 26 weeks to 30 September 2005 Introduction We have been instructed by the Company to review the financial information forthe 26 weeks ended 30 September 2005, which comprises a consolidated incomestatement, consolidated balance sheet, consolidated statement of changes inshareholder equity, consolidated cash flow statement and related notes. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in the Accounting Policies, Basis of Preparation section of theinterim report, the next annual financial statements of the Group will beprepared in accordance with accounting standards adopted for use in the EuropeanUnion. The interim report has been prepared in accordance with the basis set outas mentioned. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in the AccountingPolicies, Basis of Preparation section of the interim report, there is, however,a possibility that the directors may determine that some changes are necessarywhen preparing the full annual financial statements for the first time inaccordance with accounting standards adopted for use in the European Union. TheIFRS standards and IFRIC interpretations that will be applicable and adopted foruse in the European Union at 31 March 2006 are not known with certainty at thetime of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with United Kingdom Auditing Standards and therefore provides a lowerlevel of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. This report, including the conclusion, hasbeen prepared for and only for the company for the purpose of the Listing Rulesof the Financial Services Authority and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 26 weeks ended30 September 2005. PricewaterhouseCoopers LLPChartered AccountantsBirmingham24 November 2005 Notes: 1. The maintenance and integrity of the Halfords Group website is the responsibility of the 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 interim report since it was initially presented on the web site.2. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. HALFORDS GROUP PLC IFRS Restatement information Appendix to the Interim Report Transition to International Financial Reporting Standards Introduction The Group's financial statements for the 52 weeks ended 31 March 2006 will bethe Group's first annual financial statements prepared in compliance withInternational Financial Reporting Standards ("IFRS"). Accordingly, the financialresults for the 26 weeks ended 30 September 2005 have been prepared and reportedunder IFRS. In addition, the interim report includes restated comparativeinformation for the 52 weeks ended 1 April 2005. For the purposes of IFRS theGroup's transition date is 3 April 2004 and the Group's adoption date is 2 April2005. This report explains how the Group's financial results as previously reportedunder UK GAAP would have been restated under IFRS. It includes: • The Group's consolidated Income Statements for 26 weeks ended 30 September 2005, 26 weeks ended 1 October 2004 and 52 weeks ended 1 April 2005 • The Group's consolidated Balance Sheets as at 30 September 2005, 1 October 2004 and 1 April 2005 • The Group's opening Balance Sheet, for the comparative period, as at 2 April 2004 The adoption of IFRS is an accounting change and will not change how the Groupis managed or the cash flows of the Group. Key Impacts The main impacts of IFRS on the reported results of the Group are listed belowand are described in greater detail in the following sections. • Goodwill (IFRS 3) - Acquired goodwill should no longer be amortised and is instead subjected to an annual impairment review. At the date of transition to IFRS the value of goodwill is frozen. • Share Based Payments (IFRS 2) - Fair value based charges are required for all awards made for share schemes on or after 7th November 2002 which had not vested by 2 April 2005. • Property Leases (IAS 17) - The building element of the lease relating to the Group's head office in Redditch has been reclassified as a finance lease. Lease incentives must now be amortised in the Income Statement over the lease term not to the date of the first rent review. • Timing and Recognition of Dividends (IAS 10) - Final dividends declared after the Balance Sheet date cannot be recognised at the Balance Sheet date and instead are reported in the period in which they are approved. • Intangible Assets (IAS 38) - Software costs previously categorised within tangible fixed assets must now be shown as intangible assets in the Balance Sheet. Transitional Arrangements- Application of IFRS 1 IFRS 1 "First Time Adoption of International Financial Reporting Standards" setsout the procedures that the Group must follow on adoption. The Group is requiredto establish its IFRS accounting policies for the year ending 31 March 2006 andapply these retrospectively to determine the IFRS opening Balance Sheet at thetransition date of 3 April 2004. The Group has applied the mandatory exemptions and certain of the optionalexemptions from full retrospective application of IFRS. The following is asummary of the key elections from IFRS 1 that were made by the Group. • The Group has elected to adopt the IFRS 1 exemption in relation to business combinations and will only apply IFRS 3 "Business Combinations" prospectively from 3 April 2004. As a result, the balance of goodwill under UK GAAP as at 2 April 2004 will be deemed the cost of goodwill at 3 April 2004. • The Group has elected to apply the share-based payment exemption. It has applied IFRS 2 from 3 April 2004 to those options that were issued after 7 November 2002 but which had not vested by 2 April 2005. • The Group has elected to adopt the IFRS 1 exemption in relation to IAS 32 and IAS 39. As a result UK GAAP will be used in the comparative period in the first IFRS financial statements. Consolidated Income StatementUK GAAP to IFRS Interim Results (Unaudited) UK GAAP IFRS UK GAAP IFRS Ref 30 Sep 30 Sep Diff 01 Oct 01 Oct Diff 05 05 04 04 £m £m £m £m £m £mRevenue 337.7 337.7 - 322.7 322.7 - Cost of 1.1 (163.5) (163.9) (0.4) (151.9) (151.9) -sales-------------------------------------------------------------Gross profit 174.2 173.8 (0.4) 170.8 170.8 - Operating 1.2 (135.3) (127.8) 7.5 (135.9) (128.5) 7.4expenses-------------------------------------------------------------Operating 38.9 46.0 7.1 34.9 42.3 7.4profit -------------------------------------------------------------Operating 45.8 46.0 0.2 46.0 46.5 0.5profitbeforeexceptionalitems andgoodwillamortisationExceptional - - - (4.2) (4.2) -items Goodwill (6.9) - 6.9 (6.9) - 6.9amortisation-------------------------------------------------------------Operating 38.9 46.0 7.1 34.9 42.3 7.4profit------------------------------------------------------------- Net finance 1.3 (5.2) (5.6) (0.4) (8.4) (8.8) (0.4)costs-------------------------------------------------------------Profit 33.7 40.4 6.7 26.5 33.5 7.0before tax Taxation 1.4 (13.2) (12.8) 0.4 (10.1) (9.6) 0.5-------------------------------------------------------------Profit 20.5 27.6 7.1 16.4 23.9 7.5attributableto equityshareholders------------------------------------------------------------- Basic EPS 9.0p 12.1p 3.1p 8.0p 11.7p 3.7p(pence) Consolidated Income StatementUK GAAP to IFRS 52 weeks to 1 April 2005 (Unaudited) UK GAAP IFRS Ref 01 Apr 01 Apr Diff 05 05 £m £m £mRevenue 628.4 628.4 - Cost of 1.1 (290.7) (290.7) -sales------------------------------------------Gross profit 337.7 337.7 - Operating 1.2 (259.4) (247.1) 12.3expenses------------------------------------------Operating 78.3 90.6 12.3profit ------------------------------------------Operating 92.2 90.8 (1.4)profitbeforeexceptionalitems andgoodwillamortisationExceptional (0.2) (0.2) -items Goodwill (13.7) - 13.7amortisation------------------------------------------Operating 78.3 90.6 12.3profit------------------------------------------ Net finance 1.3 (14.2) (15.0) (0.8)costs------------------------------------------Profit 64.1 75.6 11.5before tax Taxation 1.4 (24.2) (23.2) 1.0------------------------------------------Profit 39.9 52.4 12.5attributableto equityshareholders------------------------------------------ Basic EPS 18.5p 24.3p 5.8p(pence) The effect of adopting IFRS upon the profit attributable to the equityshareholders was: Reference 1.1 30 Sep 05 1 Oct 04 1 Apr 05Cost of sales £m £m £m-----------------------------------------------------------------------------IAS 21 "The Effects of Changes in Foreign (0.4) - -Exchange Rates" requires that foreign currencycreditors are translated at spot rates asopposed to contract rates. The effect on costof sales was as follows:----------------------------------------------------------------------------- Reference 1.2 30 Sep 05 1 Oct 04 01 Apr 05Operating expenses £m £m £m-----------------------------------------------------------------------------IFRS 2 "Share Based Payments" requires the (0.6) (0.4) (1.0)assignment of fair values at the date of grantto the options granted to employees after 7November 2002 and not vested by 2 April 2005.The expense is spread over the vesting periodof these options. IAS 17 "Leases" results in the reclassification 0.2 0.2 0.4of the head office building from being held asan operating lease to a finance lease. Theasset has been depreciated over the usefuleconomic life and the interest associated withthe lease reclassified from operating expensesto finance expenses. IAS 17 "Leases" requires the release of lease (0.3) (0.6) (0.8)incentives over the life of the lease ratherthan over the period ending in the first rentreview. Consequently there has been a reductionin the release of lease incentives from thebalance sheet. IAS 19 "Employee Benefits" requires the 1.3 1.3 -recognition of holiday pay due to and fromemployees. IFRS 3 "Business Combinations" requires the 6.9 6.9 13.7non-amortisation of goodwill arising onbusiness combinations. Under UK GAAP goodwillwas amortised over 20 years.----------------------------------------------------------------------------- 7.5 7.4 12.3----------------------------------------------------------------------------- Reference 1.3 30 Sep 05 1 Oct 04 1 Apr 05Net finance costs £m £m £m-----------------------------------------------------------------------------IAS 17 "Leases" resulted in the (0.4) (0.4) (0.8)reclassification of the head office buildingfrom an operating to a finance lease. Theinterest associated with the lease has beenreclassified from operating expenses to financeexpenses.----------------------------------------------------------------------------- Reference 1.4 30 Sep 05 1 Oct 04 1 Apr 05Taxation £m £m £m-----------------------------------------------------------------------------IAS 12 "Income Taxes" resulted in the 0.3 0.4 0.8recognition of a deferred tax liabilityregarding assets acquired in prior periods thatdid not qualify for capital allowances. Thisdeferred tax liability has been released asfollows: IAS 17 "Leases" led to the creation of deferred 0.1 0.2 0.1tax assets relating to lease premiums that werenot previously accounted for under UK GAAP. Themovement on the deferred tax asset has been asfollows: IAS 19 "Employee Benefits" led to the (0.1) (0.1) 0.1recognition of a deferred tax asset foremployee holiday pay. IFRS 2 "Share Based Payments" led to the 0.1 - -recognition of a deferred tax asset arisingfrom the charges for employee options.----------------------------------------------------------------------------- 0.4 0.5 1.0----------------------------------------------------------------------------- Consolidated Balance SheetUK GAAP to IFRS Interim Results (Unaudited) UK GAAP IFRS Diff UK GAAP IFRS Diff Ref 30 Sep 30 Sep 1 Oct 04 1 Oct 05 05 04 £m £m £m £m £m £mNon-currentassetsGoodwill 2.1 232.5 253.1 20.6 246.2 253.1 6.9Intangible 2.2 - 6.0 6.0 - 5.8 5.8assetsProperty, 2.3 95.4 101.3 5.9 86.9 93.6 6.7plant andequipment-------------------------------------------------------------------- 327.9 360.4 32.5 333.1 352.5 19.4 Current assetsStock 149.0 149.0 - 116.9 116.9 -Trade and 2.4 28.7 29.5 0.8 23.5 24.3 0.8otherreceivablesDerivative 2.5 - 1.4 1.4 - - -financialinstrumentsCash and cash 4.9 4.9 - 0.9 0.9 -equivalents-------------------------------------------------------------------- 182.6 184.8 2.2 141.3 142.1 0.8 CurrentliabilitiesBorrowings 2.6 (44.2) (45.1) (0.9) (46.2) (47.1) (0.9)Derivative 2.7 - (3.6) (3.6) - - -financialinstrumentsTrade and 2.8 (152.6) (143.9) 8.7 (118.4) (109.9) 8.5other payablesCurrent tax (14.4) (14.4) - (11.4) (11.4) -liabilitiesProvisions (1.4) (1.4) - (1.1) (1.1) --------------------------------------------------------------------- (212.6) (208.4) 4.2 (177.1) (169.5) 7.6 --------------------------------------------------------------------Net current (30.0) (23.6) 6.4 (35.8) (27.4) 8.4liabilities-------------------------------------------------------------------- Non-currentliabilitiesBorrowings 2.9 (118.8) (130.5) (11.7) (138.4) (150.2) (11.8)Deferred tax 2.10 (3.2) (4.8) (1.6) (2.6) (5.0) (2.4)liabilitiesOther 2.11 (7.9) (14.6) (6.7) (4.6) (10.9) (6.3)non-currentliabilities-------------------------------------------------------------------- (129.9) (149.9) (20.0) (145.6) (166.1) (20.5) --------------------------------------------------------------------Net assets 168.0 186.9 18.9 151.7 159.0 7.3-------------------------------------------------------------------- EquityOrdinary 2.3 2.3 - 2.3 2.3 -sharesShare premium 133.1 133.1 - 132.9 132.9 -Fair value and 2.12 - (0.6) (0.6) - 0.4 0.4other reservesRetained 2.13 32.6 52.1 19.5 16.5 23.4 6.9earnings --------------------------------------------------------------------Total equity 168.0 186.9 18.9 151.7 159.0 7.3-------------------------------------------------------------------- Consolidated Balance SheetUK GAAP to IFRS Full Year Results (Unaudited) UK GAAP IFRS Diff UK GAAP IFRS Diff Ref 1 Apr 1 Apr 2 Apr 2 Apr 05 05 04 04 £m £m £m £m £m £mNon-currentassetsGoodwill 2.1 239.4 253.1 13.7 253.1 253.1 -Intangible 2.2 - 6.2 6.2 - 3.0 3.0assetsProperty, plant 2.3 91.8 97.8 6.0 82.5 92.2 9.7and equipment-------------------------------------------------------------------- 331.2 357.1 25.9 335.6 348.3 12.7 Current assetsStock 112.2 112.2 - 107.1 107.1 -Trade and other 2.4 23.6 23.6 - 23.5 23.5 -receivablesDerivative 2.5 - - - - - -financialinstrumentsCash and cash 1.1 1.1 - 25.6 25.6 -equivalents-------------------------------------------------------------------- 136.9 136.9 - 156.2 156.2 - CurrentliabilitiesBorrowings 2.6 (52.1) (53.0) (0.9) (189.4) (190.3) (0.9)Derivative 2.7 - - - - - -financialinstrumentsTrade and other 2.8 (117.7) (99.3) 18.4 (94.3) (94.8) (0.5)payablesCorporation tax (13.3) (13.3) - (10.1) (10.1) -liabilitiesProvisions for (1.6) (1.6) - (1.0) (1.0) -otherliabilities-------------------------------------------------------------------- (184.7) (167.2) 17.5 (294.8) (296.2) (1.4) --------------------------------------------------------------------Net current (47.8) (30.3) 17.5 (138.6) (140.0) (1.4)liabilities-------------------------------------------------------------------- Non-currentliabilitiesBorrowings 2.9 (118.7) (130.5) (11.8) (185.6) (197.4) (11.8)Deferred tax 2.10 (3.2) (5.1) (1.9) (2.3) (5.2) (2.9)liabilitiesOther 2.11 (5.2) (11.6) (6.4) (4.6) (10.3) (5.7)non-currentliabilities-------------------------------------------------------------------- (127.1) (147.2) (20.1) (192.5) (212.9) (20.4) --------------------------------------------------------------------Net assets 156.3 179.6 23.3 4.5 (4.6) (9.1)-------------------------------------------------------------------- EquityShare capital 2.3 2.3 - - - -Share premium 132.9 132.9 - 0.1 0.1 -Fair value and 2.12 - 1.0 1.0 - - -other reservesRetained 2.13 21.1 43.4 22.3 4.4 (4.7) (9.1)earnings --------------------------------------------------------------------Total equity 156.3 179.6 23.3 4.5 (4.6) (9.1)-------------------------------------------------------------------- The effect of adopting IFRS on the Balance Sheet was: Reference 2.1 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Goodwill £m £m £m £m---------------------------------------------------------------------------------------IFRS 3 "Business Combinations" resulted in 20.6 6.9 13.7 -the write back of goodwill previouslyamortised since the transition date, 3 April2004.--------------------------------------------------------------------------------------- Reference 2.2 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Intangible assets £m £m £m £m---------------------------------------------------------------------------------------IAS 38 "Intangible Assets" requires the 6.0 5.8 6.2 3.0reclassification of software development costsfrom tangible fixed assets (property, plant endequipment) to intangible fixed assets.--------------------------------------------------------------------------------------- Reference 2.3 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Property, plant and equipment £m £m £m £m---------------------------------------------------------------------------------------IAS 17 "Leases" resulted in the 11.9 12.5 12.2 12.7reclassification of a building from anoperating lease to a finance lease. The assetis being depreciated over its useful economiclife. IAS 38 "Intangible Assets" requires the (6.0) (5.8) (6.2) (3.0)reclassification of software development costsfrom tangible fixed assets (property, plant endequipment) to intangible fixed assets.--------------------------------------------------------------------------------------- 5.9 6.7 6.0 9.7--------------------------------------------------------------------------------------- Reference 2.4 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Trade and other receivables £m £m £m £m---------------------------------------------------------------------------------------IAS 19 "Employee Benefits" requires the 0.8 0.8 - -recognition of holiday pay due to and fromemployees. A prepayment has been recognised inthe interim statements relating to holidaystaken in advance of the benefit accruing.--------------------------------------------------------------------------------------- Reference 2.5 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Derivative financial instruments £m £m £m £m---------------------------------------------------------------------------------------IAS 39 "Financial Instruments: Recognition and 1.4 - - -Measurement" resulted in the recognition of theGroup's foreign exchange hedging instruments asa fair value asset.--------------------------------------------------------------------------------------- Reference 2.6 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Borrowings £m £m £m £m---------------------------------------------------------------------------------------IAS 17 "Leases" results in the reclassification (0.9) (0.9) (0.9) (0.9)of a lease relating to the head office buildingwhich was formerly held as an operating leaseas a finance lease.--------------------------------------------------------------------------------------- Reference 2.7 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Derivative financial instruments £m £m £m £m---------------------------------------------------------------------------------------IAS 39 "Financial Instruments: Recognition and (3.6) - - -Measurement" results in the recognition of aninterest rate swap as a fair value liability.--------------------------------------------------------------------------------------- Reference 2.8 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Trade and other payables £m £m £m £m---------------------------------------------------------------------------------------IAS 37 "Provisions, Contingent Liabilities and 9.1 8.5 18.9 -Contingent Assets" requires that dividends arerecognised in the period in which they areapproved. IAS 21 "The Effects of Changes in Foreign (0.4) - - -Exchange Rates" requires that foreign currencycreditors are translated at spot rates asopposed to contract rates. The effect on netassets was as follows: IAS 19 "Employee Benefits" requires the - - (0.5) (0.5)recognition of holiday pay due to and fromemployees. A liability arises at the year-enddue to employees carrying forward accruedbenefits to the following financial year.--------------------------------------------------------------------------------------- 8.7 8.5 18.4 (0.5)--------------------------------------------------------------------------------------- Reference 2.9 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Borrowings £m £m £m £m---------------------------------------------------------------------------------------IAS 17 "Leases" results in the recognition of a (11.7) (11.8) (11.8) (11.8)building as a finance lease, which was formerlyheld as an operating lease (see note 2.6).--------------------------------------------------------------------------------------- Reference 2.10 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Deferred income tax liabilities £m £m £m £m---------------------------------------------------------------------------------------IAS 12 "Income Taxes" results in the (3.7) (4.4) (4.0) (4.8)recognition of a deferred tax liabilityregarding assets acquired in prior periods thatdid not qualify for capital allowances. IAS 17 "Leases" leads to the creation of 2.0 2.0 1.9 1.7deferred tax assets relating to leaseincentives. IAS 19 "Employee Benefits" led to the - - 0.2 0.2recognition of a deferred tax asset foremployee holiday pay. IFRS 2 "Share Based Payments" led to the 0.1 - - -recognition of a deferred tax asset arisingfrom the charges for employee options.--------------------------------------------------------------------------------------- (1.6) (2.4) (1.9) (2.9)--------------------------------------------------------------------------------------- Reference 2.11 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Other non-current liabilities £m £m £m £m---------------------------------------------------------------------------------------The adoption of IAS 17 "Leases" results in the (3.5) (3.6) (3.6) (3.7)profit on the sale of a property beingreclassified as deferred income rather thanbeing recognised in the Income Statement.The effect on deferred income was: The adoption of IAS 17 "Leases" requires the (3.2) (2.7) (2.8) (2.0)release of lease incentives over the life ofthe lease rather than over the period ending inthe first rent review. Consequently there hasbeen a reduction in the release of leaseincentives from the Balance Sheet. The effecton deferred income was:--------------------------------------------------------------------------------------- (6.7) (6.3) (6.4) (5.7)--------------------------------------------------------------------------------------- Reference 2.12 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Fair value and other reserves £m £m £m £m---------------------------------------------------------------------------------------Adoption of IFRS 2 "Share Based Payments" 1.6 0.4 1.0 -requires the assignment of fair values at thedate of grant to the options granted toemployees after 7 November 2002 and not vestedby 2 April 2005. The expense is spread over thevesting period of these options. IAS 39 "Financial Instruments: Recognition and (3.6) - - -Measurement" resulted in the recognition of aninterest rate swap as a fair value liability. IAS 39 "Financial Instruments: Recognition and 1.4 - - -Measurement" resulted in the recognition of theGroup's foreign exchange hedging instruments asa fair value asset.--------------------------------------------------------------------------------------- (0.6) 0.4 1.0 ---------------------------------------------------------------------------------------- Reference 2.13 30 Sep 05 1 Oct 04 1 Apr 05 2 Apr 04Retained earnings £m £m £m £m---------------------------------------------------------------------------------------The adoption of IFRS had the following net 19.5 6.9 22.3 (9.1)impact on retained earnings.Cumulative total of all adjustments to theBalance Sheet was:--------------------------------------------------------------------------------------- Reconciliation of the Consolidated Cash Flow Statements (Unaudited) The principle difference between UK GAAP and IFRS in the Group's statement ofcash flow is the reconciliation to cash and bank overdrafts rather than net debt(which includes bank loans and finance lease creditors). 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