Notes
Given the number of changes to our financial position in the half I thought it might be helpful to explain our current balance sheet structure.
Our financial objectives are twofold:
Firstly we aim to retain a strong investment grade debt rating.
Secondly, we recognise the importance of dividend and we aim to provide adequate cash and earnings cover to dividend. Both of these aims are assisted by the BHI disposal and the related return of capital and retention of cash.
At 30 September we have 713m shares in issue ranking for dividend. Net debt at the half year was £500m; a reduction of £143m on the year end. Following the sale of BHI we expect to have no on-balance sheet debt at the end of this financial year.
We will still expect to have a financing charge next year as we will need to service our bonds in issue, and to fund the seasonal stock build in BTC. We will also have interest charges for leases and pensions.
In assessing the Group’s financial position it is important to take into account the operational gearing from the Group’s operating leases, primarily for property. Following the sale and leaseback transaction, annual operating lease payments are a little over £200m and the capitalised value is £1.5bn.
We still retain the freehold of around 100 stores. These, together with head office and warehouses, have a book value of around £400m and the estimated market value of these properties in the March 2005 accounts was around £650m.
We are confident that our balance sheet remains strong and are comfortable with its current structure.
In summary then we have made progress in H1, we have traded well in our key businesses of Health and Beauty, we have delivered against our targets for gross margin and cost growth, we have managed working capital well. We have achieved a disposal price for BHI which allows us to pay a special dividend of 200p per share at the same time as enhancing earnings per share.
I should now like to hand back to Richard.
