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Debenhams plc
A n n u a l
R e p o r t
&
A c c o u n t s
2 0 1 4
Debenhams is a leading
international, multi-channel brand
with a proud British heritage trading
out of 245 stores in 28 countries
and online in 67 countries.
We offer our customers around the
world a unique, differentiated and
exclusive mix of own brands,
international brands and concessions.
F I N A N C I A L
R E S U L T S
Gross transac tion value (GT V )
£2.8bn
Revenue
£2.3bn
Underlying profit before tax*
£110.3m
*Before non-recurring finance cost of £4.5m.
Basic earnings per share
7.1p
Dividend per share
3.4p
Chairman’s introduction
Board of directors
Corporate governance
40
42
44 Corporate governance report
50 Nomination Committee report
51 Audit Committee report
54 Directors’ remuneration report
78 Directors’ report
81
Statement of directors’ responsibilities
Financial statements
84
Independent auditors’ report to the
members of Debenhams plc (Group)
90 Consolidated income statement
Consolidated statement of
91
comprehensive income
92 Consolidated balance sheet
93
Consolidated statement of changes
in equity
94 Consolidated cash flow statement
95 Notes to the financial statements
135 Five year record income statements
Five year record balance sheets
136
Independent auditors’ report to the
137
members of Debenhams plc (Company)
139 Company balance sheet
140
Notes to the Company financial statements
Other information
147 Store list
148
149 Additional information
Glossary and references
Overview
04 Chairman’s letter
06 Market overview
Business model and strategy
Strategic report
10 Chief Executive’s report
14
16 Our strategy at a glance
18
24
26 Risk review
28 Principal risks and uncertainties
Resources, relationships and sustainability
Key performance indicators
Performance
34
Financial review
Please refer to the glossary on page 148 for explanations of financial and retail industry terms.
Debenhams plc Annual Report & Accounts 2014
1
In this section
04 Chairman’s letter
06 Market overview
O V E R V I E W
Debenhams plc Annual Report & Accounts 2014
2
In this section our Chairman Nigel
Northridge shares his thoughts on
2014 and we provide some context
on the markets in which we operate,
as well as independent views of the
UK retail market and economy.
O V E R V I E WDebenhams plc Annual Report & Accounts 2014
3
O V E R V I E W
C H A I R M A N ’ S L E T T E R
A solid base on which we can build
N I G E L
N O R T H R I D G E
Chairman
Despite the challenges we faced in 2014,
we have focused on making progress
in our strategy to build a leading
international, multi-channel brand.
We have also diversified our sources
of funding, maintained the dividend
and strengthened our board.
Debenhams plc Annual Report & Accounts 2014
4
Dear Shareholder
2014 saw the bicentenary of the Debenhams
name appearing on the British high street.
At the same time it was one of the most
challenging years we have encountered
in those 200 years. Whilst the results
for the first half of the year were very
disappointing, we are clear about the
issues that we faced and are taking decisive
action to address them. As a consequence,
we saw a much better performance in the
second half. I am therefore confident we
have a solid base on which we can build
in 2015 and beyond.
Our strategy
The board firmly believes that the four
pillars of our strategy to build a leading
international, multi-channel brand
remain the right way to create value
for our shareholders.
You can see a visual representation of our
strategy on page 14. Our customers are
at the heart, reflecting the importance
of continuing to deliver a compelling
customer proposition across all sales
channels. During 2014 we also worked hard
to improve the performance of our sales
channels in the UK by making our multi-
channel service offer more competitive and
by seeking to improve the return on the UK
stores by increasing sales densities.
International has also been at the forefront
of our thinking during the year as we aim to
leverage our expertise from the UK into
other markets. You can read more about
this work and the progress made under
each of the four pillars in the strategic
report on pages 16 and 17.
Our finances
At the start of July we refinanced our
borrowing facilities. We issued £225 million
of seven year senior notes and refinanced
our bank funding through a £425 million
revolving credit facility to October 2018.
The refinancing has allowed us to achieve
two goals. First, it reduces our reliance on
traditional bank funding and secondly it
diversifies our sources of funding. Over
the life of the notes we also expect to
achieve a material saving in interest
costs compared with the anticipated
cost of bank funding alone.
Our dividend
Debenhams remains a cash generative
business and the board has therefore
decided to maintain the total cash dividend
at 3.4 pence per share for 2014 despite
lower profits. It is our intention to rebuild
dividend cover over time as earnings
increase. The share buyback has
been discontinued.
Our board
We welcomed Suzanne Harlow to the
board in December 2013. Suzanne has
20 years’ experience with Debenhams.
She has held the role of Group Trading
Director since 2008 and leads the design,
buying and merchandising functions of
the business.
Matt Smith will join the board as Chief
Financial Officer during the course of 2015
and we look forward to the benefits that
his extensive experience of international
and multi-channel retailing will bring to
our business.
Matt succeeds Simon Herrick who left the
business in February 2014. Neil Kennedy
has done an excellent job as Acting Chief
Financial Officer since this time, for which
we extend our sincere thanks.
The governance section starting on page
40 provides more information on how the
board carries out its duties.
Our people
Our colleagues around the world coped
admirably with the difficult trading
conditions we saw in 2014. During the
year we undertook our second annual
engagement survey and were pleased that
more people took part and that last year’s
engagement score was maintained given
the challenging year faced by the business.
On behalf of the board I offer all of our
people my gratitude for their hard work
and dedication in 2014 and thank them in
advance for their ongoing support in 2015.
Nigel Northridge
Chairman
Debenhams plc Annual Report & Accounts 2014
5
200 years
In December 2013 we celebrated the
200th anniversary of the Debenhams
name appearing on the high street
for the very first time. We marked the
occasion with special instore events
and a limited edition collection of
products designed by some of
the Designers at Debenhams.
O V E R V I E W
M A R K E T O V E R V I E W
Putting our performance in context
Market conditions in 2014
In the UK, market conditions remained
challenging. The number of people visiting
Britain’s shops declined, as seen in figure 1
which shows high street footfall on a
monthly basis compared with the previous
year. High street locations were impacted
most by the decrease in footfall whilst out
of town locations generally fared better.
Lower store footfall was in part due to the
continuing channel shift from stores to
online. The percentage of the UK total
clothing, footwear and accessories market
sold online grew from 17% in September
2013 to 19% in August 2014 (source: Kantar
Worldpanel market share data 24 weeks to
3 August 2014, 24 weeks to 29 September
2013). Total online sales in non-food
categories increased by 14.6% (source:
BRC-KPMG Retail Sales Monitor July 2014,
12 month average).
Consumers began to feel better about their
financial circumstances and so UK consumer
confidence started to increase during the
second half of the year (see figure 2). In June
2014 consumer confidence recorded a score
of +1, the first positive score since March
2005. The last four months of the year saw
the index within a range of 0 plus or minus 2,
prompting Nick Moon of GfK to comment:
“It looks like we might be in a new period of
relative stability for the index.”
However, many consumers were not feeling
any better off because wage growth was
lower than inflation throughout the year (as
shown in figure 3). In June 2014 wages fell
for the first time since the recession in 2009,
despite a fall in unemployment to its lowest
since 2008. There was some recovery in
subsequent months.
Further, the UK remained highly competitive
and promotional as evidenced by price
deflation throughout the year, the longest
period of deflation since 2006 (source:
BRC-Nielsen Shop Price Index).
The trading environment in our
international markets was mixed.
The Danish economy is growing but the
Republic of Ireland remained difficult.
Our franchise markets generally
performed in line with the prevailing
economic conditions.
Market metrics
Figure 1: UK retail footfall (% change versus last year)
2.0
1.0
0
-1.0
-2.0
-3.0
Sep 13 Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul Aug 14
Source: BRC/Springboard Footfall Monitor
Figure 2: UK consumer confidence
5.0
0
-5.0
-10.0
-15.0
Sep 13 Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul Aug 14
Source: GfK Consumer Confidence Barometer on behalf of the European Commission
Figure 3: Average earnings and consumer prices annual growth rates (%)
5.0
2.5
0
-2.5
-5.0
Sep 13 Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul 14
Source: Office for National Statistics
Total pay
Consumer Prices Index
Debenhams plc Annual Report & Accounts 2014
6
A n i n d e p e n d e n t v i e w
o f t h e U K r e t a i l m a r k e t
From a general retail perspective, 2014
has so far been the best year since before
the recession. The market context has
improved as the fragile economic recovery
strengthens, employment grows,
consumer sentiment improves and the
housing market accelerates, releasing pent
up demand for home-related products.
This has led to a raft of retailers floating
as they take advantage of investors’
improving attitude to the retail sector.
Yet there are nevertheless brakes on
spending. Despite more people in work,
wage growth is still below price inflation
and this, combined with high living costs
and the likelihood of interest rate rises and
a new government in 2015, is dampening
expenditure. Consumers have a completely
different attitude to spending to that of the
pre-recession period. Instead of buying
lots of low price product and fuelling
spending with credit, consumers are more
considered in their buying habits. Now it is
about value; price is still important but they
would rather buy fewer items and spend
more on each for quality and longevity.
Hence not every retailer is benefiting from
improving conditions. With consumers
buying fewer items, volumes are down and
this, combined with a mature market and
relatively low growth rates, means that not
everyone can gain. This is most evident in
the grocery sector where inflation has
slowed, shoppers are buying less, and less
often, and are offsetting indulgences with
value-led ranges, hitting sales and profits.
Indeed the retail landscape has changed
significantly. Being market leader and
having the benefit of scale with stores in
more locations than competitors is no
longer an advantage. Competitors have
expanded as well giving consumers a
greater choice of retailers within easy
access, and of course the big disrupter has
been the internet and online shopping
sites, giving everyone access to an infinite
choice of retailers and products.
The buying process has become much
more complex with the integration of
online and physical stores giving shoppers
A n i n d e p e n d e n t v i e w
o f t h e U K e c o n o m y
Having been unusually gloomy for an
unusually long time, the outlook for the
UK consumer has started to brighten.
Over the past year, the number of people
in work has risen to record highs, the
unemployment rate has fallen back to its
lowest level in more than five years and real
consumer spending has recovered to
within a whisker of pre-recession levels.
Consumer confidence, meanwhile, is
approaching levels last seen in the late
1990s and early 2000s.
Headwinds to growth still persist, however.
In particular, average earnings growth has
remained extremely weak, both in absolute
terms and relative to inflation. The squeeze
on real wages that has dogged consumers
since the beginning of the financial crisis
persists, albeit to a lesser degree now than
in the recent past. Furthermore, at around
60% of take-home pay, non-discretionary
spending remains at elevated levels for a
significant number of households. Higher
levels of indebtedness have also made
consumers more sensitive to potential
changes in interest rates.
The so-called “cost of living crisis” has
resulted in consumers becoming more
careful with their spending, shopping
around more than they would have done
in the past. This has particularly been the
case where non-discretionary spending is
concerned: the striking rise of discounters
in the food retail space and, more recently,
the growing market share for smaller
players in the utilities industry is testament
to this. The increase in competition which
this has engendered has helped to limit the
extent of any price increase for consumers.
Consumer price inflation, which has acted
as a significant drag on growth in recent
years, has fallen materially in recent
months. In particular, inflation for non-
discretionary spending is now hovering at
close to zero. This level of inflation has
Debenhams plc Annual Report & Accounts 2014
7
endless options on how they research, buy
and have goods delivered. Retailers have
far more interaction with the customer,
which demands consistent levels of service
on many more touch points. And of course
social media is having an even greater
impact on the buying process through
recommendations and reviews. The result
is the role of the physical store has changed
fundamentally – it is now more of a step in
the buying journey, whether for inspiration,
purchasing or collection.
We are in an era where truly the consumer
is king. Consumers have unlimited choice
and access. They want brands that are in
tune with them and their needs, inspire
them and value them as customers, editing
the choice to fit their lifestyles, income and
specific needs. In retail being in tune with
your customer is even more essential to
thrive and survive.
Maureen Hinton
Global Research Director
helped to offset some of the weakness in
real wage growth, with emerging evidence
that, in at least some parts of the market,
declining inflationary pressures have
started to boost retail sales volumes.
Over the shorter term, this discounting may
have contributed to downward pressure
on margins for retailers. This has certainly
been the case for a number of listed retail
companies, especially in the food retail
space. In non-food stores, the rate of
downward revisions to consensus
estimates has actually moderated since
the start of the year.
Looking forward, diminishing slack in
the labour market should support some
recovery in earnings growth. Coupled with
falling food prices and lower energy bills,
the picture for household cash flow – and
discretionary spending more generally –
over the next couple of years in the UK is
likely to be one of steady improvement.
Darren Winder
In this section
10 Chief Executive’s report
14 Business model and strategy
16 Our strategy at a glance
18 Resources, relationships and sustainability
24 Key performance indicators
26 Risk review
28 Principal risks and uncertainties
S T R A T E G Y
Debenhams plc Annual Report & Accounts 2014
8
In this sec tion you can read an inter view
with Chief Executive Michael Sharp, see
how we create value through our business
model and our strategy, review our KPIs,
learn how we build relationships and
manage scarce resources and how we
approach risk.
S T R A T E G YDebenhams plc Annual Report & Accounts 2014
9
S T R A T E G I C R E P O R T
C H I E F E X E C U T I V E ’ S R E P O R T
Taking decisive ac tion to improve performance
Michael Sharp has been
Chief Executive of
Debenhams since 2011.
Here he discusses the
issues that impac ted our
per formance in 2014 and
the decisive ac tion being
taken to address them.
Q : W h a t w e r e y o u r h i g h s a n d l o w s
i n 2 0 1 4 ?
2014 was a challenging year for
Debenhams. I was extremely frustrated
and disappointed by our performance in
the first half of the year and its impact on
the results for the year as a whole. But it is a
mistake to think that the year was without
positives, not least that we saw a much
more encouraging performance in the
second half. Our brand remains in good
shape and customers continue to like our
product ranges. The Oxford Street
transformation project was completed on
plan and the flagship store is meeting our
expectations. We opened four new stores
in the UK and a net six new international
franchise stores. Our online sales continued
to grow. We refinanced our borrowing
facilities, taking advantage of highly
attractive credit markets to secure
longer-term and more diversified funding.
Q : W h a t w e n t w r o n g i n t h e f i r s t
h a l f o f t h e y e a r ?
Our performance in the first half was
impacted by lower than expected sales in
our UK clothing business before Christmas.
This meant we had to clear significantly
more stock during the post-Christmas sale,
resulting in a 100 basis point (bps) decline
in gross margin for the first half. I believe
that three factors contributed to this
disappointing performance. First, in
hindsight we set our sales expectation
too high and as a result bought too
much stock. Weak market conditions in
September and October exacerbated
the problem. Second, the clothing market
was extremely promotional in the run-up
to Christmas, meaning that our own
long-established promotional events were
less successful than they had been in the
past. Finally, Christmas 2013 was the first
Debenhams plc Annual Report & Accounts 2014
10
truly multi-channel Christmas. Convenience
had a much greater influence on customer
behaviour and the winners were retailers
who could offer services such as next day
click and collect. We were not able to do
this and, whilst our online sales continued
to grow, in reality we fell further behind
some of our competitors.
Q : W h a t a r e y o u d o i n g t o a d d r e s s
t h e s e i s s u e s ?
We have taken decisive action to address
these issues. In April we set out five clear
priorities under the pillars of our strategy to
build a leading international, multi-channel
brand. These priorities are underpinned by
the setting of more prudent sales targets
and buying a lower level of stock which
will make us more resilient going forward.
The first of these priorities, in terms of
delivering a compelling customer
proposition, is to refocus our approach to
promotions. Second, for multi-channel, we
are continuing to build a more competitive
and economic business. Third, the priority
for UK retail is to drive a better return from
our stores. Next, in the international
business, our aim is to accelerate growth
across all channels. Finally, we are investing
in operational effectiveness which I think
of as the “glue” which connects the four
pillars together.
Q : H o w c a n y o u r e f o c u s y o u r
p r o m o t i o n a l a c t i v i t y w i t h o u t
d i s e n g a g i n g y o u r c u s t o m e r s ?
A n d h o w w i l l y o u m e a s u r e
y o u r s u c c e s s ?
Promotions are part of Debenhams’ DNA.
Customers like them and recognise the
great value they offer. But in the run-up to
Christmas the increased intensity of our
activity started to cause some confusion.
Our emphasis is now on the important
promotional events such as spectaculars,
sales and blue cross. We are removing from
the calendar some of the smaller events
which create promotional “noise” with only
limited reward. Overall, we are reducing
the number of days we are on promotion
and the depth and breadth of product
participation within promotions. This is a
journey, predicated on the more prudent
sales targets mentioned above, which will
not be achieved in one season. We are
making these changes at a pace which
makes sense to our customers so they do
not become disengaged. At the same time
we are improving clarity around value on
a more general basis, for example by
tightening price points in categories such
as childrenswear. We are measuring our
success in a number of ways. Clearly gross
margin is the key metric and it grew by
10 bps in the second half compared with
a decline of 100 bps in the first half. We also
saw a 10.6% increase in own brand full price
sell-through in the second half compared
with the previous year and an improvement
in the markdown to sales ratio of 3.9%.
Q : W h e n w i l l y o u r m u l t i - c h a n n e l
s e r v i c e p r o p o s i t i o n b e a s g o o d
a s y o u r c o m p e t i t o r s ’ ? H o w a r e
y o u i m p r o v i n g m u l t i - c h a n n e l
p r o f i t a b i l i t y ?
We are confident in our online product
offer, but we have not been as competitive
as our best-in-class peers in the range of
delivery options available to multi-channel
customers. Many of these issues have now
been addressed. The cut-off for next day
delivery to home has been extended from
2pm to 10pm. Customers can now elect
for evening delivery or delivery on a
nominated day including Saturday and
Sunday. Next day click and collect is also
available. We expect these new services to
M I C H A E L
S H A R P
Chief Executive
10.6%+
Increase in own brand full price
sell-through in second half of year
10pm
Order cut-off for next day delivery
to home from October 2014
Debenhams plc Annual Report & Accounts 2014
11
S T R A T E G I C R E P O R T
C H I E F E X E C U T I V E ’ S R E P O R T C O N T I N U E D
We have a lot to do and
we do not underestimate
the challenge ahead.
I am confident that we
can deliver our goals
and that we have the
right strategy, team
and resources in place
to do so.
drive sales and to improve profitability.
They will drive sales by appealing to
customers for whom convenience is the
most important reason why they choose
to shop with a retailer. They will drive
profitability by enabling us to recover a
higher proportion of delivery costs.
We are aiming to improve online
profitability further by reducing our
fulfilment costs which we know are higher
than our competitors’. We have made
progress in the last two years, reducing UK
online costs as a percentage of sales by
some 500 bps. There is more to come over
the medium term, particularly through the
automation of our distribution centres,
as detailed on the next page.
Q : H o w a r e y o u i m p r o v i n g t h e
r e t u r n o n y o u r U K s t o r e s ?
Our UK stores will continue to be our
largest single sales channel for the
foreseeable future. However, the role of
the store is changing in the multi-channel
world. Store footfall has been impacted by
the ongoing channel shift from store-based
shopping to online. The ongoing
modernisation programme and the work
to improve store standards are providing
a better shopping experience than five
years ago. However, sales densities have
declined due to the channel shift and the
closure of a number of concession brands,
particularly in larger stores. This has
contributed to a fall in UK store like-for-like
sales which we are seeking to address.
I said last year that we were conducting
an estate-wide space review to ensure all
space is being used in the most profitable
way. This has been completed and we have
now moved into a phase of trials which aim
to increase sales densities by offering a
wider choice of product categories, brands
and services. Trials have commenced with
brands including Sports Direct, Monsoon,
Mothercare and Costa. Early results have
been encouraging. Decisions on future
roll-out will be made after peak trading.
Q : H o w w i l l y o u a c c e l e r a t e g r o w t h
i n y o u r i n t e r n a t i o n a l b u s i n e s s ?
With an estimated size of more than
£300 billion, the global department store
market provides an opportunity for our
International segment to become a
substantial part of Debenhams over the
next five years, accounting for some 30%
of sales. In the past year international
has become much more front of mind
in our organisation. There is much closer
integration between our international
and buying/merchandising teams and
we have improved the management of
the international supply chain. Looking
forward, we expect growth will come in
the main from our franchise stores, where
we are aiming to double the number of
stores and countries. We are contracted
to open 14 new stores over the next three
years with another 12 in final negotiation.
International online is growing quickly
with sales up by 41.6% in 2014. It accounted
for 4.3% of total international sales and
we are aiming to increase this to c.15%
in five years. In addition to our existing
international models, we are looking at
alternative routes to market for our own
brands which will help us expand our reach
into more markets and continue to grow the
profitability of our international business.
Debenhams plc Annual Report & Accounts 2014
12
Executive Committee
members from left to
right. Back row: Richard
Cristofoli (Marketing
Director), Peter Swann
(Operations Director),
Michael Sharp (Chief
Executive), Suzanne
Harlow (Group Trading
Director), Neil Kennedy
(Acting Chief Financial
Officer). Front row: Ross
Clemmow (E-Commerce
Director), Nikki Zamblera
(HR Director), Mike Goring
(Retail Director).
region of £130 million in 2015. We remain
focused on return on capital employed.
Q : W h a t i s y o u r o u t l o o k f o r 2 0 1 5 ?
We expect the market to remain highly
competitive because customers tell us
that although they are encouraged by
economic improvements, this has yet to
translate into higher disposable income.
We therefore remain cautious about the
strength and timing of a UK consumer
recovery and are planning prudently.
Whilst this has been a challenging year for
Debenhams, the brand is strong and our
improved second half performance
demonstrates that we have taken decisive
action to address the issues we faced in the
first half. The progress we have achieved so
far gives me confidence that we are ready
and prepared for the key Christmas period
and that we have a clear strategy to deliver
long-term sustainable growth and
shareholder value.
Our 2014 strategic report, from page
10 to page 31, has been reviewed and
approved by the board of directors on
23 October 2014.
Michael Sharp
Chief Executive
23 October 2014
Q : Y o u a r e i n c r e a s i n g y o u r f o c u s
o n o p e r a t i o n a l e f f e c t i v e n e s s .
W h a t a r e t h e p r i o r i t i e s f o r t h e
m e d i u m t e r m ?
As Debenhams changes from a UK
department store model to an international,
multi-channel model, we are evolving the
systems, supply chain and processes that
support the business. We have a clear
roadmap to achieve this which focuses
on four areas of operational effectiveness.
We are developing our buying and
merchandising capabilities to facilitate
a joined up approach to buying, range
planning and merchandising across
geographies and channels. The supply
chain is being restructured to provide more
flexible and scalable supply and logistics.
The quality of our decision making is
improving through enhanced data
analytics and reporting capability for all
channels. Finally, we are upgrading our
systems infrastructure to provide the
platform and tools to sustain us as we grow.
One project which is worth dwelling on
for a moment is the automation of our
Peterborough and Sherburn distribution
centres. This will not only give us the
capacity for future growth but will enable
us to achieve a significant reduction in
the cost per unit of picking and packing,
thereby contributing to a meaningful
increase in the profitability of online sales.
Q : W h a t i s y o u r a p p r o a c h t o s t o r e
e x p a n s i o n i n t h e U K ?
Our store estate will continue to be our
largest channel and plays a vital part in
driving our multi-channel business. The
vast majority of customers touch a store
in some way. When we open a store in a
new location we see an increase in online
sales in the catchment area.
However, I believe it is useful to clarify our
position on new UK stores. We have 160
stores today. The contracted pipeline is
comprised of 12 stores. Borehamwood and
Scunthorpe will open during October 2014
and ten stores are scheduled to open in
the following three years. There are
another ten priority markets where we
would like to open a store if we can obtain
the right space on the right deal. They
include the shopping malls at Bluewater
and Westfield Stratford City. Beyond this,
we are not looking to open any more stores
in the UK.
Q : Y o u h a v e a l o t t o d o . D o y o u
h a v e t h e t e a m a n d t h e r e s o u r c e s
t o d e l i v e r ?
We do have a lot to do and I do not
underestimate the challenge ahead.
I am confident that we can deliver. I am
fortunate in having what I believe is one
of the most talented retail management
teams in the UK. We strengthened the
Executive Committee during 2014 with
the appointments of Peter Swann as
Operations Director, adding responsibility
for supply chain and logistics to his
existing systems brief, and Ross Clemmow
as E-Commerce Director. These
appointments recognise the importance
of these disciplines to our future success.
I would also like to make special mention
of Neil Kennedy who has fulfilled the role
of Acting Chief Financial Officer admirably
ahead of Matt Smith’s arrival.
We also have the financial wherewithal
to deliver. Debenhams remains a cash
generative business with clear priorities
for the uses of cash. The first priority is
to invest in the four pillars of our strategy.
Capital expenditure amounted to £128
million in 2014 and is expected to be in the
Debenhams plc Annual Report & Accounts 2014
13
S T R A T E G I C R E P O R T
B U S I N E S S M O D E L A N D S T R A T E G Y
Our place in the value chain
We create value through a business model which has a clear understanding of who our customer is and what they want from us,
combined with expertise in how we source and sell products. Our strategy is to build a leading international, multi-channel brand and
has four inter-related pillars with delivering a compelling customer proposition at their heart. Operational effectiveness provides the
processes, systems and supply chain which connect our strategy with our customers.
O p e r a t i onal effectiveness
n UK retail
g o
in
s
u
c
o
F
Incre
thr
a
sin
g
o
D e l i v e r i n g a
c o m p e l l i n g
c u s t o m e r
p r o p o s i t i o n
u
a
g
v
h
a
i
l
m
a
b
u
i
l
l
t
i
i
t
-
y
c
h
a
n
n
e
l
a
n
d
c
h
o
ic
e
E
x
p
a
nding the brand i n t e r
n ally
a ti o
n
Operational effec t i v e n e s
s
Corporate governance
Good governance is about responsible
and effective management which
demonstrates honesty, transparency
and accountability.
READ MORE ON PAGES 40 TO 53
Key performance indicators
The board assesses the performance of
the business on a range of financial,
strategic and sustainability key
performance indicators.
READ MORE ON PAGES 24 AND 25
Directors’ remuneration
We have set strategic targets in the
management performance share plan to
reflect our focus on key priorities under
each pillar of our strategy.
READ MORE ON PAGES 54 TO 77
Debenhams plc Annual Report & Accounts 2014
14
W h o i s o u r c u s t o m e r
We put our customer at the heart of everything we do.
Debenhams is a family oriented brand which has a broad appeal
across our store estate and websites. Our core shopper is
female, ABC1 and aged 35-55. In 2014, 12 million customers
visited our UK stores and our websites received 276 million visits.
W h a t w e s e l l
Our customer proposition is differentiated by a unique
combination of exclusive, credible core and Designers at
Debenhams own brands, international brands and concessions
within a good/better/best price architecture. Half of everything
we sell is exclusive to Debenhams. A wide choice of clothing and
non-clothing categories provides balance and resilience.
Customer profile by age
Customer profile
by demographic*
Sales by brand type
Sales by category
15-24 – 12%
25-34 – 17%
35-44 – 19%
45-54 – 20%
55-64 – 14%
65+ – 18%
A – 6%
B – 29%
C1 – 31%
C2 – 19%
DE – 15%
*National Readership Survey (NRS)
demographic categories
Core own brands – 27%
Designers at Debenhams
own brands – 17%
International brands – 32%
Concessions – 24%
Womenswear – 17%
Menswear – 14%
Childrenswear – 9%
Lingerie – 6%
Accessories – 14%
Beauty – 24%
Home & furniture – 12%
Food – 3%
Other – 1%
H o w w e b u y
Our sourcing strategy is based on “right product, right country”.
We have been sourcing our own brand products directly for
many years and have built long-standing relationships with
suppliers. Our global sourcing activities meet our customers’
and our own expectations that every one of our products is
manufactured in a factory that meets high ethical, safety
and quality standards.
H o w w e s e l l
Convenience is becoming an increasingly important factor in
how and where customers shop. We therefore give customers
a wide range of shopping channels, including our stores, online,
mobile, apps, instore kiosks, catalogues and telephone ordering.
Multi-channel customers can collect their products from one
of our stores or have them delivered to home.
Own brand sourcing
by country
Own brand direct
vs indirect sourcing
Sales by channel
Store numbers
Direct – 64%
Indirect – 36%
Stores – 84.7%
Online – 15.3%
UK – 160
Denmark – 6
Republic of Ireland – 11
International franchises – 68
China/Hong Kong – 46%
India – 13%
Bangladesh – 12%
Vietnam – 6%
Romania – 5%
Cambodia – 4%
Turkey – 4%
UK – 3%
Other – 7%
Debenhams plc Annual Report & Accounts 2014
15
S T R A T E G I C R E P O R T
O U R S T R A T E G Y A T A G L A N C E
Building a leading international, multi-channel brand
Delivering a compelling
customer proposition
Increasing availability
and choice through
multi-channel
Strategic priorities
• Investing in our product and brand strategy to ensure our
proposition remains competitive
Strategic priorities
• Giving customers a relevant choice of inspiring products and
brands which are made easy to choose and easy to shop
• Refocusing our promotional strategy to drive gross
• Increasing the competitiveness of our multi-channel
margin improvement
delivery options
• Developing buying and merchandising capability to
create greater alignment between buying teams and our
international and online operations
• Improving the economics of multi-channel through higher
recovery of delivery costs and reduction in cost per unit
of fulfilment
• Effective communication of the proposition across all media
2014 performance
• Ongoing returns were achieved from the investment made in
Red Herring and Principles by Ben de Lisi buying teams
• Recent brand launches were rolled out to more stores including
menswear Designers at Debenhams brand Hammond & Co. by
Patrick Grant which grew from 20 stores to 80 stores
2014 performance
• Online sales grew by 17.6% to £430.7 million with the online mix
increasing from 13.2% of Group GTV to 15.3%. However progress
was restricted by the uncompetitiveness of our fulfilment offer
• Total online visits increased by 15% to 276 million
• Mobile continued to be the fastest growing channel with mobile
visits up by 58% and mobile sales up by 81%
• The value proposition was sharpened in key categories
• Next day delivery to home launched in the UK in September 2013
including childrenswear
• Demand for click and collect in the UK grew to 22.3% of all online
• New brand development included Racing Green which will be
orders compared with 7.4% in the prior year
launched in menswear in 2015
• Work to refocus the promotional strategy commenced, leading
to a 10.6% increase in own brand full price sell-through in the
second half
• Stock efficiency improved, leading to a 5.3% reduction in
like-for-like stock at year end
• “Single customer view” is now fully operational, driving greater
return from CRM and eCRM programmes
2015 challenges
• Our markets remain highly competitive with new store and online
entrants, especially in clothing
• Managing availability in light of lower stock commitment
• Achieving another step change in return from marketing activity
across all channels
• Ensuring strong communication of new delivery services
• Managing the potential impact of political unrest on sourcing
and supply chain
• Key customer pain points were addressed, particularly around
checkout and returns
• Efficiencies in fulfilment resulted in a 230bps reduction in the
UK online cost to sales ratio
2015 challenges
• Launching the new multi-channel delivery services in time
for peak trading to drive sales and achieve higher recovery
of fulfilment costs
• Integrating new carriers for evening and weekend
delivery options
• Supporting next day click and collect service levels and at the
same time protecting margins through fulfil-from-store and
changes to the transport network
• Developing a flagship online experience through improved
product presentation, search and navigation
• Achieving a further reduction in cost per unit of fulfilment
• Finalising plans for automation of fulfilment centres
Debenhams plc Annual Report & Accounts 2014
16
We made progress within each of the four pillars
of our strategy in 2014 despite the difficult trading
conditions. Here we review the key elements of
our performance and outline the key challenges
we will be facing in 2015.
Focusing on
UK retail
Expanding the
brand internationally
Strategic priorities
• Addressing the impact of the channel shift on UK store
Strategic priorities
• Accelerating growth in international activities, building on our
performance including the optimisation of inefficient space
existing credible, exportable proposition
• Improving store standards
• Leveraging our core strength in own brand products into
• Opening new stores in target markets to grow sales and
global markets
market share
2014 performance
• UK store like-for-like sales declined in a highly competitive market
and performance continued to be impacted by the channel shift
• Trials to improve sales densities commenced with Sports Direct,
Monsoon, Mothercare and Costa
• New instore projection for click and collect rolled out to all stores
• The transformation of Oxford Street into our international
flagship store was completed on plan and the store is performing
in line with expectations
• Store operating standards continued to benefit from the model
store programme
• New stores were opened in Cheshire Oaks, Haverfordwest,
Hereford and Leamington Spa, adding 169,000 sq ft of
trading space
• New store pipeline stands at 12 stores over next four years
2015 challenges
• UK consumer confidence has improved but the cost of living
is still rising faster than real income
• Highly competitive marketplace in an environment of declining
store footfall due to the channel shift
• Need to ensure efficient handling of expected increase in
demand for click and collect following launch of the next day
service, including fulfil-from-store
• Managing continued inflation in store costs
• Execution of new brand trials and the subsequent roll-out
of all trial brands
• Successful opening of new stores in Borehamwood
and Scunthorpe
• Employing the appropriate operating model for each
market based on our preference for prudent investment
and risk management
2014 performance
• International segment GTV and operating profit increased
by 5.1% and 14.5% respectively
• Good performance from Magasin du Nord
• Eight franchise stores opened including three new markets
(Latvia, Libya, Estonia), two stores closed
• Contracted new franchise store pipeline stands at 14 stores
in seven countries over next three years, 12 more are in
final negotiation
• International online sales increased by 41.6%
• Trading conditions in the Republic of Ireland
remained challenging
• Ship direct was extended to cover deliveries to franchise partners
in Indonesia, Malaysia and the Philippines taking five weeks out
of lead times and halving the cost per unit of shipping
• Closer organisational integration between international business
and core activities including buying and merchandising, supply
chain and logistics
2015 challenges
• Geopolitical issues are a concern in franchise markets such as
Russia and Libya
• The Republic of Ireland is expected to remain a difficult market
• We must ensure the systems, supply chain and processes are in
place to support a growing international business
• Successful development of alternative routes to market
• Gaining momentum in online markets where we have no
store presence
Debenhams plc Annual Report & Accounts 2014
17
S T R A T E G I C R E P O R T
R E S O U R C E S , R E L A T I O N S H I P S
A N D S U S T A I N A B I L I T Y
Ensuring our ability to endure
W E R E C O G N I S E T H A T
W E C A N N O T R U N O U R
B U S I N E S S I N I S O L A T I O N .
T H E R E F O R E O U R M O D E L
I S U N D E R P I N N E D B Y A
S E R I E S O F R E L A T I O N S H I P S
W I T H S T A K E H O L D E R S A T
L O C A L , N A T I O N A L A N D
I N T E R N A T I O N A L L E V E L ,
W H I C H C O N T R I B U T E T O
T H E L O N G - T E R M S U C C E S S
A N D S U S T A I N A B I L I T Y O F
T H E B U S I N E S S .
Debenhams plc Annual Report & Accounts 2014
18
Building strong relationships
Our customers
We put our customers at the heart of
everything we do, which is why the first
pillar of our strategy is delivering a
compelling customer proposition. We
take our customers’ views very seriously
and listen carefully to what they think
about what we are doing. Members of
the Executive Committee participate in
customer closeness sessions where we
meet eight to ten customers at a time to
talk to them about their experiences of
shopping at Debenhams. We have a
customer panel of 15,000 customers to
whom we send weekly surveys on a variety
of topics. Quarterly brand tracking research
helps us to understand how customers
perceive our brand against our competitor
set. Every customer is invited to participate
in an online customer voice scheme. We
also operate an online website satisfaction
study. Our single customer view system
also allows us to survey specific customers
based on their purchase history.
Putting our customers first is also about
making sure we give them great value
every day. As well as refocusing our
promotional strategy (as described on
pages 10 and 11), we have improved value
in key categories such as childrenswear.
Our employees
Our relationship with our employees
is crucial to our success as a business.
In 2014 over 80% of our 28,000 employees
participated in the second annual
engagement survey. The engagement
score was the same as last year at 77%.
The results of the survey make it very
clear that if you work at Debenhams it
really is all about the people and the pride
in doing a good job. The commitment and
loyalty of our team is evidenced by the
long service of many of our employees,
some of whom have dedicated more
than 40 years to the Company.
The organisation continues to evolve in
order to support our changing business
model and this year has seen the opening
of an office in Bangladesh to support our
growing sourcing activities in that country.
Our London head office is enjoying the
benefits afforded by our move to a single
location from five previous buildings.
The continued focus on operational
effectiveness is being supported by a
new performance appraisal system and
the roll-out of a simple behaviour-based
programme to stores. It is called “Pride,
Passion & People” and embodies the
values important to us and our customers.
We endeavour to keep our employees up
to date with our strategy and performance
in a number of ways, including personal
briefings from the Chief Executive.
Local communities
The pride and passion of our employees
extends into the communities we serve.
In 2014 we raised £1.4 million for the causes
supported by the Debenhams Foundation.
Our charity partners reflect the causes that
our people and our customers hold dear.
During the year we added Help for Heroes
to our existing partners Children in Need
and Think Pink which comprises three
breast cancer charities.
The first Debenhams Foundation Ball was
held in September 2013 in honour of the
200th anniversary of the Debenhams name
appearing on the high street. It was
supported by our long-standing supplier
base and our champion fundraisers.
Debenhams plc Annual Report & Accounts 2014
19
S T R A T E G I C R E P O R T
R E S O U R C E S , R E L A T I O N S H I P S
A N D S U S T A I N A B I L I T Y C O N T I N U E D
We were pleased to receive the Silver Award
for Payroll Giving 2014 from the Charities Aid
Foundation in recognition of the generosity
of many of our employees.
Our suppliers
As the business model on page 14
shows, nearly half of everything we
sell is exclusive to Debenhams. In the
25 years we have been working on our
own brand programme, we have developed
relationships with suppliers around the
world. We work with more than 500
own brand suppliers to ensure that our
customers are provided with exceptional
quality at great value. We require
our suppliers to ensure that their own
employees are paid a fair wage, are treated
with dignity, are not discriminated against
or exploited in any way and have a safe
working environment. The standards we
expect are embedded in our policies and
set out in our supplier code of conduct
which is incorporated into suppliers’
conditions of trading and to which they
are expected to adhere.
We operate a comprehensive factory
approval and audit process for the 1,150
factories we source from around the world.
During 2014, half of these factories were
audited as part of our ongoing monitoring
programme. We have compliance teams in
Hong Kong and Bangladesh in addition to
using third party audit partners. Having
worked with a single third party partner for
the last five years, in October 2013 we
opened up our programme to other major
independent providers in order to increase
flexibility. Our two preferred independent
audit companies are Intertek and UL. Whilst
our standard audit programme continues,
we have also increased our focus on
training, guidance and encouraging
transparency to enable positive change by
way of open dialogue and more frequent
visits to our suppliers and manufacturers.
We participated in a number of projects
during 2014, including working closely with
WRAP to educate and raise awareness
about fire prevention and safety, particularly
in Bangladesh, India and Pakistan. We are
working with Impactt, a leading specialist
in ethical trade, human rights and labour
standards, on a project in Bangladesh with
a reach of 200 factories and more than
250,000 employees. It is helping ready-made
garment factories to become better
businesses which provide better employee
practices, aim to reduce overtime, improve
production efficiency, reduce absenteeism
and improve skills. The results have been
very positive so far and during 2015 we will
start the same programme in India. During
2014 we also started to work with ILO Better
Factories Cambodia to improve compliance
with labour standards in that country.
Further, we became a signature to the
Sustainable Clothing Action Plan (SCAP).
More information on all of these projects
can be found on our sustainability website
at http://sustainability.debenhamsplc.com/.
Debenhams plc Annual Report & Accounts 2014
20
Business partners
Our business model and our strategy lead
us to work with many organisations. They
include the Designers at Debenhams, third
party brands and concessions whose
ranges we sell and the companies who own
and operate our international franchise
stores. We have a number of partners
within our multi-channel business including
the provider of the website platform, the
operator of our fulfilment centres, our key
search engines and the carriers who deliver
our products. We also work closely with our
store landlords.
It is important that we know that all of our
partners are doing the right things and are
adhering to the same high standards that
we set for ourselves and our suppliers.
This is partly done through contractual
arrangements but also through building
relationships with our partners at all levels
of our organisation so they understand what
our strategy is and the part they can play in
executing it. For example, during 2014 we
hosted strategy briefings with audiences
including the Designers at Debenhams, the
beauty houses, property companies and
landlords and our international franchisees.
Managing resources
Our success depends upon the availability
of scarce resources such as power and fuel,
raw materials and water. We are also a
producer of waste, whether carbon
emissions, waste water, packaging or
general waste streams. It is our responsibility
to ensure that our use of resources and
waste is proportionate and efficient, as well
as being compliant with all relevant
environmental legislation and regulation.
Greenhouse gas emissions
We have reported greenhouse gas
(GHG) emissions for our UK, Irish and
Danish operations since 2008. Since
then the footprint boundary has evolved
to include areas such as our international
offices, packaging, hangers and waste.
This section provides a breakdown
of our GHG emissions for 2014.
Further details of our GHG emissions
can be found on our website at
http://sustainability.debenhamsplc.com/.
With the support of Ricardo-AEA, we have
applied the GHG Protocol Corporate
Accounting and Reporting Standard 2013
and the UK government conversion factors
to calculate our carbon emissions. We
report GHG emissions in line with our
financial year.
In 2014, based on the data provided, our
overall carbon footprint has increased by
11%, from 174,080 tonnes CO2e in 2013 to
193,365 tonnes CO2e. A breakdown of this
is shown in table 1 overleaf. This includes UK
GHG emissions which have increased by
16% from 140,866 tonnes CO2e in 2013 to
163,890 tonnes CO2e in 2014. The increase is
due to two main reasons. The predominant
factor is the 10% increase in the UK grid
electricity GHG intensity. This has led to an
increase in our UK electricity carbon
emissions, even though our actual electricity
consumption, in kWh, reduced by 2%. The
second reason for the increase in this year’s
footprint is an increase in the number of
GHG sources which have been included
within the footprint compared with
previous years.
Whilst the overall footprint has increased,
many other component sources have
reduced including total oil and gas, Irish
and Danish electricity, UK water use, UK
road freight, air freight and international
road freight.
Debenhams plc Annual Report & Accounts 2014
21
S T R A T E G I C R E P O R T
R E S O U R C E S , R E L A T I O N S H I P S
A N D S U S T A I N A B I L I T Y C O N T I N U E D
Energy efficiency
Energy efficiency is a key component of
our store expansion and modernisation
programmes. In 2015 we are investing
£2.7 million on initiatives. This will result
in a better environment for customers
and employees in our stores through
advanced control of heating, lighting
and air conditioning. New stores in
Borehamwood and Scunthorpe will
benefit from full LED lighting schemes
on the shop floor and back of house which
will reduce total energy usage by some
20% compared with conventional lighting.
Transportation
We are committed to driving down the
impacts of deliveries to and from our
distribution centres through the use
of more efficient vehicles and trailers
and through more effective planning
of deliveries.
The anticipated growth in click and collect
following the introduction of the next day
service will lead to increased delivery
frequency to stores as we seek to fulfil
click and collect orders in the most cost
effective way. We are introducing a new
planning tool to assist us, building on the
benefits we have already seen over the
past year through better planning and
vehicle utilisation.
To support our growing international
franchise business, we opened a
distribution hub in Singapore in April 2013
which ships product manufactured in Asia
direct to our Middle East franchise partner.
Since then, we have added shipments to
our partners in Indonesia, Malaysia and
the Philippines and are now processing
5 million units per year through the facility,
taking up to five weeks out of lead times.
Other resources
You can find out how we manage
other resources online at
http://sustainability.debenhamsplc.com/.
£million of turnover and tonnes CO2e per
m2 of floor area, respectively, as shown
in table 3.
Table 2: Group data used for intensity
measures
2012
2,700
2013
2014
2,777
2,824
1,829,856 1,898,203 1,850,874
GTV (£m)
Total floor
area* (m2)
*Total floor area includes back of house in stores, offices
and distribution centres as well as store trading space.
Table 3: Assessment of absolute
footprint emissions
2012
2013
2014
178,457
174,080 193,365
66
63
68
0.097
0.096
0.104
Absolute
emissions
(tCO2e)
Absolute
tCO2e/£m
GTV
Absolute
tCO2e/m2
Table 3 shows that intensity metrics have
grown ahead of the increases in the
Group’s GTV and floor space. This is largely
due to the same reasons for the increase
in absolute emissions, in particular the
increase in UK grid electricity GHG intensity.
Debenhams plc Annual Report & Accounts 2014
22
Table 1: Group scope 1, 2 and 3
absolute GHG emissions shown in
tonnes CO2e
2012
2013
2014
Scope 1
Scope 2
Scope 3
Total
14,850
17,786
15,989
144,536
139,607 149,068
19,071
16,687
28,308
178,457
174,080 193,365
This year we have captured more emission
sources than in previous years and we
will continue to endeavour to do so
going forward.
In addition, we are investing in projects that
will reduce our footprint and environmental
impacts. In 2014 we invested £1 million
in energy efficiency projects and plan to
spend a further £2.7 million on energy
efficient lighting, heating, cooling and
control projects in 2015.
Emissions data are made more meaningful
when compared to a core business
variable. We have developed intensity
ratios for the total footprint using both
annual GTV and premises floor area.
Table 2 shows the total annual GTV and
floor area for the whole business. The total
absolute emissions are then divided by
these figures to provide tonnes CO2e per
Sustainability in the 21st century
Our work in the area of sustainability is
overseen by a cross-function Sustainability
Committee which is chaired by Martina
King, non-executive director.
The primary goal of the Sustainability
Committee is to take a long-term view of
the world in which we trade, to ensure that
we will continue to be a successful retailer
for the next 150 years. We need to consider
our relationships with our stakeholders.
These relationships have changed
dramatically over the past 20 years,
primarily as a result of the advancement
of technologies, from global trading and
distribution of goods at a mass scale to
the launch of the internet, new payment
methodologies and mobile advancements,
to name a few.
There is a huge amount of debate still
raging regarding the role of the high street
in the future. In a world of fast moving
and developing technologies, it is well
understood that content creators will
always have a role, as long as the content is
demanded and available. Debenhams is in
an enviable position; our commitment to
affordable “designer” collections, which
are celebrating their 21st anniversary,
means that we are creators of our own
content, not just a showcase of others’
creations, although that remains core to our
customer proposition as a contemporary
department store. It is this dual approach
that delivers increased margin, delighted
customers and greater long-term security.
Our committee has a watching brief
to monitor long-term consumer and
technology trends, as well as ensuring our
responsible approach to the consumption
of the world’s resources, including looking
after the interests of the broadest
description of our stakeholder group.
Debenhams plc Annual Report & Accounts 2014
23
S T R A T E G I C R E P O R T
K E Y P E R F O R M A N C E I N D I C A T O R S ( K P I s )
Measuring our progress
Key performance indicators
The board uses a range of KPIs to
assess performance.
Given the disappointing performance of
the business in the first half of the year, we
did not meet our expected targets for the
strategic and Group financial KPIs in 2014.
Directors’ remuneration
New KPIs have been introduced this year
for delivering a compelling customer
proposition and focusing on UK retail to
align them with performance criteria under
the performance share plan (PSP). Annual
bonus is awarded on the basis of profit
before tax. PSP awards are granted
according to performance against targets
set for earnings per share, gross margin
movement, online EBITDA growth rate,
UK GTV and International EBITDA growth
rate. More information can be found in the
directors’ remuneration report starting
on page 54.
Linked to executive remuneration
Strategic KPIs
Delivering a compelling customer proposition
– Group gross margin movement (bps)
+70
-20
-30
0
-60
2010
2011
2012
2013
2014
Rationale
Gross margin is defined as GTV less the
cost of goods sold, as a percentage of
GTV. Key drivers include intake margin,
sales mix and markdown.
2014 performance
Gross margin fell by 60 bps due to high
levels of markdown in the UK in H1.
Performance was better in H2.
Looking forward
We expect gross margin to recover
over time as the work to refocus the
promotional strategy delivers higher full
price sell-through and lower markdown.
Group financial KPIs
Gross transaction value (£m)
Like-for-like sales change (%)
Underlying profit before tax* (£m)
2,564
2,640
2,708
2,777
2,824
0
-0.3
+1.6
+2.0
+1.0
145.3
151.9
158.3
139.0
110.3
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Rationale
Gross transaction value (GTV) is a measure
of overall sales in the business, including
those from concession brands.
2014 performance
Group GTV increased by 1.7% with growth
in both the UK (up 0.9%) and International
(up 5.1%) segments.
Looking forward
We expect GTV to continue to grow
as we build a leading international,
multi-channel brand.
Rationale
Like-for-like (LFL) sales is a measure of the
annual performance of stores that have
been open for at least one year plus
online sales.
2014 performance
Group LFL sales increased by 1.0%, driven
mainly by UK and International online sales
and by our Danish stores.
Looking forward
We expect continued LFL sales growth
despite setting more prudent sales targets
to build resilience.
Rationale
Underlying profit before tax (PBT) is our
principal measure of profitability. It
excludes items which are one-off in nature.
2014 performance
Underlying PBT fell by 20.6% due to a
number of factors which affected the UK
segment in the first half (see page 10).
Looking forward
The board expects underlying PBT to grow
in future years from the £110.3 million
achieved in 2014.
All numbers for 2011 on 52 week basis.
* Before exceptional items and non-recurring finance
cost (2014: £4.5 million). 2013-14 under IAS 19 R, 2010-12
under IAS 19.
Debenhams plc Annual Report & Accounts 2014
24
Increasing availability and choice through
multi-channel – Group online GTV (£m)
Focusing on UK retail –
UK GTV (£m)
Expanding the brand internationally –
International GTV (£m)
104.1
179.2
250.6
366.3
430.7
2,124.7
2,149.5
2,204.6
2,254.8
2,275.3
439.6
490.0
503.4
522.0
548.6
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Rationale
Online GTV is a good indicator of the
performance of our multi-channel
activities. It includes sales to customers
in the UK and internationally.
2014 performance
Online GTV increased by 17.6% to £430.7
million, representing 15.3% of total GTV.
Looking forward
Online GTV will continue to grow and
we expect to see a benefit from the
introduction of new delivery options
in time for Christmas 2014.
Rationale
The use of UK segment GTV reflects the
performance of our UK stores as well as
recognising the importance of stores in
generating multi-channel sales.
Rationale
International GTV comprises sales from the
17 owned stores in Denmark and Ireland,
sales to the franchise stores and online
orders delivered outside the UK.
2014 performance
UK GTV grew by 0.9% to £2,275.3 million.
Store performance continues to be
impacted by the channel shift.
2014 performance
International GTV increased by 5.1% to
£548.6 million, driven by growth in
Denmark, the franchise stores and online.
Looking forward
Our space optimisation programme aims
to increase sales densities within the UK
store estate which will lead to GTV growth.
Looking forward
The key drivers of International growth will
continue to be Denmark, franchise stores
and online.
Sustainability KPIs
Earnings per share* (pence)
Carbon emissions (CO2e 000 tonnes)
Employee engagement (%)
7.5
8.6
9.8
9.2
7.1
199
198
179
174
193
77
77
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2013
2014
Rationale
Basic earnings per share divides earnings
attributable to ordinary shareholders by
the weighted average number of ordinary
shares outstanding during the financial
year (excluding shares purchased by the
Company and held in treasury).
2014 performance
Lower profits resulted in a 22.8% decline in
EPS to 7.1 pence.
Rationale
CO2e is used as a measure of
environmental impact. It takes into account
harmful emissions from the six greenhouse
gases identified by the Kyoto Protocol.
2014 performance
Carbon emissions increased by 11% largely
due to an increase in the emissions
intensity of UK grid electricity (see page 21
for more details).
Looking forward
The board expects EPS to grow in future
years as profits recover.
Looking forward
We are investing in energy efficiency
measures to reduce our carbon emissions.
Rationale
We conduct an annual engagement survey,
inviting all employees in our UK and Irish
stores and head office to participate.
2014 performance
Our engagement score remained at 77%,
a good result given a significant increase
in the number of participants and the
challenging year faced by the business.
Looking forward
Measures are in place to address issues
raised by employees during the 2014
survey and drive the engagement score
going forward.
*2013-14 under IAS 19 R, 2010-12 under IAS 19.
Debenhams plc Annual Report & Accounts 2014
25
S T R A T E G I C R E P O R T
R I S K R E V I E W
Safeguarding future returns
The board of Debenhams, which has
overall responsibility for risk management
and internal control, considers it important
that there should be a regular and
systematic approach to the management
of risks in order to provide assurance that
strategic and operational goals can be met
and the Group’s reputation is protected.
The board has conducted a review of
the effectiveness of internal controls
and is satisfied that those in place
remain appropriate.
To support this system for internal control,
the Group has a risk management framework
(figure 1) that highlights the central role that
the management of risk plays in strategic
planning and the successful delivery of
strategic objectives and the fact that
this process is dependent upon people
fulfilling their clearly defined roles
and responsibilities.
Roles and responsibilities
The board
The board is responsible for: approving
the risk management policy and related
framework; setting and communicating the
Group’s risk appetite and related policies;
setting the tone and culture for managing
risk; providing strategic direction and
guidance on risk-related decision making;
ensuring that risk management processes
are adopted across the whole Group;
obtaining assurance on the effectiveness
of, and compliance with, the risk
management framework; reporting on the
management of risk to stakeholders; and
signing off public disclosures relating to
risk and risk management.
In addition, the Audit Committee satisfies
itself that key risks are monitored by senior
management and the internal audit plan
is focused on high priority areas.
Heads of function
Heads of function are responsible for:
identifying and evaluating the risks that
relate to their areas and activities;
implementing appropriate controls to
manage risks in line with the Group’s risk
appetite; and taking ownership for risks
and controls within their area of
responsibility, including the use of
segregation of duties to protect against
management override of controls.
Figure 1: Debenhams risk management framework
j
s
e
v
i
t
c
e
b
o
c
i
g
e
t
a
r
t
S
Strategic objectives
Report
Define risk appetite
Risk reporting
Audit Committee
Executive Committee
t
a
e
r
T
Define principal risks
and risk treatment
Risk management
team
Risk identification
Divisions
Risk identification
Risk evaluation
Evaluate
Strategic objectives
Specialist functions
I
d
e
n
t
i
f
y
S
t
r
a
t
e
g
i
c
o
b
e
c
t
i
v
e
s
j
employees can speak to the Group’s
anti-fraud team. If an employee feels
that the matter is so serious it cannot be
discussed in any of these ways, s/he can
contact the Company Secretary or the
Director of Internal Audit and Risk
Management. The Group’s policy on
whistleblowing and these methods of
raising issues are published on the intranet
and on posters. The policy is reviewed
annually by the Audit Committee and any
serious matters identified are raised with
the chairman of the Audit Committee.
Risk management activities
Risk identification
Risks are identified through a number
of routes. These include: strategic planning
exercises; ongoing operational reviews
by management; project governance
processes; internal audits; control
environment reviews; environmental
scanning (eg market research and
membership of industry bodies);
changes to legislation; and enterprise
risk management best practices.
In addition, an extensive review
of the organisation’s risk universe has
been undertaken to verify that all key risks
have been identified and to ensure that
management has considered these as
part of its control environment review.
This organisation-wide review is facilitated
by the risk management team for each
operating division on an ongoing
cyclical basis.
Risk management team
The risk management team is responsible
for: developing, implementing and
reviewing the risk management framework
and process; promoting effective risk
management at all levels of the Group;
encouraging an appropriate risk culture
within the Group; liaising with other
functions that advise on specialist areas;
coordinating responses where risks impact
more than one area; reporting, escalating
and communicating risk management
issues to key internal stakeholders; and
providing assurance regarding risk
management within the Group.
The team also manages corporate
insurance, business continuity planning,
travel risk management and the
whistleblowing line, amongst other things.
Internal audit team
In relation to risk management, the internal
audit team is responsible for providing
independent assessment of: the design,
operation and effectiveness of the risk
management framework and process;
management of key risks, including the
effectiveness of the controls; reporting
of risk and control status; and the reliability
of assurances provided by management.
Whistleblowing
Two main routes are available to
employees to raise concerns over
malpractices. The first encourages
employees to talk to their line manager,
their manager’s manager or, if still
concerned, to call the central human
resources team directly. The second route
is a confidential reporting line where
Debenhams plc Annual Report & Accounts 2014
26
All senior managers participate in this
exercise, including the Executive Committee.
It considers strategy, objectives and risks
to their achievement together with the
existing and new controls required to
mitigate risk.
on the expected level of treatment,
timeframes and authority levels. The four
methods used to treat risk are:
• Tolerate (take no further action)
• Treat (improve or implement controls)
Management is required to update the
register with any new or emerging risks
as they are identified.
• Transfer (via insurance/contract)
• Terminate (eliminate/re-engineer)
Risk evaluation
In order to understand the impact specific
risks would have on the Group, each risk
is evaluated based on the likelihood of
occurrence and its severity using a risk
ranking matrix (figure 2) for consistency,
which considers the degree of change across
one or more key performance indicators.
Risk treatment
The risk score, derived from the risk ranking
matrix, is compared to the risk appetite
matrix (figure 3), which provides guidance
Risk reporting
The outputs from these processes are
collated into the risk register and linked
together to define the principal risks faced
by the Group. These are taken into
consideration when setting the annual
internal audit plan.
Individual managers are expected to
define and analyse the reports they require
to enhance financial and operational
performance and to identify emerging
risks or control failures.
Performance is also reviewed by the board,
Executive Committee, Audit Committee,
business continuity management
committee and executive health and
safety committee.
Principal risks and uncertainties
The risks detailed on pages 28 to 31 are the
principal risks and uncertainties that may
impact the Group’s ability to achieve its
strategic and operational goals.
It should be noted that any system of risk
management and internal control is
designed to manage rather than eliminate
the risk of failure to achieve business
objectives and can only provide reasonable
and not absolute assurance against
material misstatement or loss.
Figure 2: Risk ranking matrix
Frequency of event occurrence
Event will probably occur at least once every year
Frequent
Event will probably occur at least once every 3 years
Common
Event will probably occur at least once every 10 years
Occasional
Event will probably occur less than once every 10 years Unlikely
4
3
2
1
4
3
2
1
1(12)
Low
16
12
8
4
36
27
18
9
64
48
32
16
4(22)
9(32)
16(42)
Moderate
Serious
Critical
Severity of impact
(based on specified degrees of change
across one or more financial or reputational
key performance indicators)
Figure 3: Risk appetite matrix
Risk score
Risk matrix zone
Action
Risk response
1, 2, 3 or 4
Green (Limited)
Optional
8, 9 or 12
Yellow (Moderate)
Optional
16, 18 or 27
Orange (Significant)
Yes
32, 36, 48 or 64
Red (Ultimate)
Yes
Treat or
tolerate
Treat or
tolerate
Treat, transfer
or terminate
Treat, transfer
or terminate
Treatment
timeframe
Risk acceptance
owner
9-12 months
Head of
department
6-9 months
Line director
3-6 months
Executive
Committee
0-3 months
Board
Debenhams plc Annual Report & Accounts 2014
27
S T R A T E G I C R E P O R T
P R I N C I P A L R I S K S A N D
U N C E R T A I N T I E S
Risk1
Impact
Examples of mitigation
Change2
Continuing adverse
economic conditions
may have a material
adverse effect on
Debenhams’ results
Debenhams’ business
could be impacted as
a result of weak sales
during peak selling
seasons or extreme
or unseasonal
weather conditions
Theft of customer
data or breach of
payment card
industry standards
could adversely
affect Debenhams’
business operations,
reputation and results
A decline in sales on discretionary
purchases leading to a reduction
in profit
This is a decreasing risk because the
gap between inflation and wage
growth has started to narrow.
However the consumer environment
remains volatile and we remain
cautious about the outlook
Adverse effect on inventory
and profit
Negative effect on reputation
leading to loss of stakeholder trust
and confidence, with subsequent
impact on profitability as well as
diverting financial and management
resources from more beneficial uses
This is a decreasing risk because of
the ongoing work and progress
made around payment card
industry (PCI) compliance
Debenhams’ business
could be impacted as
a result of failing to
compete effectively
Place pressure on our pricing
strategy, margins and profitability
Divert financial and management
resources from more beneficial uses
The board conducts strategic business reviews which
ensure that management is focused on key priorities and
cost control. These reviews also focus on the four pillars
of the Group’s strategy to build a leading international,
multi-channel brand and the operational effectiveness
of the processes and systems which link the pillars of
the strategy together.
Debenhams’ product and brand strategy involves selling
a diverse mix of products in order to reduce reliance on
those that may be weather dependent. To help mitigate
the impact of this risk, should it occur, management
would review the benefits of strengthening both planned
and tactical promotional or marketing activity in order to
drive sales.
Steering groups exist for both data protection and
PCI standards which review and report on compliance
levels. Debenhams utilises external specialists as
required to assist in achieving its compliance goals, with
compliance levels versus the PCI standard monitored by
management and reported to the Audit Committee.
A number of security tools are employed to protect
data, including encryption, intruder detection and
data loss prevention.
Debenhams’ product and brand strategy gives customers
a unique, differentiated and exclusive choice of brands,
products and categories within a good/better/best pricing
architecture. An understanding of customers and their
needs is developed by listening to their views, market
intelligence and reviewing key performance indicators,
which ensures that pricing is competitive and promotional
activity is appropriate. Debenhams continues to invest
additional resources in customer analytics and insight using
tools such as the single customer view.
A number of initiatives have been put in place to address
the causes of lower than expected sales in the first half of
the year and to improve competitiveness. More details
can be found in the Chief Executive’s report starting on
page 10. In addition, a robust systems infrastructure is
required to support the delivery of our strategic objectives.
To support the efficient and effective delivery of strategic
and business critical projects, a business change roadmap
has been developed, the governance framework has
been enhanced and a series of projects are under way
to strengthen business continuity to maintain and
protect performance.
1 Ranked based on overall risk to the business.
2 Change in severity and/or likelihood of risk during course of 2014.
Debenhams plc Annual Report & Accounts 2014
28
Risk1
Impact
Examples of mitigation
Change2
Debenhams’ business
may suffer if it is
unable to predict
accurately or fulfil
customer preferences
or demand through
competitive,
economic and
profitable channels
Sales will be lower, market share will
be reduced and may be forced to
rely on additional markdowns or
promotional sales to dispose of
excess or slow-moving inventory or
may experience inventory shortfalls
on popular merchandise
Channel shifts away from stores
to online could lead to higher
operational costs within the online
channel and lower profitability, or
even impairment, of store assets
Any of the above could have a
material adverse effect on
Debenhams’ business, financial
condition or profitability
Delivering a compelling customer proposition is at the heart
of Debenhams’ strategy. In developing our product and
brand strategy, we take into consideration market, trend and
customer research to help us predict likely demand for our
products and services. We continue to invest in our product
and brand strategy to ensure it remains competitive. We are
also investing in buying and merchandising systems
capability to achieve greater alignment across all sales
channels and geographies.
A number of specific actions are being taken to address
the issues of the channel shift. These include:
• Building a more competitive and economic multi-
channel business to drive sales, increase the recovery
of fulfilment costs and reduce the cost per unit of
fulfilment. To this end, a range of competitive delivery
options has been introduced.
Factors influencing
the sustainability of
the supply chain
• Driving a better return on UK store assets through
the introduction of additional products, brand and
services as well as ensuring stores are fully configured
for multi-channel shopping.
Any of the risks associated with
doing business in international
markets and/or importing
merchandise from these regions
could place pressure on margins and
profitability or require the Group to
divert financial and management
resources from more beneficial uses
This is a decreasing risk as
Debenhams is developing multiple
sourcing routes to ensure that
pricing remains competitive and
that demand can be supplied
Debenhams fosters mutually beneficial relationships with
its suppliers. Both parties work towards the objective of
optimising sustainable fulfilment and costs, which is
measured regularly by management through key
performance indicators. You can read more about how
we build relationships with our suppliers on page 20.
Debenhams continues to develop its supplier base to
mitigate the potential of cost price inflation without
compromising the quality of its products. In addition,
the sourcing division has been strengthened to include
additional expertise which assists with sourcing
decisions, production consolidation and lead time
reduction, amongst other things.
1 Ranked based on overall risk to the business.
2 Change in severity and/or likelihood of risk during course of 2014.
Debenhams plc Annual Report & Accounts 2014
29
S T R A T E G I C R E P O R T
P R I N C I P A L R I S K S A N D U N C E R T A I N T I E S C O N T I N U E D
Risk1
Impact
Examples of mitigation
Change2
Any disruption or
other adverse event
affecting Debenhams’
relationship with
any of its major
suppliers, franchise
partners, store card
providers, designers,
concessionaires, or
outsourcing partners
Any events that
negatively impact
the reputation of,
or value associated
with, Debenhams’
brand could adversely
affect its business
Any of the following factors could
impact or reduce profitability:
• Costs associated with the transfer
of the operations or the potential
of extra operational cost from a
new provider
• Changes in exclusivity
arrangements with designers or
any decline in their popularity
In order to minimise the impact of any third party
relationship or performance issues, Debenhams’
objectives are to: maintain mutually beneficial third party
relationships by ensuring strategies are aligned; have
appropriate, unambiguous contracts in place; ensure
third parties are financially robust; and have contingency
plans in place in the event of a failure (eg conversion of
space to own bought for concessionaire failure, multiple
sourcing routes for supplier failure, shipment embargos
for franchise failure).
• The loss of a number of
important concession or
franchise partners
• Adverse events within the supply
chain could restrict the availability
or significantly increase the cost
of goods
• Credit insurance difficulties for
a significant number of suppliers
could lead to a detrimental variation
of terms or alternative suppliers
used to source some goods
This is an increasing risk based
on unpredictable instability
of various territories around
the world
Unfavourable publicity concerning
Debenhams, its ethical trading
policies, its business policies
including health and safety, its
corporate responsibility practices,
any of its brands or products, its
supply chain practices or any of its
franchisees or manufacturers or a
substantial erosion in the reputation
of, or value associated with, the
Debenhams brand may lead to
a loss of stakeholder trust and
confidence and could have a
material adverse effect on
Debenhams’ ability to attract and
retain third party brands, suppliers,
designers, concessions and
franchisees, which could
consequently impact Debenhams’
business, financial condition
or profitability
Policies, controls and financial support behind
receivables are in place to help mitigate the risk of
franchise partner failure.
Management is closely monitoring any potential impact
on our Russian franchise market as a result of the
situation within Ukraine.
Ethical sourcing, legislative change and corporate
responsibility matters are key areas of focus for the
sustainability committee. To ensure that Debenhams
has the most current information available, it is a member
of relevant industry bodies that provide awareness of
changes to standards and legislation. All suppliers are
expected to adhere to Debenhams’ own supplier code
of conduct, which is underpinned by Debenhams’ robust
policy on compliance which includes a real focus on social
and ethical standards.
A reliance on third party suppliers and franchisees, the
challenges of the current economic environment and the
complexity of the new and existing legislation make this
an ongoing risk which Debenhams and its suppliers and
franchisees have to manage.
An executive health and safety committee exists to review
compliance with legal and regulatory obligations and a
number of participants are members of various relevant
industry bodies. The committee receives input from
specialist teams which focus on discrete aspects. These
include health and safety, building services, insurance and
retail operations. To support compliance and to maintain
high operational standards, health and safety awareness
programmes are in place and each site has its own health
and safety committee.
1 Ranked based on overall risk to the business.
2 Change in severity and/or likelihood of risk during course of 2014.
Debenhams plc Annual Report & Accounts 2014
30
Risk1
Impact
Examples of mitigation
Change2
Factors outside
Debenhams’ control,
such as damage or
interruptions due
to operational
disruption, natural
disaster, pandemics,
terrorist activity,
strikes or riots may
have a material
adverse effect on
its results
Debenhams’ business
may be materially
adversely affected
by changes to, or a
breach by the Group
of, laws or regulations
Factors outside
Debenhams’ control,
such as increases in
energy or fuel costs
may have an adverse
effect on its results
Acts of fraud, theft
and industrial
espionage could
adversely affect
Debenhams’ business
operations, reputation
and results
Unable to continue operations
smoothly in the event of a major
incident which may have an adverse
effect on inventory and profitability
and divert financial and management
resources from more beneficial uses.
Any terrorist attacks, armed conflicts,
social unrest or other geopolitical
uncertainty could result in a
significant reduction in consumer
confidence and spending levels
Risks associated with systems failure,
external attack of systems or data
inaccuracy may also significantly
damage ability to manage
information technology systems
or could cause inappropriate
decisions to be made using wrong
or ambiguous information
This is an increasing risk based on
unpredictable instability of various
territories around the world and the
increased threat level within the UK
The business continuity management committee is
comprised of senior executives and works to a framework
based on the most recent international standard. The key
objectives of this committee are to ensure that potential
threats to the organisation and the impacts that those
threats might cause have been identified, that a
framework to build organisational resilience to known
threats is in place and that the framework has the
capability to deliver an effective response to safeguard
the Group.
A business continuity policy, describing roles and
responsibilities across the Group, ensures that an
effective framework is in place to enable the recovery
and continuation of normal business operations as soon
as possible in the event of any disruptive incidents. Key
business systems are managed and monitored by
specialist teams.
Insurance policies have been placed as appropriate to
minimise the impact of specific risks.
Adverse effect on inventory and
profitability and will divert financial
and management resources from
more beneficial uses
Debenhams has specialist accounting, taxation,
information systems and legal and secretariat teams and
is also a member of key industry bodies which provide
awareness of changes to standards and legislation.
Place pressure on margin and
profitability, will also divert financial
and management resources from
more beneficial uses
This is an increasing risk due to the
current situation in Ukraine and
management is currently monitoring
energy costs even more closely
Negative effect on reputation,
and will divert financial and
management resources from more
beneficial uses, reducing
profitability
Forums exist to focus on specific areas of legislation, and
specific business policies and procedures are in place to
ensure roles and responsibilities are understood across
the Group.
A key objective of the energy committee is to control
energy usage, including the impact of the Carbon
Reduction Commitment scheme. An energy hedging
policy is in place to provide a high degree of cost certainty
in the short term.
In order to mitigate fraud across all channels in which
Debenhams operates, a number of preventative
measures are in place. These include: accounting policies
and procedures to ensure, for example, that the retail
methodology for valuing stock remains appropriate;
systems access restrictions; expenditure authorisation
levels; whistleblowing and anti-bribery and corruption
policies and a code of business conduct, all of which
provide employees with guidelines on how to escalate an
issue confidentially. A variety of monitoring mechanisms
are used to identify fraudulent activity including data
mining across point of sale and head office functions. As
part of the organisation-wide risk assessment, individual
managers sign an anti-fraud, bribery and corruption
declaration. Issues identified are investigated and
reported to the Audit Committee.
1 Ranked based on overall risk to the business.
2 Change in severity and/or likelihood of risk during course of 2014.
Debenhams plc Annual Report & Accounts 2014
31
In this section
34 Financial review
P E R F O R M A N C E
Debenhams plc Annual Report & Accounts 2014
32
P E R F O R M A N C E
Debenhams plc Annual Report & Accounts 2014
33
S T R A T E G I C R E P O R T
F I N A N C I A L R E V I E W
N E I L
K E N N E D Y
Ac ting Chief
Financial Officer
52 weeks to
30 August 2014
52 weeks to
31 August 20131
£2,275.3m
£548.6m
£2,823.9m
£2,254.8m
£522.0m
£2,776.8m
+1.0%
+2.0%
£1,902.1m
£410.6m
£2,312.7m
£1,895.9m
£386.3m
£2,282.2m
£96.3m
£32.3m
£128.6m
£18.3m
£110.3m
£4.5m
£127.2m
£28.2m
£155.4m
£16.4m
£139.0m
–
£105.8m
£139.0m
7.1p
7.1p
3.4p
9.2p
9.2p
3.4p
Figure 1: Financial summary
Gross transaction value
UK
International
Group
Increase in Group like-for-like sales
Revenue
UK
International
Group
Operating profit
UK
International
Group
Underlying net finance costs2
Underlying profit before tax2
Non-recurring finance cost
Reported profit before tax
Basic earnings per share
Diluted earnings per share
Dividend per share
1 Operating profit, net finance costs, profit before tax, basic earnings per share and diluted earnings per share
adjusted for IAS 19 “Employee benefits” revised (“IAS 19 R”) (see page 102 for more details)
2 Before non-recurring finance cost (2014: £4.5m).
Debenhams plc Annual Report & Accounts 2014
34
UK performance
The UK sector includes sales from
UK stores and online sales to UK
addresses. The inter-dependency
between stores and online continues
to grow.
GTV increased by 0.9% and revenue by
0.3%. This was principally a result of
continued growth in online sales to UK
customers, a good performance from
Oxford Street following the completion
of its transformation into our flagship
store and the benefit of two new stores
opened in 2013 and four stores in 2014.
The UK experienced difficult trading
conditions during the first half (as
outlined on page 10). Stores continued
to be impacted by the channel shift into
online. Own bought mix decreased
from 79.9% to 79.3% due to strong
concession performance.
Operating profit decreased by 24.3%
to £96.3 million due to the impact on
first half gross margin of lower than
expected pre-Christmas sales resulting
in high levels of markdown during the
January sale period. The action taken
to refocus our promotional strategy
in the second half led to a better
performance during that period. UK
profitability was also impacted by a £7.1
million increase in costs following the
move into the new London head office.
International performance
The sector comprises our Danish and
Irish stores, the franchise stores and
online sales to non-UK addresses.
GTV was 5.1% higher than last year and
revenue increased by 6.3%. Magasin du
Nord had a strong year. We increased
revenue in our franchise business with
the addition of a net six new stores.
International online sales continued
to grow. Trading conditions in Ireland
stores remained difficult. Own bought
mix increased from 63.0% to 63.4% due
to growth in Magasin.
International operating profit
increased by 14.5%. In line with sales,
the main contributors to this growth
were Magasin and the franchise
business which more than offset lower
profits in the Irish stores.
The Group’s performance for the 52 weeks
to 30 August 2014 is summarised in figure 1.
Whilst the first half of the year was extremely
challenging, we saw a better performance
in the second half as a result of the decisive
action taken to address the key issues which
impacted the business in the first six months
of the year.
Income statement
Sales and revenue
Group GTV increased by 1.7% to £2,823.9
million for the 52 weeks to 30 August 2014
whilst Group revenue increased by 1.3% to
£2,312.7 million.
Group like-for-like sales increased by 1.0%.
The components of the Group GTV growth
and like-for-like sales growth are shown in
figure 2 below.
Group own bought sales mix decreased to
76.2% (2013: 76.7%) largely as a result of the
movement in the UK mix which more than
offset growth in the international mix.
Operating profit
The Group’s profitability in 2014 was
significantly impacted by the disappointing
performance of the UK business during the
first half of the year which was the principal
cause of a 100 bps decline in Group gross
margin (which we define as GTV less the
cost of goods sold, as a percentage of
GTV) for the first half. The first stage of our
work to refocus our promotional strategy,
which is detailed on pages 10 and 11,
delivered a better gross margin in the
second half, increasing by 10 bps. On a
full year basis, gross margin declined by
60 bps.
Costs were managed tightly throughout
the year. Total costs increased by 2.7% over
the prior year to £2,184.1 million. Cost of
sales (defined as product costs associated
with gross margin, together with related
buying, marketing and store costs) of
£2,033.4 million increased by 2.6% in line
with sales growth and additional markdown
required in the first half. Distribution costs
increased by 1.0% to £98.5 million,
principally due to the increase in variable
costs associated with higher online sales.
Administrative expenses increased by
11.8% to £52.2 million largely as a
consequence of a £7.1 million increase
in costs associated with the new London
head office. These costs include rent, rates
and service charge and will be incurred on
an ongoing basis.
Depreciation and amortisation, including
losses on disposal of property, plant
and equipment, increased by 7.8% to
£102.2 million, reflecting higher capital
expenditure in 2014 and 2013 of £128.0
million and £133.3 million respectively.
As a result of the foregoing, Group
operating profit declined by 17.2% to
£128.6 million from £155.4 million in the
previous year.
Net finance costs
Underlying net finance costs increased by
11.6% to £18.3 million as a result of higher
debt levels in the first half of the year and
increased interest in the final quarter
following the refinancing of borrowing
facilities, including the issue of £225.0
million of senior notes at the start of July.
Figure 2: Components of sales growth (%)
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
+0.8%
%
0
.
1
+
L
F
L
+0.2%
+0.5%
.
%
7
1
+
V
T
G
-1.9%
+2.1%
UK stores
UK online
International
New
UK space
International
franchises
Debenhams plc Annual Report & Accounts 2014
35
S T R A T E G I C R E P O R T
F I N A N C I A L R E V I E W C O N T I N U E D
This refinancing resulted in a non-recurring
write-off to the income statement of
£4.5 million of unamortised issue costs.
Including the impact of this write-off,
net finance costs increased by 39.0% to
£22.8 million.
Profit before tax
Lower operating profit and higher
finance costs resulted in a 20.6% decrease
in underlying profit before tax (before the
non-recurring finance cost) from £139.0
million to £110.3 million.
Reported profit before tax (after the
non-recurring finance cost of £4.5 million)
decreased by 23.9% to £105.8 million
(2013: £139.0 million).
Taxation
The Group’s tax charge of £18.6 million
equates to an effective tax rate of 17.6%
compared with 16.6% (restated for IAS 19 R)
for the prior year. The 2013 effective tax
rate benefited from the resolution of
one-off historic issues in that year, the
absence of which in 2014 resulted in an
increase in the effective rate year-on-year.
This increase was partially offset by the
impact that the adoption of FRS 101
“Reduced disclosure framework” (FRS 101)
by one of the Group’s UK subsidiaries has
had on the 2014 effective tax rate. This has
resulted in a temporary reduction in the
2014 charge alongside the reduction in
profits in the year and the reduction in
the UK corporation tax headline rate.
Profit after tax
Profit after tax fell by 24.8% to £87.2 million.
Earnings per share
Lower profits resulted in a 19.6% decline in
underlying basic and diluted earnings per
share (before the non-recurring finance
cost) to 7.4 pence.
Reported basic and diluted earnings per
share (after the non-recurring finance cost)
fell by 22.8% to 7.1 pence.
The weighted average number of shares in
issue decreased from 1,254.5 million last
year to 1,226.8 million. This was due to the
purchase of 14.4 million shares in the share
buyback scheme in the first half of the year
and the full year impact of 23.9 million
shares purchased in the prior year.
Figure 3: Cash flow, uses of cash and movement in net debt
EBITDA
Working capital
Cash generated from operations
Capital expenditure
52 weeks to
30 August
2014
52 weeks to
31 August
2013*
£230.8m
£250.2m
£9.7m
£(9.1)m
£240.5m
£241.1m
£(128.0)m
£(133.3)m
Operating cash flow before financing and taxation
£112.5m
£107.8m
Taxation
Financing
Dividends paid
Share buyback
Other movements
Change in net debt
Opening net debt
Closing net debt
*Adjusted for IAS 19 R.
Cash flow and uses of cash
Debenhams is a highly cash generative
business and has clear priorities for the
uses of cash.
The first priority for cash is to invest in our
strategy to build a leading international,
multi-channel brand. Second, we pay our
shareholders a dividend. Third, we have a
medium-term target for net debt to earnings
before tax, interest, depreciation and
amortisation (“EBITDA”) of 1.0 times.
Operating cash flow before financing
and taxation increased from £107.8 million
to £112.5 million despite lower profits as a
result of a working capital inflow of £9.7
million in 2014 compared with a £9.1 million
outflow in 2013. The swing in working
capital is largely associated with the
strategy to reduce stock levels in
the business.
Cash flow generation, the uses of cash and
the movement in net debt are summarised
in figure 3.
Capital expenditure
In line with the first priority for cash, capital
expenditure amounted to £128.0 million
during the year, broadly in line with last
year’s expenditure of £133.3 million.
Whereas capital expenditure during the last
couple of years has focused on the store
Debenhams plc Annual Report & Accounts 2014
36
£(20.6)m
£(29.3)m
£(13.1)m
£(12.5)m
£(41.7)m
£(41.4)m
£(15.1)m
£(25.1)m
£(11.5)m
£10.5m
£372.0m
£361.5m
£(2.8)m
£(3.3)m
£368.7m
£372.0m
modernisation programme, including Oxford
Street, in 2014 a greater proportion of capital
was spent on Group systems, particularly
those to support the Group’s growing
multi-channel and international activities,
as shown in figure 4.
It is expected that capital expenditure will
be in the region of £130 million for 2015.
Management remains focused on return
on capital employed.
Customer profile by age
Figure 4 : Capital expenditure
New stores
Modernisations
Systems
Logistics
Maintenance
International
Head office
Other
12%
21%
33%
3%
16%
7%
3%
5%
Figure 5: Key balance sheet items
Intangible assets
Property, plant and equipment
Inventory
Other assets
Trade and other payables
Other liabilities
Retirement benefit obligations
Net deferred tax (liabilities)/assets
Net debt
Reported net assets
30 August
2014
31 August
2013
£892.8m
£689.2m
£345.7m
£98.4m
£876.5m
£692.1m
£357.9m
£105.4m
£(529.3)m
£(545.8)m
£(363.1)m
£(359.9)m
£(2.4)m
£(20.0)m
£(2.4)m
£10.2m
£(361.5)m
£(372.0)m
£767.4m
£744.4m
Dividends
Despite lower profits in 2014, the cash
generative nature of the business and
confidence in future performance has
enabled the board to maintain the
2013 cash dividend and to resolve to
rebuild dividend cover over time as
earnings increase. To this end, an interim
dividend of 1.0 pence per share was paid to
investors on 4 July 2014 (2013: 1.0 pence).
The board has recommended a final
dividend of 2.4 pence per share which will
be paid to shareholders on 9 January 2015,
taking the total dividend for the year to
3.4 pence, in line with that paid last year.
Share buyback programme
During the early part of the year, 14.4 million
shares were acquired for a total expenditure
of £15.1 million. Shares bought and
retained by the Company as part of the
share buyback programme are held
in treasury.
On 31 December 2013 the board
announced that the share buyback
programme would cease with immediate
effect in order to concentrate on the first
three priorities for cash.
Net debt
The Group’s net debt position on
30 August 2014 was £361.5 million, £10.5
million better than at the same point a year
ago (31 August 2013: £372.0 million). The
ratio of reported net debt to EBITDA of 1.6
times compared with last year of 1.5 times
(as restated for IAS 19 R). The year end net
debt position demonstrates an improved
performance during the second half of the
year as net debt was £49.3 million higher at
the end of the first half compared with the
previous year.
Balance sheet
Key balance sheet items are summarised
in figure 5.
Inventory
Stock levels were managed tightly during
the second half of the year in line with our
aim of setting more prudent sales targets
and reducing our level of stock buy. Total
stock decreased by 3.4% to £345.7 million
reflecting a 5.3% decline in like-for-like
stock densities. Terminal stock at year end
of 3.2% was in line with internal targets.
Financial position
During the year, the Group strengthened
its capital structure through the refinancing
of its borrowing facilities.
On 2 July 2014 we completed the offering
of £225.0 million senior notes due 2021 at
5.25%. The offering was well subscribed,
reflecting the strength of investor
confidence in the business. As a result it
was upsized from the original £200.0 million
principal amount.
At the same time, the Group’s bank
funding arrangements were refinanced to
October 2018 in the form of a £425.0 million
revolving credit facility.
The refinancing has enabled us to reduce
our reliance on traditional bank funding
and meet the board’s desire to diversify the
Debenhams plc Annual Report & Accounts 2014
37
sources of the Group’s funding. In addition,
we expect to achieve a material saving in
interest costs over the life of the notes
compared with anticipated cost of bank
funding alone.
Treasury management
The board has established an overall
treasury policy which has approved
authority levels within which the treasury
function must operate. Treasury policy is to
manage risks within the agreed framework
whilst not taking speculative positions.
The policies for managing financial risks are
disclosed in note 21 of the Group financial
statements starting on page 117.
Pensions
The Group provides a number of pension
arrangements for its employees. These
include the Debenhams Retirement
Scheme and the Debenhams Executive
Pension Plan (together “the pension
schemes”) which both closed for future
service accrual from 31 October 2006.
Under IAS 19 R, the net deficit on the
Group’s pension schemes as at 30 August
2014 was £2.4 million (31 August 2013:
£20.0 million). Further information can be
found in note 23 to the Group financial
statements starting on page 124.
An actuarial valuation as at 31 March 2014 is
under way. Following the previous actuarial
valuation as at March 2011, a funding plan
was agreed with the pension schemes’
trustees intended to restore the schemes
to a fully funded position on an ongoing
basis by March 2022 (Debenhams
Retirement Scheme) and August 2021
(Debenhams Executive Pension Plan).
As a consequence of this agreed plan,
annual contributions to the two schemes
were set at £8.9 million, rising each year
by RPI. The Group also pays the non-
investment expenses and levies of the
pension schemes, including those payable
to the Pension Protection Fund.
Current pension arrangements for
Debenhams’ employees are provided by
a defined contribution pension scheme
which is administered by Legal & General.
Neil Kennedy
Acting Chief Financial Officer
23 October 2014
In this section
40 Chairman’s introduction
42 Board of directors
44 Corporate governance report
50 Nomination Committee report
51 Audit Committee report
54 Directors’ remuneration report
78 Directors’ report
81 Statement of directors’ responsibilities
G O V E R N A N C E
Debenhams plc Annual Report & Accounts 2014
38
In this sec tion you can find details of
our approach to corporate governance,
biographies of the board of direc tors,
how our board func tions and the
repor ts of the Nomination, Audit
and Remuneration Committees.
G O V E R N A N C E
Debenhams plc Annual Report & Accounts 2014
39
C O R P O R A T E G O V E R N A N C E
C H A I R M A N ’ S I N T R O D U C T I O N
Committed to high standards of corporate governance
N I G E L
N O R T H R I D G E
Chairman
The board of Debenhams believes that
maintaining the highest standards of
corporate governance is essential to
creating and protec ting shareholder
value. It is an integral par t of ensuring
the whole Group does the right things
in the right way.
Debenhams plc Annual Report & Accounts 2014
40
Composition of the board
Executive
Non-executive
2
7
Length of
non-executive service
Dear Shareholder
On behalf of the board, I am pleased to present the corporate governance report for
the financial year ended 30 August 2014 and to confirm that Debenhams plc complies
with the UK Corporate Governance Code (September 2012) (“the Code”). This report,
together with the Audit Committee report, the directors’ remuneration report and the
directors’ report, reviews the operation of the Company by reference to the Code.
The board remains committed to promoting the highest standards of corporate
governance and understands that an efficient, challenging and diverse board is
essential to enable the business to deliver its strategy.
With that in mind we were delighted to welcome Suzanne Harlow to the board in
December 2013. Suzanne joined Debenhams in 1994 and since 2008 has held the role
of Group Trading Director. We have made significant improvements to our customer
proposition under her direction and we look forward to her continued contribution
to all aspects of the business as a member of the board.
I am also delighted that we will be welcoming Matt Smith to the board as
Chief Financial Officer. Matt has previously served as Chief Financial Officer of
Mothercare plc and held a number of senior finance roles within Home Retail Group
plc, including Finance Director of Argos, as well as having worked for KPMG. I am
confident that his wealth of retail and financial expertise will allow him to make a
significant contribution to Debenhams. Matt will join Debenhams during 2015
upon the satisfaction of his existing contractual obligations.
In accordance with the Code, Lintstock Ltd has performed an evaluation of the board,
its committees and each individual director. Details of the review and the findings
are included in this report and the reports of each of the Nomination, Audit and
Remuneration Committees. I confirm that following the evaluation, all of the directors
continue to perform effectively and to demonstrate commitment to their roles.
Accordingly, all directors will offer themselves for re-election at the Annual General
Meeting in December this year. Suzanne Harlow will offer herself for election having
been appointed to the board during the year.
The Annual General Meeting will be held on Tuesday 9 December at 2.00pm at our
head office 10 Brock Street, London NW1 3FG. The board and I look forward to
meeting shareholders at the meeting.
One to three years
Three to six years
More than six years
2
4
1
Nigel Northridge
Chairman
Debenhams plc Annual Report & Accounts 2014
41
Dennis Millard
CA (SA), MBA
Role: Senior Independent
Director since May 2010 following
appointment as an independent
non-executive director in May
2006. Dennis is also chairman
of the Remuneration Committee
and a member of the Nomination
and Audit Committees.
Key strengths: As chairman
of another retail company,
non-executive director of other
UK public companies and with
past experience as a finance
director, Dennis brings relevant
and broad experience to his
role as Senior Independent
Director and chairman of the
Remuneration Committee.
Current external directorships:
Chairman of Halfords Group plc
and Connect Group PLC (formerly
Smiths News PLC), Deputy
Chairman of Pets at Home Group
plc and a non-executive director
of Premier Farnell plc.
C O R P O R A T E G O V E R N A N C E
B O A R D O F D I R E C T O R S
Governed with experience
Nigel Northridge
Role: Chairman of the board since
April 2010 and of the Nomination
Committee. Nigel is also a
member of the Remuneration
Committee.
Key strengths: Nigel has vast
experience of a range of
businesses in both an executive
and a non-executive capacity.
He spent 32 years with Gallaher
Group plc including seven years as
chief executive between 2000 and
2007 where he drove consistent
and significant growth in
shareholder value, ultimately
concluding a successful sale of
that business. In addition to his
current non-executive roles, Nigel
has also served as a non-executive
director of Aggreko plc and
Thomas Cook Group plc.
Current external directorships:
Chairman of Paddy Power PLC
and a non-executive director
of Inchcape plc and Aer Lingus
Group plc.
Peter Fitzgerald
Role: Independent non-executive
director since October 2012 and a
member of the Audit Committee.
Key strengths: Peter’s experience
as a leading e-commerce executive
is invaluable to Debenhams as we
grow our multi-channel business.
He is Country Sales Director for
Google UK/Eire having worked for
that business since 2007 and is also
a member of the Digital High
Streets Advisory Board. From 1999
to 2007 Peter worked for Amazon
both in Europe and the USA.
Current external directorships:
None.
Michael Sharp
Role: Chief Executive since
September 2011.
Suzanne Harlow
Role: Group Trading Director
since December 2013.
Key strengths: Michael is one
of the UK’s most experienced
retailers and has spent his entire
career in the industry. He has
worked for Debenhams or its
predecessor, the Burton Group,
since 1985. Michael joined
Debenhams in 1997 and was
appointed to the board in 1999.
He was appointed Chief
Operating Officer in 2006 and
Deputy Chief Executive in 2008.
Michael is an honorary professor
of Glasgow Caledonian University.
Current external directorships:
None.
Stephen Ingham
Role: Independent non-executive
director since January 2013
and a member of the
Remuneration Committee.
Key strengths: Stephen has been
Chief Executive Officer of Michael
Page International plc since 2006
having worked for that business
since 1987. His experience of
building an international business
at Michael Page supports
our strategy to expand the
Debenhams brand internationally.
Current external directorships:
Chief Executive Officer of Michael
Page International plc. Stephen
is also a member of Great
Ormond Street Hospital’s
Corporate Partnership.
Key strengths: Suzanne had led
Debenhams’ design, buying and
merchandising activities in the role
of Group Trading Director since
2008 and was appointed to the
board in December 2013. Suzanne
has worked for Debenhams since
1994 and her roles have included
Trading Director for Womenswear,
Lingerie and Beauty between
2005 and 2008 and Buying and
Merchandising Director of various
divisions between 1999 and 2005.
Suzanne is a member of the
Advisory Council of the British
Fashion Council and the
Development Council of
Ballet Rambert.
Current external directorships:
None.
Martina King
Role: Independent non-executive
director since August 2009
and a member of the
Remuneration, Audit and
Nomination Committees.
Martina also chairs the
Sustainability Committee.
Key strengths: Martina has
accumulated extensive experience
in management and marketing
through holding a number of
senior positions in marketing and
online media including Managing
Director of Aurasma, Yahoo!
and Capital Radio. She has also
served as a non-executive director
of Capita. As Chief Executive
Officer of Featurespace Limited,
Martina also has data analytic
experience.
Current external directorships:
Chief Executive Officer of
Featurespace Limited and a
non-executive director of
Cineworld Group plc.
Debenhams plc Annual Report & Accounts 2014
42
Mark Rolfe FCA
Role: Independent non-executive
director since October 2010.
Mark is also chairman of the
Audit Committee and a member
of the Remuneration and
Nomination Committees.
Key strengths: Mark is a
chartered accountant and has
considerable financial and
accounting experience including
20 years spent with Gallaher
Group plc in various finance
and executive roles including
that of Finance Director. He has
also served as a non-executive
director of Hornby plc and The
Sage Group plc and as chairman
of Lane Clark & Peacock LLP.
Current external directorships:
Non-executive director of Barratt
Developments plc.
Sophie Turner Laing
Role: Independent non-executive
director since August 2009 and
a member of the Remuneration,
Audit and Nomination Committees.
Key strengths: Sophie’s
experience in management and
media issues is invaluable to
a consumer facing business such
as Debenhams. Until September
2013 she was Managing Director,
Content at British Sky
Broadcasting Group plc and a
director of AETN UK and NGC
Network International LLC. Prior to
joining Sky in 2003, Sophie held
senior roles at the BBC and was a
founder of HIT Entertainment.
Current external directorships:
Sophie is a trustee of BAFTA, The
Media Trust and the National Film
& TV School.
Committee membership
Remuneration
Committee
Nomination
Committee
Audit
Committee
Sustainability
Committee
Nigel Northridge
Michael Sharp
Suzanne Harlow
Dennis Millard
Peter Fitzgerald
Stephen Ingham
Martina King
Mark Rolfe
Sophie Turner Laing
Committee member
Committee chairman
Left to right: Mark Rolfe, Martina King, Suzanne Harlow, Dennis Millard, Michael Sharp,
Nigel Northridge, Peter Fitzgerald, Sophie Turner Laing and Stephen Ingham.
Debenhams plc Annual Report & Accounts 2014
43
C O R P O R A T E G O V E R N A N C E
C O R P O R A T E G O V E R N A N C E R E P O R T
In accordance with the Listing Rules of
the UK Listing Authority, the Company
confirms that throughout the year ended
30 August 2014 and as at the date of this
Annual Report it was compliant with all the
relevant provisions as set out in the UK
Corporate Governance Code (September
2012) (“the Code”), copies of which can be
downloaded from the Financial Reporting
Council website (www.frc.org.uk).
Leadership
The board
The board is responsible for the long-term
success of Debenhams by directing and
supervising its affairs and is accountable
to shareholders for the Group’s strategic
aims, risk management and performance.
No individual or small group of
individuals dominates the board’s
decision-making process.
Biographical details of the board of
directors are on pages 42 and 43. The
board currently has nine members: the
Chairman, two executive directors and six
independent non-executive directors.
The Chairman
The Chairman is responsible for the effective
leadership, operation and governance of
the board and its committees. He ensures
that all directors contribute effectively in the
development and implementation of the
Company’s strategy whilst ensuring that
the nature and extent of the significant
risks the Company is willing to embrace
in the implementation of its strategy are
determined and challenged. The Chairman
is also responsible for the induction of new
Executive Committee
Chairman
Executive directors
Non-executive directors
Chief
Executive
Group
Trading
Director
Senior
Independent
Director
Independent
non-executive
directors
Nigel Northridge Michael Sharp
Suzanne Harlow Dennis Millard
Peter Fitzgerald
Stephen Ingham
Martina King
Mark Rolfe
Sophie
Turner Laing
directors and their continual development,
acting on the results of board evaluations
and succession planning. The Chairman
holds regular meetings with the non-
executive directors without the executive
directors being present.
Nigel Northridge has been Chairman since
April 2010 and is also the Chairman of the
Nomination Committee.
The Chief Executive
The Chief Executive is responsible for the
management of the Group’s business and
for implementing the Group’s strategic
aims. He also chairs the Executive
Committee and ensures that it achieves
the delegated objectives within the
parameters set by the Company’s business
policies. The roles and responsibilities of
the Executive Committee are detailed
below. The Chief Executive also chairs
an annual strategy event to focus on the
Group’s overall performance and the
developments within each of the four
pillars of the business strategy.
Michael Sharp has been Chief Executive
of Debenhams since September 2011.
The Chief Financial Officer
The Chief Financial Officer is responsible
for the financial reporting and management
of the Group. In addition to the finance,
audit, tax and treasury teams, the role is
also responsible for legal and secretariat
and investor relations.
As announced on 28 July 2014, Matt Smith
will join the board as Chief Financial Officer
during 2015. Neil Kennedy has carried out
the role of Acting Chief Financial Officer
since 2 January 2014.
Group Trading Director
The Group Trading Director leads the
buying and merchandising activities and
is responsible for the development of the
Debenhams product and brand strategy
with the overriding objective of delivering
a compelling customer proposition. The
role is also responsible for the Group’s
sourcing function.
Michael Sharp
Chief Executive
Neil Kennedy
Acting Chief
Financial Officer
Financial reporting
and management,
tax, treasury and
internal audit.
Suzanne Harlow
Group Trading
Director
Design, buying,
merchandising,
distribution,
sourcing and
external business.
Ross Clemmow
E-Commerce
Director
UK and
International online
sales and
development.
Richard Cristofoli
Marketing Director
Mike Goring
Retail Director
Product marketing,
advertising, PR,
visual and creative,
customer strategy
and insight.
UK and
international
store operations
and store
development.
Peter Swann
Operations
Director
Systems, supply
chain and logistics.
Nikki Zamblera
HR Director
Pay and reward,
learning and
development,
recruitment,
pensions
and facilities.
Debenhams plc Annual Report & Accounts 2014
44
Board experience
The board has a wealth of relevant experience and expertise to govern and advise
an international, multi-channel brand such as Debenhams.
Consumer and retail
Number of directors with consumer and retail experience: 9
Digital business
Number of directors with digital business experience: 5
International
Number of directors with international experience: 7
Marketing
Number of directors with marketing experience: 6
Significant financial expertise
Number of directors with significant financial expertise: 3
Chairman’s responsibilities
• The effective running of the board
ensuring the directors receive
accurate and timely information
to enable debate and high quality
decision making
• Promoting high standards of
corporate governance
• Ensuring the board agendas take
full account of the important issues
facing the Company and the
concerns of all board members
• Ensuring, as Chairman of the
Nomination Committee, that there
are board succession plans in place
in order to retain and build an
effective and complementary board
Chief Executive’s responsibilities
• Running the business
• Implementing the business strategy
• Regularly updating the board on
progress against approved plans
• Ensuring the Executive Committee
complies with all business policies,
delegated authorities and regulations
when conducting the objectives of
the business
Gender ratios as at 30 August 2014
Board
Male – 67% (6)
Female – 33% (3)
Executive Committee
Male – 75% (6)
Female – 25% (2)
Senior executives*
Male – 57% (78)
Female – 43% (60)
All employees
Male – 23% (5,563)
Female– 77% (18,136)
*Excluding non-executive directors.
Debenhams plc Annual Report & Accounts 2014
45
C O R P O R A T E G O V E R N A N C E
C O R P O R A T E G O V E R N A N C E R E P O R T C O N T I N U E D
Director
Date of appointment
Length of service as a non-executive
director at 30 August 2014
Nigel Northridge
1 January 2010
Dennis Millard
9 May 2006
Peter Fitzgerald
4 October 2012
Stephen Ingham
8 January 2013
Martina King
1 August 2009
4 years 8 months
8 years 4 months
1 year 11 months
1 year 8 months
5 years 1 month
Mark Rolfe
1 October 2010
3 years 11 months
Sophie Turner Laing 1 August 2009
5 years 1 month
Suzanne Harlow has been Group Trading
Director of Debenhams since November
2008 and was appointed to the board in
December 2013.
required. The role also has responsibility
for leading the annual appraisal of the
Chairman’s performance and this appraisal
was conducted in October 2014.
Senior Independent Director
Any concerns that shareholders may have
which are not appropriate for discussion
through the normal channels of Chairman,
Chief Executive or Chief Financial Officer
would be dealt with by this director. The
Senior Independent Director serves as an
intermediary for the other directors with
the Chairman as necessary and acts as
a sounding board for the Chairman as
Dennis Millard has been Senior
Independent Director since May 2010
and is also chairman of the Remuneration
Committee.
Non-executive directors
As detailed in their biographies on pages
42 and 43 our non-executive directors have
a diverse range of skills, experience and
backgrounds and provide constructive
challenge within the boardroom. They are
well informed about the Company and
have a strong command of the issues
relevant to the business. All the non-
executive directors are considered by the
board to be independent and free from
any relationship or circumstances that
could affect their independent judgement.
The table opposite details the length
of service for each non-executive director.
Company Secretary
The Company Secretary plays a leading
role in the good governance of the Company
by supporting the Chairman and helping
the board and its committees to function
efficiently. Together with the Chairman,
the Company Secretary keeps under
review the governance processes adopted
by the Company to ensure they remain
fit for purpose and considers any
improvements that could strengthen the
governance of the Company. All directors
have access to the services of the Company
Secretary and may take independent
professional advice at the Company’s
expense in conducting their duties. The
Company Secretary acts as secretary to
the board and each of its committees.
Board activity throughout the year
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Visit to Danish
operation Magasin
du Nord
Presentation on
systems
Met with
shareholders at the
Annual General
Meeting
Pension scheme
presentation
Annual strategy
meeting
Approved interim
results and resolved
to pay interim
dividend
Reviewed five
year plan
Reviewed budget
Presentation on
the five priorities
under the pillars
of the strategy
Adopted diversity
policy
Approved
refinancing
Presentation on
the strategy and
performance
of Magasin
Approved full year
results, report and
accounts and
recommended the
final dividend
Debated and
approved the
corporate risk map
Reviewed the
annual performance
evaluation of the
board and its
committees
Debenhams plc Annual Report & Accounts 2014
46
by the members of the Executive
Committee and the Company Secretary.
Details of the principal items discussed at
each meeting are shown on page 46.
The presentation of timely, high quality
information to the board and its committees
is essential to ensure that there is thorough
consideration of the issues prior to and
informed debate and challenge at board
and committee meetings. All information
is published in advance via a secure web
portal. If directors are not able to attend
meetings due to conflicts in their schedule,
they review the papers for consideration at
that meeting and relay any comments to
the Chairman in advance of the meeting
where possible, which are then passed
on to the other directors. The Company
Secretary ensures relevant information
flows within the board, its committees
and to senior management. Each board
meeting covers presentations from the
executive directors and from each of
the other members of the Executive
Committee. Presentations are also
requested by the board on an ad hoc
basis from the trading divisions and other
business areas including investor relations,
treasury, taxation, health and safety and
human resources. In addition, the board
receives regular updates on the key Group
risks and ensures that the risk management
framework and profile support the four
pillared strategy. In accordance with the
Code, the formal schedule of matters
reserved for the board’s decision is
reviewed annually, usually at the October
board meeting.
The appointment or removal of the
Company Secretary is a matter for the
board as a whole.
Paul Eardley has been Company Secretary
since October 2007.
Board diversity
Following the publication of Lord Davies’
report in February 2011, the Code was
amended in 2012 to require listed companies
to establish a policy concerning boardroom
diversity. Our policy was formally adopted by
the board in April 2014. It is the responsibility
of the Nomination Committee to
implement and monitor the achievement
of the objectives set out in the policy and
to review it annually. The most recent
annual review was carried out in
September 2014. Debenhams believes that
diversity, in all its aspects, is important in
order for a board to operate effectively.
The main objectives under the policy are to
ensure that the board is well balanced and
appropriate for the needs of the business
and that the board comprises directors
who are sufficiently experienced and
independent in character and judgement.
In doing the above, the Company will also
seek to maintain a composition of at least
25% of women on the board. The charts
on page 45 demonstrate the gender
split at board level, within the Executive
Committee and senior management
and for the workforce as a whole.
Time commitment
All directors are aware of the need to
allocate sufficient time to the Company in
order to discharge their responsibilities
effectively. The board monitors the extent
of directors’ external interests and any
conflicts on a continuing basis. The letters
of appointment for non-executive directors
set out the time commitment expected to
be necessary to perform their duties. The
time required by directors will fluctuate
depending on the demands of the business
and other events but the expected number
of days required for each non-executive
director is ten days per annum.
Induction and ongoing
development
On appointment, a director is provided
with an induction programme which is
tailored to his or her experience of being a
director of a listed company and based on
his or her knowledge of the retail sector.
The induction includes the provision of
relevant current and historical information
about the Company together with
applicable business policies. Meetings
are arranged with advisors and visits to
operations around the Group are arranged.
One-to-one meetings are also held with
members of the Executive Committee and
other senior executives of the business as
appropriate. The Company Secretary
assists in the induction of new directors
and their ongoing development as
required and also undertakes a review
with new directors following induction
to consider any new initiatives which
would improve the induction process.
Directors’ conflicts of interest
The Nomination Committee annually
reviews and considers the interests and
other external appointments held by the
members of the board. All conflicts
declared were approved at its meeting
in September 2014. The directors have a
continuing duty to inform the board of
any potential conflicts immediately so that
such conflicts may be considered and, if
authorised, included within the register
of conflicts. We recognise that non-
executive directors have other business
interests outside of the Company and
that other directorships bring significant
benefits to the board. All existing
directorships are detailed within the
director biographies on pages 42 and 43.
Non-executive directors are required to
obtain the approval of the Chairman before
accepting any further appointments.
A register of “related parties” is also
maintained by the Company Secretary.
Indemnification of directors
Qualifying third party indemnity provisions
(as defined in section 234 of the Companies
Act 2006) are in force for the benefit of the
directors who held office during the year.
The Company also provides directors’ and
officers’ liability insurance for its directors
and other officers.
Board meetings
The board held six scheduled meetings
and two ad hoc meetings during 2014
which were fully attended by all the board
members except for one meeting which
Dennis Millard was unable to attend due to
a family bereavement. In addition to the
directors, board meetings were attended
Debenhams plc Annual Report & Accounts 2014
47
C O R P O R A T E G O V E R N A N C E
C O R P O R A T E G O V E R N A N C E R E P O R T C O N T I N U E D
The questionnaires addressed issues
such as:
• Board composition and expertise
• Relationships between the board
and management
• Board oversight
• Risk management
• Priorities for change
A 360° review of individual performance was
also conducted which was provided in
confidence to the Chairman.
Lintstock’s report was discussed at the
board meeting held on 16 October 2014.
The review concluded that the level of
interaction between the board and senior
management is good and that the board’s
ability to test and develop the Company’s
strategy is highly rated. Several priorities
for the future were identified. The
importance of the board remaining
focused on the key priorities and big
issues was stressed.
Share capital and control
Information which the directors are
required to disclose pursuant to section
992 of the Companies Act 2006 can be
found on page 79 of the directors’ report.
Shareholder engagement
The board is responsible for ensuring that
the Company maintains a satisfactory
dialogue with shareholders. The Chairman
and the Senior Independent Director are
always available to major shareholders.
Formal trading updates are given to the
market on four occasions during the year.
Following each of these announcements,
conference calls are held with shareholders
and analysts and after the full year and
interim results a presentation is made to the
shareholders and analysts. Analyst research
is circulated to the board. A programme
of meetings and conference calls is also
organised at appropriate times during the
year at which the Chief Executive and Chief
Financial Officer comment on Company
performance and respond to any issues
raised by investors. In addition, Debenhams
arranges visits to its stores for analysts and
shareholders and holds regular capital
markets days dedicated to specific pillars
of the business strategy.
The key elements of the Group’s investor
relations calendar in 2014 are shown below.
The major shareholders of the Company
are listed on page 79 of the directors’ report.
The geographical analysis of shareholders
is shown on page 49.
Board committees
The board committees are the Audit,
Remuneration and Nomination Committees.
The terms of reference of each committee
(which are reviewed annually) can be found
on our website at http://debenhamsplc.com.
The members and the role of each
committee are disclosed within each
Committee report. In addition there is
a sustainability committee which is a
committee of the board and is chaired
by Martina King.
Performance evaluation
This year’s formal evaluation of the
performance of the board, its committees,
the individual directors and the Chairman
was conducted by Lintstock Ltd, an
external facilitator which has no other
connection with Debenhams.
The first stage of the review involved
Lintstock engaging with the Chairman
and the Company Secretary to set the
context of the evaluation and to tailor
the questionnaires to the business’s
current challenges and opportunities.
All participants were then requested
to complete an online questionnaire
addressing the performance of the board
and its committees. The anonymity of all
participants was ensured in order to
promote the open and frank exchange
of views.
Investor relations calendar
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Full year trading update
Capital markets day:
“Increasing choice and availability
through multi-channel”
US shareholder roadshow
Annual General Meeting
European shareholder roadshows
First half results
US shareholder roadshow
Second half interim management
European shareholder roadshow
Full year results
UK shareholder roadshow
First half interim management
statement
UK shareholder roadshow
European shareholder roadshows
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statement
Debenhams plc Annual Report & Accounts 2014
48
Shareholders by geography
England
USA
UAE
Singapore
Norway
Other
58%
21%
8%
5%
3%
5%
December 2014 AGM –
key highlights
• Full director attendance
• Between 720,482,084 and 726,430,430
votes were cast for each resolution
• All directors retired and were elected/
re-elected to the board receiving
at least 99.08% of votes cast in favour
• The remuneration report resolution
was passed with 99.58% of votes cast
in favour
Latest investor information
You can find all our latest investor news
and financial reports online, as well as
our financial calendar and regulatory
announcements. You can also monitor
our share price and calculate the value
of your shareholding.
Visit the investor relations section of our
website at http://debenhamsplc.com
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Full year trading update
Capital markets day:
US shareholder roadshow
Annual General Meeting
European shareholder roadshows
First half results
US shareholder roadshow
Second half interim management
statement
“Increasing choice and availability
through multi-channel”
European shareholder roadshow
Full year results
UK shareholder roadshow
First half interim management
statement
UK shareholder roadshow
European shareholder roadshows
Debenhams plc Annual Report & Accounts 2014
49
C O R P O R A T E G O V E R N A N C E
N O M I N A T I O N C O M M I T T E E R E P O R T
Composition
The individuals who served on the Committee during the year under review are set out below:
Members
Nigel Northridge (Chairman)
Martina King
Dennis Millard
Mark Rolfe
Sophie Turner Laing
Date appointed
Committee member
Attendance at meetings
during the year
1 April 2010
1 May 2010
9 May 2006
1 October 2010
1 May 2010
3/3
3/3
3/3
3/3
3/3
Dear Shareholder
I am pleased to set out the report of the
Nomination Committee for the year to
30 August 2014.
Responsibilities
The key responsibilities of the Committee are:
• Identifying and nominating, for the
approval of the board, candidates to fill
board vacancies as and when they arise
together with leading the process for
such appointments
• Putting in place plans for succession, in
particular with respect to the Chairman,
the Chief Executive and the Senior
Independent Director
• Reviewing regularly the board structure,
size and composition and making
recommendations to the board
of adjustments that are deemed
necessary
• Annually reviewing the time required
from and spent by a non-executive
director in fulfilling his or her duties
The full terms of reference of the Committee
are available on the Company’s website
and are reviewed annually by the Committee.
Activities during the year
The Committee held three meetings
during the year at which the following
matters were considered:
• Evaluated the balance of skills, experience,
independence, diversity and knowledge
on the board and recommended the
appointment of Suzanne Harlow as an
executive director of the Company, with
effect from 11 December 2013
• Reviewed the non-executive directors’
time commitments and lengths of service
and recommended to the board the
re-appointment of Mark Rolfe for
a further three year term with effect
from 1 October 2013
• Carried out an annual review of the
directors’ conflicts of interest register
and the Committee’s terms of reference
• Adopted a formal diversity policy
• Recommended the appointment of
Matt Smith as Chief Financial Officer.
The appointment was facilitated by
external search firm, MWM Consulting,
which has no connection to the
Company. MWM worked with the
Chairman to devise a long list of
candidates and then a short list.
Candidates met with members of the
Committee and the Chief Executive
after which the Committee was able
to formulate its recommendation
Diversity of the board
Our goal is to ensure that the board is well
balanced and appropriate for the needs
of the business, comprising directors
who are sufficiently experienced and
independent of character and judgement.
When recommending new directors to the
board, the Nomination Committee has
regard to the balance of skills, knowledge,
experience and diversity of psychological
type, background and gender. However,
all board appointments will always be
made on merit. Debenhams currently
exceeds the 25% minimum target of
women on boards as recommended by the
Davies Report with women representing a
third of its board.
Debenhams plc Annual Report & Accounts 2014
50
Committee evaluation
The annual evaluation of the Committee’s
effectiveness was, in accordance with the
Code, undertaken by Lintstock Ltd, an
external facilitator, which has no other
connection with Debenhams. It was
concluded that the Committee uses its
time effectively and the information
provided to the Committee is clear
and concise.
This year, when reviewing the re-election of
directors at the forthcoming Annual General
Meeting, the Committee took account of
the fact that Dennis Millard will have served
nine years in May 2015. The Committee
believes that he continues to demonstrate
the qualities of independence and
judgement in carrying out his role and
that his length of service and resulting
experience and knowledge of the
Company are of great benefit to the board.
However, Dennis Millard has indicated that
he is likely to step down from the board
sometime during the 2015 financial year.
The Nomination Committee is, in line with
the UK Corporate Governance Code,
recommending that all the directors of
the Company stand for re-election at the
next Annual General Meeting along with
Suzanne Harlow who will stand for election
to the board having been appointed as a
director during the year.
Nigel Northridge
Chairman, Nomination Committee
A U D I T C O M M I T T E E R E P O R T
Composition
The individuals who served on the Committee during the year under review are set out below:
Director
Mark Rolfe
(Committee chairman)
Peter Fitzgerald
Martina King
Dennis Millard
Sophie Turner Laing
Date appointed
Committee member
Attendance at meetings
during the year
1 October 2010
(appointed Committee
Chairman 2 September 2012)
18 October 2012
1 August 2009
9 May 2006
1 May 2010
3/3
3/3
3/3
2/3*
3/3
*Dennis Millard was unable to attend the meeting in June 2014 due to a family bereavement.
Responsibilities
The role and responsibilities of the Audit
Committee are set out in its terms of
reference which are reviewed annually
by the Committee, taking into account
relevant legislation and recommended
good practice. The terms of reference
of the Committee are available on the
Company’s website.
In accordance with the terms of reference,
the Committee’s responsibilities include,
but are not limited to, the following matters:
• To monitor the integrity of financial
statements (including any related
information presented with the
financial statements) and any formal
announcements relating to the
Company’s financial performance
• To review any changes in accounting
principles and consider the
appropriateness of accounting
policies adopted by the Company
• To review the internal audit programme
and ensure that the internal audit
function is properly resourced
• To agree with the external auditors
the nature and scope of the audit
and to review the output
• To review and monitor the effectiveness
of the risk management and internal
control systems within the business
• To consider the appointment of the
external auditors and their independence
Debenhams plc Annual Report & Accounts 2014
51
and to make recommendations to the
board in relation to their appointment,
remuneration and terms of engagement
• To review the Company’s plans for the
prevention and detection of fraud,
bribery and corruption
• To provide advice to the board on
whether the Company’s annual report,
taken as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy
Activities during the year
Governance
This year’s formal evaluation of the
Committee was conducted by Lintstock
Ltd, an external facilitator. The Committee
considered the results of the review at its
meeting in October 2014 and concluded
that its composition is appropriate and that
it is effective in reviewing and testing the
work of the internal audit function and the
external auditors. It was felt that the
Committee makes good use of its time
and that it is effective at reviewing the
quality of the Group’s financial reporting,
at assessing the system of internal controls
and at monitoring the management of risk.
The Committee has identified its priorities
for the coming year and these include
supporting the incoming Chief Financial
Officer and providing some oversight of
information systems development.
Dear Shareholder
I am pleased to set out the report of
the Audit Committee for the year to
August 2014.
The Audit Committee’s report has
been modified this year to reflect the
responsibilities and reporting obligations
of the Audit Committee as set out in
the UK Corporate Governance Code
(September 2012). This report sets out the
significant issues that the Committee has
considered and addressed in relation
to the financial statements and outlines
how we have assisted the board in making
its statement on page 81, which confirms
that Debenhams’ 2014 annual report
and accounts is fair, balanced and
understandable.
In addition to the members of the
Committee, the Chairman, the Chief
Financial Officer, the Director of Internal
Audit and Risk Management and senior
representatives of the Company’s external
auditors, PricewaterhouseCoopers LLP,
attend and receive papers for each meeting.
The Company Secretary is secretary
to the Committee. After each meeting
I report to the board on the matters
discussed, on recommendations and
on actions to be taken.
The Committee met with the Company’s
auditors twice during the year without
management being present and once
with each of the Chief Financial Officer
and the Director of Internal Audit and
Risk Management without other
management being present.
C O R P O R A T E G O V E R N A N C E
A U D I T C O M M I T T E E R E P O R T C O N T I N U E D
The Committee started planning the
process for this year’s annual report
and accounts early in the year. The early
planning included a preliminary but
detailed discussion on the likely significant
issues, the establishment of a compliance
committee and agreement of that
committee’s terms of reference. The
compliance committee, chaired by the
Acting Chief Financial Officer, comprises
representatives from the finance, investor
relations, risk and secretarial functions.
The compliance committee met on two
occasions, carrying out a full review of the
draft report and made some significant
adjustments to it. The compliance
committee also reviewed feedback from
external parties on our prior year report
and other external communications. It
reported to the Audit Committee at its
meeting in October 2014. In addition the
Committee also received assurances from
all members of the Executive Committee
that they had reviewed the draft. The
Committee assessed at its October
meeting whether the annual report
and accounts were fair, balanced and
understandable and reviewed all the
processes that had underpinned this
assessment. The formal statement on the
annual report and accounts is set out on
page 81.
The Committee continually assesses the
need for training and sessions are provided
to its members by internal experts. During
the year, training was provided on: revenue
recognition; margin and stock valuation;
property leases; and pensions accounting.
Financial reporting
The Committee reviewed the annual and
interim financial statements during the
year. It considered significant accounting
policies, financial reporting issues and
judgements together with the findings as
set out in the reports from the external
auditors. The Committee considered the
clarity and completeness of the disclosures
within the financial reports reviewed.
Internal audit
The Committee received updates from
the Director of Internal Audit and Risk
Management at each of its meetings during
the year covering, amongst other matters,
updates on the Group’s significant risks
and internal financial controls, progress
against the approved audit plan, the key
findings from reviews undertaken and
management’s implementation of
its recommendations.
External audit
The scope of the audit for 2014 was
agreed together with the fees and terms
of engagement. Details of the amounts
paid to the external auditors for the audit
services for 2014 are given in note 6 on
page 106 of the financial statements.
Effectiveness of internal audit
The effectiveness of the internal audit
function was reviewed during the year
using an external facilitator with input
from the function’s key customers within
the Group, in addition to the Committee,
the Executive Committee and the
Company Secretary. The questionnaire
covered areas including internal audit’s
understanding of the business, the Audit
Committee’s expectations and the
robustness of the audits.
The review concluded that the internal
audit function has a strong understanding
of its responsibilities, the business and
its risks. It is firm in its challenges, liaises
effectively with external audit and delivers
efficiently executed audits. It demonstrates
good technical knowledge, integrity, good
judgement and a robust attitude.
Effectiveness of external audit
The Committee assessed the effectiveness
of the external audit process using an
external facilitator with input from the
Committee, the Company Secretary,
the Acting Chief Financial Officer, the
Director of Finance and Support Services
and the Director of Internal Audit and
Risk Management. The questionnaires
circulated focused on the quality of the
audit team, their understanding of the
business, the audit approach and their
relationship with management.
The review concluded that the external
auditors are effective, objective,
understand the business and its risks and
that communication with them is good.
They are firm in their challenges to
management where appropriate.
Significant issues
The Committee pays particular attention
to matters it considers to be important
by virtue of their impact on the Group’s
results or the level of complexity,
judgement or estimation involved in their
application on the Group’s financial
statements. The significant issues
considered in relation to the Group’s
financial statements for the year ended
30 August 2014 are set out below together
with a summary of the actions taken. In
addition, the Committee and the external
auditors have discussed the significant risks
and the other risks described in the
independent auditors’ report on pages
85 to 87.
Revenue recognition
As with most companies there is a risk
that, in order to achieve the planned
results, revenue may be recognised
in contravention of the Group’s policy
for revenue recognition.
Actions: In a retail business, the vast
majority of sales are settled immediately
and the process for allocating such
revenue into individual accounting
periods is straightforward and tightly
controlled. Risks mostly arise around
accounting adjustments applied to
revenue and the recognition of credit
sales, largely relating to international
franchise operations. Here, controls are
in place to monitor, reconcile and check
balances, with clear authority limits in
place. The Committee received a
presentation from finance management
during the course of the year setting out
the accounting principles relating to
revenue recognition and discussed the
related audit procedures with the external
auditors. The Committee also reviewed
reports from both internal and external
auditors in relation to their examination of
controls in this area, the findings of which
were satisfactory.
Inventory valuation
The Company uses the retail method in
respect of valuation of inventory in the UK
and Ireland which is reliant on a number of
judgemental components, details of which
are set out in note 5 to the financial
statements on pages 104 and 105.
Debenhams plc Annual Report & Accounts 2014
52
Actions: The Committee received a
presentation from financial management
in the course of the year setting out the
accounting principles relating to inventory
valuation and discussed the related audit
procedures with the external auditors. The
Committee also reviewed reports from
both internal and external auditors setting
out inventory risk metrics and findings from
the examination of controls in this area,
which indicated that inventory was valued
satisfactorily.
External auditor appointment
PricewaterhouseCoopers LLP (“PwC”)
has served as the Company’s auditors
since 2006. In accordance with auditing
standards and to protect independence
and objectivity, John Ellis was appointed
as the audit partner on 1 September 2013.
The Audit Committee is satisfied that PwC
remains appropriately independent and
is best placed to conduct the Company’s
audit for 2015. The Committee therefore
recommended PwC be re-appointed as
the Company’s auditors. The Committee
will keep under review the requirement to
tender the external audit contract prior to
the 2016 financial year.
External auditors’ independence
In order to ensure that an appropriate
relationship is maintained with the external
auditors, a policy on auditor independence
has been established and is reviewed
annually. This policy covers matters such
as the auditors and their staff having no
family, financial, employment, investment
or business relationship with the Company,
the employment by the Company of
former audit employees, the rotation of
audit partners and the controls around the
provision of non-audit services. The Audit
Committee makes recommendations to
the board in respect of re-appointment
annually for inclusion in the notice of
Annual General Meeting. As regards the
risk of the external auditors’ withdrawal
from the market, the Company considers
that there are sufficient other auditors in
the marketplace should this situation arise.
The work of the annual repor t compliance
committee suppor ts the Audit Committee
in assessing whether the annual repor t,
taken as a whole, is fair, balanced and
understandable and that it complies with
all legal and regulator y requirements.
services which the auditors may, in certain
circumstances, provide subject to
compliance with the independence
policy. These services include tax advisory
services or services where the auditors
are acting as the Company’s reporting
accountant.
£0.2 million was paid by the Company to
PwC for non-audit services which represents
38% of the total audit fees paid to PwC,
including £73,000 relating to the senior
notes issue.
The audit fees paid by the pension schemes
were £29,500.
Mark Rolfe
Chairman, Audit Committee
The objective of the Audit Committee’s
policy in relation to the provision of
non-audit services by the auditors is to
ensure that the provision of such services
does not impair the external auditors’
independence or objectivity. All fees for
non-audit work require pre-authorisation
by either the Company Secretary, the Chief
Financial Officer or the Audit Committee in
circumstances where the fees are above an
agreed threshold. An independent report
is produced each quarter during the year
detailing all non-audit work, its cost, when
it was carried out and who instructed it.
This information is reported to the Audit
Committee at each meeting by the
Company Secretary.
The Company’s policy identifies three
categories of accounting services. The
first category is audit-related services which
the auditors are permitted to provide. The
second category is prohibited services
which the auditors are not permitted to
provide. Prohibited services are those
which might result in the external auditors
auditing their own work or making
management decisions for the Company
and those where some mutuality of interest
is created or where the external auditors
are put in the role of advocate for the
Company. The third category is “potential”
Debenhams plc Annual Report & Accounts 2014
53
C O R P O R A T E G O V E R N A N C E
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T
I N T R O D U C T I O N
D E N N I S M I L L A R D
Chairman,
Remuneration Committee
During the year the Remuneration
Committee under took a review of the
performance share plan to better align
the performance measures used with
our key strategic priorities.
Debenhams plc Annual Report & Accounts 2014
54
on remuneration. The financial targets for
the strategic measures are considered by
the board to be market sensitive. However,
details of progress against targets during
the vesting period will be provided and
fully disclosed at the time of vesting.
No changes have been made to the usual
annual bonus or PSP levels. However, as
part of Suzanne Harlow’s appointment to
the board, she will be awarded a PSP award
of 150% of base salary for 2015 as an
incentive to drive performance and to
recognise the increased scope of her role
on appointment to the board. Suzanne’s
ongoing remuneration package will consist
of an annual bonus of 100% of base salary
and a PSP award of 100% of base salary.
As part of Matt Smith’s recruitment, he will
be awarded a PSP award of 200% of base
salary in 2015. The Committee determined
that this level of award was appropriate
to compensate him for awards forfeited on
leaving his previous employer (no further
“buyout” awards have been made) and to
provide an additional incentive to drive the
performance of the business in the initial
period of his tenure. Matt’s ongoing
remuneration package will consist of an
annual bonus of 100% of base salary and
a PSP award of 100% of base salary.
The Committee continues to believe that
executive remuneration arrangements are
structured to support the delivery of our
strategic priorities and no further changes
are proposed at this time. We will continue
to keep the structure of remuneration
arrangements under review.
Dennis Millard
Chairman, Remuneration Committee
Dear Shareholder
On behalf of the Remuneration Committee
(“the Committee”), I am pleased to present
our remuneration report for 2014.
This is the first year that the new
remuneration reporting regulations apply
to Debenhams and, to reflect this, the
Committee has restructured the
remuneration report into two parts:
• The policy report – This report will be
put forward for a binding shareholder
vote at the Annual General Meeting
on 9 December 2014. The policy will
be effective from this date
• The annual report on remuneration –
This report will be subject to an advisory
shareholder vote at the 2014 AGM
We hope that shareholders find the report’s
new format useful and informative.
Our performance in 2014
This year we have focused on the four
strategic priorities that we outlined in
our update to the market in April and
the board believes we are making good
progress towards achieving these goals.
The retail marketplace, however, remains
highly competitive and the profit before tax
(“PBT”), like-for-like sales and gross margin
targets set for the annual bonus were not
achieved and therefore no bonus was paid
to executive directors in respect of 2014.
Performance Share Plan (“PSP”) awards
granted during 2011 were based 75% on
EPS growth and 25% on average ROCE
relative to the cost of capital. The EPS
element of the award has not triggered
vesting. ROCE exceeded the cost of capital
by 4.1%. Therefore, 22% of the awards will
vest in November 2014.
Board changes
Suzanne Harlow, Group Trading Director,
was appointed to the board on
11 December 2013; she joined Debenhams
in 1994 and has held the role of Group
Trading Director since 2008. Simon Herrick
left the Company on 7 February 2014.
On 28 July 2014 the Company announced
that Matt Smith will join the board as Chief
Financial Officer upon the satisfaction
of his contractual obligations at his
current employer.
Details of the remuneration arrangements
pertaining to board changes are set out in
the annual report on remuneration.
Reward changes for 2015
The annual salary review date for the
executive directors was previously
September of each year. Going forward it
will be 1 April in line with the new single
annual review date for the rest of the
management population. Any increase
to salaries from 1 April 2015 will be
disclosed in next year’s annual report on
remuneration and may take into account
the movement of the review date.
The Committee has decided to base
the annual bonus for 2015 entirely on
underlying PBT in order to simplify the
plan and to ensure that executives are
focused on increasing profit.
During the year, the Committee reviewed
the performance measures used for the
PSP awards and, after consultation with
our largest shareholders, the Committee
has decided for the 2015 awards to retain
ROCE, in the form of an underpin to the
newly introduced financial measures that
are linked to the business strategy.
The Committee has introduced strategic
measures in order to align further the
interests of senior management with our
key strategic priorities as outlined by the
Chief Executive at the interim results
presentation in April 2014. The weighting of
the measures for 2015 will be underlying
EPS growth (70%) and strategic measures
(30%). The strategic measures selected for
awards to be granted in 2015 (outlined
below) are equally weighted and financial
in nature:
• Group gross margin improvement
• Online EBITDA growth rate
• UK gross transaction value growth
• International EBITDA growth rate
As mentioned above, the vesting of
strategic measures will be subject to
meeting a ROCE underpin (explained in
more detail later in this report). Further
details on the rationale for the selection of
these measures and the EPS performance
target for awards to be granted in respect
of 2015 are provided in the annual report
Debenhams plc Annual Report & Accounts 2014
55
C O R P O R A T E G O V E R N A N C E
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T
R E M U N E R A T I O N P O L I C Y
This remuneration report for the year ended 30 August 2014
complies with the requirements of the Listing Rules of the UK
Listing Authority, Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008
(as amended) and the provisions of the UK Corporate Governance
Code (September 2012).
Link between remuneration and strategy
Our executive remuneration policy has been designed to support
our Group strategy:
• Reward philosophy – Our reward philosophy is that
remuneration arrangements should be set at a level that is
considered by the Remuneration Committee to be sufficient to
recruit and retain individuals of the calibre required to run the
business without paying more than is necessary to do so.
• Alignment with our business strategy – Remuneration structures
are designed to support the business strategy with the majority
of the remuneration package being linked to the delivery of
performance, paid in a combination of cash and shares.
Short-term and long-term performance measures have been
Element
Base salary
Purpose and link
to strategy
• Supports the recruitment
and retention of executive
directors of the calibre
required to fulfil the
role without paying more
than is considered
necessary to do so
• Rewards executives for the
performance of their role
Key features/operation
• Paid in cash
• Normally reviewed annually with effect from 1 April but may be reviewed
more or less frequently at the Committee’s discretion
• In determining base salaries, the Committee considers:
– Pay levels at companies of a similar size and complexity and other
FTSE 350 retailers
– External market conditions
– Pay and conditions elsewhere in the Group
– The individual’s skills, knowledge and experience
Pension
• Provides funds to allow
• In determining pension arrangements, the Committee takes into account relevant
• The Chief Executive’s annual cash pension allowance is 20%
None
executives to save
for retirement
• Provides a market
competitive
retirement benefit
• Incentive and
retention tool
market practice and practice throughout the Group
• Executive directors are generally provided a cash allowance in lieu of a pension
• The annual pension contribution for the Chief Financial Officer is 15%
provision or a contribution to a defined contribution pension scheme
• However, the Committee may determine that alternative pension provisions will
operate for new appointments to the board if considered appropriate. If an
alternative pension arrangement is provided, this will generally be of a similar level
to current arrangements
• The Chief Executive is a deferred member of the Debenhams Executive Pension Plan
and the Group Trading Director continues to be a deferred member in service of the
Debenhams Executive Pension Plan
Debenhams plc Annual Report & Accounts 2014
56
What is the maximum potential value?
Performance metrics
• Whilst there is no defined maximum salary, any base salary increases
None
will normally be in line with the increases awarded to other employees
of the Group
circumstances, such as:
• However, increases may be made outside of this policy in exceptional
– Where a director is appointed on a salary that is at the lower end
of the market practice range, larger increases may be awarded
as the executive gains experience to move the salary closer to
a more typical market level
– Where there has been a change in the responsibility and
accountability of the role
– Where there has been a significant change in market practice
• Details of current salary levels are set out in the annual report
on remuneration
of base salary
of base salary
• The Group Trading Director’s annual pension allowance increases
based on her pensionable years’ service and age. The allowance
is currently 17% of base salary increasing to 18% upon 20 years’
pensionable service and to 23% at age 50. The maximum annual
allowance of 28% of base salary is payable from age 55
• The Chief Executive ceased to accrue benefits under the Debenhams
Executive Pension Plan in 2006
• The Group Trading Director continues to be a deferred member in
service of the Debenhams Executive Pension Plan. The plan ceased
for future service accruals in 2006
Element
Purpose and link
to strategy
Key features/operation
Base salary
• Supports the recruitment
• Paid in cash
and retention of executive
directors of the calibre
required to fulfil the
role without paying more
than is considered
necessary to do so
performance of their role
• Normally reviewed annually with effect from 1 April but may be reviewed
more or less frequently at the Committee’s discretion
• In determining base salaries, the Committee considers:
– Pay levels at companies of a similar size and complexity and other
FTSE 350 retailers
• Rewards executives for the
– External market conditions
– Pay and conditions elsewhere in the Group
– The individual’s skills, knowledge and experience
executives to save
for retirement
• Provides a market
competitive
retirement benefit
• Incentive and
retention tool
• However, the Committee may determine that alternative pension provisions will
operate for new appointments to the board if considered appropriate. If an
alternative pension arrangement is provided, this will generally be of a similar level
to current arrangements
• The Chief Executive is a deferred member of the Debenhams Executive Pension Plan
and the Group Trading Director continues to be a deferred member in service of the
Debenhams Executive Pension Plan
selected to be aligned with the delivery of our business
strategy. Market conditions are also taken into consideration
when setting pay.
• Alignment with shareholders – Variable remuneration
opportunity is generally delivered through the Company’s
long-term share incentive plans and the cash annual bonus.
The Committee operates a shareholding guideline policy for
executive directors which aligns the interests of executives with
our shareholders and demonstrates the executives’ ongoing
commitment to the business.
Remuneration policy table for executive directors
The table below sets out a summary of our remuneration policy for
executive directors. This policy will be put forward for shareholder
approval at the AGM on 9 December 2014 and will take effect
from that date.
Further information regarding the implementation of the policy
for 2015 can be found in the annual report on remuneration
commencing on page 69.
What is the maximum potential value?
Performance metrics
• Whilst there is no defined maximum salary, any base salary increases
will normally be in line with the increases awarded to other employees
of the Group
None
• However, increases may be made outside of this policy in exceptional
circumstances, such as:
– Where a director is appointed on a salary that is at the lower end
of the market practice range, larger increases may be awarded
as the executive gains experience to move the salary closer to
a more typical market level
– Where there has been a change in the responsibility and
accountability of the role
– Where there has been a significant change in market practice
• Details of current salary levels are set out in the annual report
on remuneration
Pension
• Provides funds to allow
• In determining pension arrangements, the Committee takes into account relevant
• The Chief Executive’s annual cash pension allowance is 20%
None
market practice and practice throughout the Group
of base salary
• Executive directors are generally provided a cash allowance in lieu of a pension
• The annual pension contribution for the Chief Financial Officer is 15%
provision or a contribution to a defined contribution pension scheme
of base salary
• The Group Trading Director’s annual pension allowance increases
based on her pensionable years’ service and age. The allowance
is currently 17% of base salary increasing to 18% upon 20 years’
pensionable service and to 23% at age 50. The maximum annual
allowance of 28% of base salary is payable from age 55
• The Chief Executive ceased to accrue benefits under the Debenhams
Executive Pension Plan in 2006
• The Group Trading Director continues to be a deferred member in
service of the Debenhams Executive Pension Plan. The plan ceased
for future service accruals in 2006
Debenhams plc Annual Report & Accounts 2014
57
C O R P O R A T E G O V E R N A N C E
R E M U N E R A T I O N P O L I C Y C O N T I N U E D
Element
Purpose and link
to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
Benefits
• To provide a
• Executive directors have a benefits allowance which can be used to fund
• The overall value of benefits will depend on the individual’s
None
market-competitive
level of benefits for
executive directors
a range of benefits. The wider management population also receive a cash
benefits allowance
• Executive directors may participate in any all-employee share plans which may
be operated by the Company on the same terms as other employees
• Executive directors receive life assurance and an annual health assessment.
The Chief Executive also receives a financial planning allowance, travel allowance
and a fuel allowance
• Executive directors may also buy or sell a week’s holiday with the approval of
the Committee
• Executive directors are eligible to receive a staff discount in line with other
senior executives
• The Committee may determine that executive directors should receive additional
reasonable benefits if appropriate, taking into account typical market practice
• Executive directors may be reimbursed for all reasonable expenses and the
Company may settle the tax incurred in relation to these
• Where an executive director is required to relocate to perform their role, they
may be provided with reasonable benefits as determined by the Committee
in connection with this relocation (on either a one-off or ongoing basis), including
any expatriate benefits such as housing, travel or education allowances
Annual bonus
• Rewards and incentivises
• Unless otherwise determined by the Committee, bonuses are paid in cash
the achievement of
annual objectives which
are aligned with key
financial and strategic
goals and supports
the enhancement
of shareholder value
following the year end
• Bonuses are not pensionable
• Malus provisions apply (see page 62 for further information)
• Bonuses are based on annual performance targets
• The Committee retains the discretion to adjust the bonus award if it does not
consider that it reflects underlying Company performance but may not exceed
the maximum policy limit
circumstances and the cost of providing them by the Company and
therefore there is no maximum. However, the executive directors’
participation in any all-employee share plans will be in line with
relevant statutory limits
• It is the Committee’s policy to provide benefits at a market
competitive level taking into account local market practice
in the location in which the executive director operates
• Maximum opportunity of 100% of base salary
• The bonus starts accruing from threshold levels
of performance
• The Committee determines appropriate performance
metrics to support the annual business strategy, external
expectations and the enhancement of shareholder value
on an annual basis
• Typically, 100% of the bonus will be based on financial
performance targets. However, the Committee retains
the discretion to alter the performance measures for
future bonuses if deemed appropriate including the
introduction of non-financial measures. In such cases
at least 80% of the bonus will be based on financial
performance targets
• For 2015 the bonus is based 100% on underlying PBT
• Further information in relation to the performance
measures for 2015 is set out in the annual report
on remuneration
Debenhams plc Annual Report & Accounts 2014
58
market-competitive
a range of benefits. The wider management population also receive a cash
level of benefits for
executive directors
benefits allowance
• Executive directors may participate in any all-employee share plans which may
be operated by the Company on the same terms as other employees
• Executive directors receive life assurance and an annual health assessment.
The Chief Executive also receives a financial planning allowance, travel allowance
and a fuel allowance
the Committee
senior executives
• Executive directors may also buy or sell a week’s holiday with the approval of
• Executive directors are eligible to receive a staff discount in line with other
• The Committee may determine that executive directors should receive additional
reasonable benefits if appropriate, taking into account typical market practice
• Executive directors may be reimbursed for all reasonable expenses and the
Company may settle the tax incurred in relation to these
• Where an executive director is required to relocate to perform their role, they
may be provided with reasonable benefits as determined by the Committee
in connection with this relocation (on either a one-off or ongoing basis), including
any expatriate benefits such as housing, travel or education allowances
the achievement of
following the year end
annual objectives which
are aligned with key
financial and strategic
goals and supports
the enhancement
of shareholder value
• Bonuses are not pensionable
• Malus provisions apply (see page 62 for further information)
• Bonuses are based on annual performance targets
• The Committee retains the discretion to adjust the bonus award if it does not
consider that it reflects underlying Company performance but may not exceed
the maximum policy limit
Element
Purpose and link
to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
Benefits
• To provide a
• Executive directors have a benefits allowance which can be used to fund
• The overall value of benefits will depend on the individual’s
None
circumstances and the cost of providing them by the Company and
therefore there is no maximum. However, the executive directors’
participation in any all-employee share plans will be in line with
relevant statutory limits
• It is the Committee’s policy to provide benefits at a market
competitive level taking into account local market practice
in the location in which the executive director operates
Annual bonus
• Rewards and incentivises
• Unless otherwise determined by the Committee, bonuses are paid in cash
• Maximum opportunity of 100% of base salary
• The Committee determines appropriate performance
• The bonus starts accruing from threshold levels
of performance
metrics to support the annual business strategy, external
expectations and the enhancement of shareholder value
on an annual basis
• Typically, 100% of the bonus will be based on financial
performance targets. However, the Committee retains
the discretion to alter the performance measures for
future bonuses if deemed appropriate including the
introduction of non-financial measures. In such cases
at least 80% of the bonus will be based on financial
performance targets
• For 2015 the bonus is based 100% on underlying PBT
• Further information in relation to the performance
measures for 2015 is set out in the annual report
on remuneration
Debenhams plc Annual Report & Accounts 2014
59
C O R P O R A T E G O V E R N A N C E
R E M U N E R A T I O N P O L I C Y C O N T I N U E D
Element
Performance
Share Plan
(“PSP”)
Purpose and link
to strategy
• Incentivises executives
to achieve Debenhams’
long-term strategy
and create sustainable
shareholder value
• Aligns with shareholder
interests through the
delivery of shares
• Acts as a retention tool
Key features/operation
What is the maximum potential value?
Performance metrics
• Awards normally vest based on performance assessed over a period not shorter
• The maximum value of shares over which an individual can be granted
• Awards granted in 2015 will vest subject to a combination
than three years
• Awards may only vest to the extent the Committee is satisfied that the underlying
financial performance of the Company over the relevant performance period
justifies vesting. The Committee may also decrease the final vesting level if it does
not consider that it reflects the underlying performance of the Company
• Awards can be in the form of free shares or 0.01 pence options. Where awards are
in the form of 0.01 pence options, participants may have up to six months from
vesting to exercise awards
• Malus provisions apply (see page 62 for further information)
• Awards may incorporate the right to receive (in cash or shares) the value of the
dividends that would have been paid on the shares that vest. However, it is not
the current intention of the Committee that dividend equivalents will be paid
on shares that vest
an award in any one financial year of the Company is normally 200%
of underlying EPS and strategic performance measures
of base salary, although this limit may be increased to 250% of base
(all of which are financial in nature). The vesting of the
salary in exceptional circumstances. The Committee will, however,
strategic measures will also be subject to meeting a
take into consideration awards made under other plans when
ROCE underpin.
granting awards under the plan
• The Committee retains the discretion to alter the
• Typically 25% of awards vest for threshold levels of performance
performance measures for future awards if it deems
• For details of award levels for 2015 see the annual report
on remuneration
appropriate. However, the Committee will endeavour
to consult with the Company’s largest shareholders prior
to doing so, other than for minor changes
• Strategic measures will account for no more than 30%
of future awards
• The Committee sets performance targets each year,
taking into account the business plan, external
expectations and market practice
• For further information in relation to the performance
measures, weightings and targets for awards to be granted
in 2015 see the annual report on remuneration
Executive directors also have a shareholding guideline.
Further details are provided on page 70 of the Annual Report
on Remuneration.
The table below sets out details of other plans that the Company
has in place. It is not currently intended that these plans will be
operated during 2015. However, the Committee retains the
discretion to operate these plans in exceptional circumstances or
in future years if it considers it to be appropriate and in the best
interests of shareholders. Any use of these plans upon recruitment
of an executive would be within the variable pay limit (excluding
buyout awards) referred to in the “Recruitment remuneration
arrangements” section of this report.
Element
Deferred Bonus
Matching Plan
(“DBMP”)
Purpose and link to
remuneration policy
• Incentivises executives
to achieve Debenhams’
long-term strategy and
create sustainable
shareholder value
• Aligns executives’
interests with shareholders
through the investment
of their cash bonus
into shares
Executive
Share Option
Plan (“ESOP”)
• Incentivises executives
to achieve Debenhams’
long-term strategy and
create sustainable
shareholder value
Key features/operation
What is the maximum potential value?
Performance metrics
• The Committee can invite participants to invest up to 100% of their net annual
• Maximum matching awards may be made up to the equivalent
• If this plan were operated, appropriate performance
bonus. The net bonus is used to purchase market shares which are then
designated “invested shares”
• If the participant remains in employment and retains the invested shares for three
years, they may receive a matching award of up to the gross amount of the bonus
deferred subject to performance conditions being met over a period of no less
than three years
• Matching awards can be in the form of free shares or 0.01 pence options. Where
awards are in the form of 0.01 pence options, participants have up to six months
from vesting to exercise awards
• The Committee retains the discretion to adjust the final vesting level if it does not
consider that it reflects the underlying performance of the Company
of 100% of the executive’s net bonus
• Typically 25% of the matching award vests for threshold levels
of performance
conditions would be determined by the Committee
at the time of award and disclosed in the annual report
on remuneration for that year
• Awards would take the form of market value options over ordinary shares in
• The maximum award that can be made under the plan is 100% of
• If this plan were operated, appropriate performance
the Company
• Awards would be subject to performance assessed over a period of no less than
three years
• The Committee retains the discretion to adjust the final vesting level if it does not
consider that it reflects the underlying performance of the Company
• Awards may be exercised once vested for up to ten years following the date of grant
• Options can be granted in the form of unapproved options or HM Revenue &
Customs (HMRC) approved options (up to the lower of the limit of this policy or the
prescribed HMRC limit at the date of grant)
base salary (face value of options based on the share price at the date
conditions would be determined by the Committee at
of grant). The Committee will take into consideration awards made
the time of award and disclosed in the annual report on
under the PSP when granting awards under the plan
remuneration for that year
• Awards may be made above this level in exceptional circumstances
• Typically 25% of award vests for target levels of performance
Debenhams plc Annual Report & Accounts 2014
60
Element
Purpose and link
to strategy
Key features/operation
Performance
• Incentivises executives
• Awards normally vest based on performance assessed over a period not shorter
Share Plan
(“PSP”)
to achieve Debenhams’
than three years
long-term strategy
and create sustainable
shareholder value
interests through the
delivery of shares
• Awards may only vest to the extent the Committee is satisfied that the underlying
financial performance of the Company over the relevant performance period
justifies vesting. The Committee may also decrease the final vesting level if it does
• Aligns with shareholder
not consider that it reflects the underlying performance of the Company
• Awards can be in the form of free shares or 0.01 pence options. Where awards are
in the form of 0.01 pence options, participants may have up to six months from
• Acts as a retention tool
vesting to exercise awards
• Malus provisions apply (see page 62 for further information)
• Awards may incorporate the right to receive (in cash or shares) the value of the
dividends that would have been paid on the shares that vest. However, it is not
the current intention of the Committee that dividend equivalents will be paid
on shares that vest
What is the maximum potential value?
Performance metrics
• The maximum value of shares over which an individual can be granted
an award in any one financial year of the Company is normally 200%
of base salary, although this limit may be increased to 250% of base
salary in exceptional circumstances. The Committee will, however,
take into consideration awards made under other plans when
granting awards under the plan
• Typically 25% of awards vest for threshold levels of performance
• For details of award levels for 2015 see the annual report
on remuneration
• Awards granted in 2015 will vest subject to a combination
of underlying EPS and strategic performance measures
(all of which are financial in nature). The vesting of the
strategic measures will also be subject to meeting a
ROCE underpin.
• The Committee retains the discretion to alter the
performance measures for future awards if it deems
appropriate. However, the Committee will endeavour
to consult with the Company’s largest shareholders prior
to doing so, other than for minor changes
• Strategic measures will account for no more than 30%
of future awards
• The Committee sets performance targets each year,
taking into account the business plan, external
expectations and market practice
• For further information in relation to the performance
measures, weightings and targets for awards to be granted
in 2015 see the annual report on remuneration
Element
Purpose and link to
remuneration policy
Key features/operation
What is the maximum potential value?
Performance metrics
Deferred Bonus
• Incentivises executives
• The Committee can invite participants to invest up to 100% of their net annual
• Maximum matching awards may be made up to the equivalent
Matching Plan
to achieve Debenhams’
bonus. The net bonus is used to purchase market shares which are then
of 100% of the executive’s net bonus
• Typically 25% of the matching award vests for threshold levels
of performance
• If this plan were operated, appropriate performance
conditions would be determined by the Committee
at the time of award and disclosed in the annual report
on remuneration for that year
• The maximum award that can be made under the plan is 100% of
base salary (face value of options based on the share price at the date
of grant). The Committee will take into consideration awards made
under the PSP when granting awards under the plan
• If this plan were operated, appropriate performance
conditions would be determined by the Committee at
the time of award and disclosed in the annual report on
remuneration for that year
• Awards may be made above this level in exceptional circumstances
• Typically 25% of award vests for target levels of performance
Debenhams plc Annual Report & Accounts 2014
61
(“DBMP”)
long-term strategy and
designated “invested shares”
create sustainable
shareholder value
• If the participant remains in employment and retains the invested shares for three
years, they may receive a matching award of up to the gross amount of the bonus
• Aligns executives’
deferred subject to performance conditions being met over a period of no less
interests with shareholders
than three years
through the investment
of their cash bonus
into shares
• Matching awards can be in the form of free shares or 0.01 pence options. Where
awards are in the form of 0.01 pence options, participants have up to six months
from vesting to exercise awards
• The Committee retains the discretion to adjust the final vesting level if it does not
consider that it reflects the underlying performance of the Company
Executive
• Incentivises executives
• Awards would take the form of market value options over ordinary shares in
Share Option
Plan (“ESOP”)
to achieve Debenhams’
the Company
long-term strategy and
create sustainable
shareholder value
three years
• Awards would be subject to performance assessed over a period of no less than
• The Committee retains the discretion to adjust the final vesting level if it does not
consider that it reflects the underlying performance of the Company
• Awards may be exercised once vested for up to ten years following the date of grant
• Options can be granted in the form of unapproved options or HM Revenue &
Customs (HMRC) approved options (up to the lower of the limit of this policy or the
prescribed HMRC limit at the date of grant)
C O R P O R A T E G O V E R N A N C E
R E M U N E R A T I O N P O L I C Y C O N T I N U E D
Notes to the policy table
Malus
• Bonus – The Committee reserves the right to scale back bonuses if there has been a material misstatement of the Group’s audited
financial results during a prior year.
• Performance Share Plan – For awards granted in 2014 onwards, the Committee reserves the right to reduce, cancel and/or impose
further conditions on some or all unvested awards under the PSP in circumstances in which the Committee considers such action is
appropriate. Such circumstances include, but are not limited to, a material misstatement of the Group’s audited results.
• Malus provisions do not currently apply to awards under the other long-term incentive plans. However, the Committee retains the
discretion to introduce such provisions if it considers it appropriate.
The Company’s incentive arrangements do not currently have clawback. The Committee is aware of the provisions of the 2014 UK
Corporate Governance Code which require clawback provisions to be in place for variable elements of pay with effect from no later than
the Company’s 2016 financial year. The Committee will consider introducing clawback provisions when a new PSP is implemented in 2016.
Annual bonus performance measures
• The Committee sets annual bonus performance targets annually based on the measures that it feels are the most appropriate for
the business. Annual bonus targets are set with reference to internal forecasts and market consensus. Information in relation to the
performance measures used for 2015 has been set out in the annual report on remuneration.
• The Committee considers that the annual bonus targets for 2015 are market sensitive and have therefore not been disclosed in this
report. Details of performance against targets and any resulting annual bonus payout will be included in next year’s annual report
on remuneration.
Performance Share Plan performance measures
• For 2015 awards, the Committee has chosen to use a combination of underlying EPS (70%) and strategic measures (30%). The vesting
of the strategic measures will also be subject to meeting a ROCE underpin. The Committee may use different measures or a different
balance of measures in future years if it considers that it is appropriate to do so.
• In light of the ongoing challenges in the UK retail sector and our evolving business strategy, the Committee decided that it was
appropriate to amend the performance measures attached to 2015 PSP awards to ensure that they were fully aligned with this
strategy and to incentivise management to deliver long-term sustainable value for our shareholders. At the 2014 interim results,
Chief Executive Michael Sharp set out our strategic priorities in support of the four pillars of our strategy. The financial strategic
objectives for the PSP have been selected to support these priorities directly.
• Details of the specific measures, weightings and targets applying to the PSP awards to be made in 2015 are disclosed in the
annual report on remuneration.
• Threshold vesting for PSP awards made prior to 2015 is 30%.
Difference from the remuneration policy for all employees
• Debenhams employs a large number of people in a variety of roles across a range of geographies. Our reward framework for the
business is altered as necessary to suit the needs of the business for different employee groups. Reward packages therefore differ,
taking into account a number of appropriate factors including seniority, impact on the business and local practice, custom
and legislation.
Other information supporting the policy table
• The Committee may amend the terms of awards or the rules of share plans within the scope defined in the rules of the plans.
• For share awards, in the event of a variation of the Company’s share capital or a demerger, delisting, special dividend, rights issue
or other event which may, in the Committee’s opinion, affect the current or future value of awards, the number of awards and the
exercise price applicable to those awards may be adjusted.
• The Committee may amend the conditions applicable to share awards if it considers that the amended conditions are a fairer
measure of performance and at least as challenging as the original conditions.
• The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any
discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out in this
report where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual
was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual
becoming a director of the Company. For these purposes “payments” includes the Committee satisfying awards of variable
remuneration and an award over shares is “agreed” at the time the award is granted.
Debenhams plc Annual Report & Accounts 2014
62
Remuneration outcomes in different performance scenarios
The charts below set out an illustration of the remuneration policy for 2015. The charts provide an illustration of the proportion of total
remuneration made up of each component of the remuneration policy and the value of each component.
Three scenarios have been illustrated for each executive director:
Below threshold performance
• Fixed remuneration
• No annual bonus payout
• No vesting under the PSP
Mid-range performance
• Fixed remuneration
• 50% annual bonus payout
• 50% vesting under the PSP
Maximum performance
• Fixed remuneration
• 100% annual bonus payout
• 100% vesting under the PSP
Fixed pay currently comprises the following elements:
Chief Executive – Michael Sharp
Chief Financial Officer – Matt Smith (not employed during 2014)
Group Trading Director – Suzanne Harlow
Current base
salary
£615,000
£400,000
£400,000
Benefits
£34,999
£18,375
£22,195
Pension
Total
£123,000
£772,999
£60,000
£68,000
£478,375
£490,195
• Base salary is the base salary in place at 1 September 2014. Salary levels may be subject to changes following the annual base salary
review in early 2015. Any changes will be effective from 1 April 2015. The salary for the Chief Financial Officer will apply from the point
he joins the Company.
• The benefits figure for the Chief Executive is based on the amount received during 2014 as per the single figure. This reflects his
annual benefits allowance and the taxable value of other benefits provided during the year. For the Chief Financial Officer and Group
Trading Director the benefits number is the value of their respective annual benefits allowances. For 2014, the Chief Financial Officer
was not a member of the board and so did not receive any benefits. The Group Trading Director was only a member of the board for
part of the year.
• Pension is based on the cash contribution of 20% of base salary for the Chief Executive, 15% of base salary for the Chief Financial
Officer and 17% for the Group Trading Director.
• Bonus is based on the ongoing annual policy maximum of 100% of base salary for all executive directors.
• PSP is based on the ongoing usual annual policy maximum of 150% of salary for the Chief Executive Officer and 100% of salary for
other executive directors. During 2015 the Chief Financial Officer and Group Trading Director will receive higher one-off awards.
This is not reflected in the chart.
Debenhams plc Annual Report & Accounts 2014
63
C O R P O R A T E G O V E R N A N C E
R E M U N E R A T I O N P O L I C Y C O N T I N U E D
The scenarios below do not take into account share price appreciation or dividends.
Chief Executive
Chief Financial Officer
Maximum performance
33%
27%
40%
£2.31m
Maximum performance
38%
31%
31%
£1.28m
Mid-range performance
50%
20%
30% £1.54m
Mid-range performance
54%
23% 23% £0.88m
Below target performance
100%
£0.77m
Below target performance
100%
£0.48m
0
0.5m
1.0m
1.5m
2.0m
2.5m
0
0.5m
1.0m
1.5m
Group Trading Director
Short-term incentives (annual bonus)
Fixed
Long-term incentives (PSP)
Fixed
Short-term incentives (annual bonus)
Long-term incentives (PSP)
Maximum performance
38%
31%
31%
£1.29m
Mid-range performance
55%
22.5% 22.5% £0.89m
Below target performance
100%
£0.49m
0
0.5m
1.0m
1.5m
Fixed
Short-term incentives (annual bonus)
Long-term incentives (PSP)
Recruitment remuneration arrangements
When determining the remuneration package for a newly appointed executive director, the Committee would seek to apply the
following principles:
• The package should be market competitive to facilitate the recruitment of individuals of sufficient calibre to lead the business. At the
same time, the Committee would intend to pay no more than it believes is necessary to secure the required talent.
• The structure of the ongoing remuneration package would normally include some or all of the components set out in the policy table
for executive directors.
• In addition, the Committee has discretion to include any other remuneration component or award which it feels is appropriate taking
into account the specific circumstances of the recruitment, subject to the limit on variable remuneration set out below. The key terms
and rationale for any such component would be disclosed as appropriate in that year’s annual report on remuneration.
• Where an individual forfeits outstanding variable pay opportunities or contractual rights at a previous employer as a result of
appointment, the Committee may offer compensatory payments or awards, in such form as the Committee considers appropriate
taking into account all relevant factors including the form of awards, expected value and vesting timeframe of forfeited opportunities.
When determining any such “buyout”, the guiding principle would be that awards would generally be on a “like-for-like” basis unless
this is considered by the Committee not to be practical or appropriate.
• The maximum level of variable remuneration which may be awarded (excluding any “buyout” awards referred to above) in respect
of recruitment is 350% of salary, which is in line with the current maximum limit under the annual bonus and PSP. Where awards are
made under the ESOP, the value of the award that counts towards this maximum will be calculated on an expected value rather than
a face value basis.
• Where an executive director is required to relocate from their home location to take up their role, the Committee may provide
assistance with relocation (either via one-off or ongoing payments or benefits).
• In the event that an internal candidate is promoted to the board, legacy terms and conditions would normally be honoured, including
pension entitlements and any outstanding incentive awards.
To facilitate any buyout awards outlined above, in the event of recruitment the Committee may grant awards to a new executive director
relying on the exemption in the Listing Rules which allows for the grant of awards, to facilitate, in unusual circumstances, the recruitment
of an executive director, without seeking prior shareholder approval or under any other appropriate Company incentive plan.
The remuneration package for a newly appointed non-executive director would normally be in line with the structure set out in the
policy table for non-executive directors.
Debenhams plc Annual Report & Accounts 2014
64
Executive director service contracts
Notice period
• 12 months’ notice by the Company or by the executive director
• Michael Sharp entered into his current service agreement with the Company
on 3 May 2006
• Matt Smith entered into a service agreement with the Company on 25 July 2014
• Suzanne Harlow entered into her current service agreement with the Company
on 11 December 2013
Expiry date
• All are rolling contracts with no expiry date
Termination payments
• Payments in lieu of notice will be based on base salary, contractual benefits and any
accrued but untaken holiday
• Payments in lieu of notice for Michael Sharp and Suzanne Harlow will be paid as a lump
sum following termination. However, the Committee would seek to apply mitigation in
respect of the period and amount where appropriate
• Payments in lieu of notice for Matt Smith may, at the Committee’s discretion, be paid
as a lump sum or in equal monthly instalments which would be subject to mitigation
• Legal fees and outplacement services may also be provided for executive directors
leaving the business
The service agreements are available to shareholders to view on request from the Company Secretary at the Company’s registered office.
Arrangements for directors leaving Debenhams
Details of the arrangements in relation to fixed remuneration are set out in the section above.
Annual bonus
There is no automatic entitlement to an annual bonus in the year in which the executive director leaves the Group. The Committee
may determine that an executive director is eligible to receive a bonus in respect of the year of cessation dependent upon the
circumstances of the executive director’s departure and individual performance. Any such payment would normally continue to
be subject to performance and pro-rated to take account of the time served during the year.
Long-term incentives
The treatment of leavers under our long-term incentive plans is determined by the rules of the relevant plans.
• 2006 Performance Share Plan – If an individual ceases to be employed by a member of the Group or gives or is given notice
terminating their employment before the end of the performance period, a participant’s award will usually lapse, unless the
Committee determines that it will vest, having regard to the performance of the Company and the length of time which has elapsed
since the date of grant. The Committee may determine that the award will vest at the time of cessation of employment or at the
“normal” vesting date. The number of shares over which an award may vest will be time pro-rated to reflect the proportion of the
vesting period that has elapsed on cessation of employment. In the case of nil cost options, the Committee will determine the period
during which the participant may exercise his or her options.
• 2006 Executive Share Option Plan – If an individual ceases to be employed by a member of the Group, options will lapse unless
the option holder leaves in “good leaver” circumstances, namely in respect of tax approved options: injury or disability, retirement,
the sale of their employing entity out of the Group, redundancy or any other reason that the Committee decides and in respect
of unapproved options, in such circumstances as the Committee may determine. If these “good leaver” circumstances apply, the
options will be exercisable for a period of six months from the date of cessation, or such other period as the Committee determines.
Where options become exercisable as a result of the individual’s cessation of employment, the extent to which the options will be
exercisable will be subject to the performance conditions applicable to the options and will be pro-rated to reflect the proportion
of the vesting period that has elapsed on cessation of employment. If a participant dies, their representatives shall have 12 months
from death to exercise their options in full.
• 2006 Deferred Bonus Matching Plan – In the event of cessation of employment with a member of the Group, matching awards
will usually lapse. However, the Committee may determine that a matching award will vest at the normal time, to the extent that the
performance conditions have been met and on a time pro-rated basis to reflect the proportion of the vesting period that has elapsed
at the time of cessation. In exceptional circumstances, the Committee may determine that matching awards may be released before
the end of the original performance period to the extent determined by the Committee, having regard to the time pro-rating formula
described above. In these circumstances, invested shares are released from the plan at the time the related matching award vests.
Debenhams plc Annual Report & Accounts 2014
65
C O R P O R A T E G O V E R N A N C E
R E M U N E R A T I O N P O L I C Y C O N T I N U E D
Takeover or merger of the Company
2006 Performance Share Plan – In the event of a takeover or merger of the Company, outstanding PSP awards will vest to the extent
that performance conditions are satisfied. Where awards vest in these circumstances, they may be pro-rated (on a monthly basis) to
reflect the proportion of the vesting period that has elapsed, unless the Committee determines that a different proportion of the
award should vest, taking into account Company performance and such other factors as it considers relevant.
Upon agreement with the acquiring company, the participant may choose to roll over their awards into awards in the acquiring company.
2006 Executive Share Option Plan – In the event of a change of control of the Company, outstanding ESOP awards will generally
become exercisable to the extent that performance conditions have been satisfied and the number of shares subject to the options
will be pro-rated to reflect the proportion of the vesting period that has elapsed (to the nearest whole month) unless the Committee
determines that a higher proportion of the options should vest.
Upon agreement with the acquiring company, the participant may choose to roll over their options into options in the acquiring company.
2006 Deferred Bonus Matching Plan – In the event of a takeover or voluntary winding up of the Company, matching awards will vest
to the extent that the performance conditions have been met or, if the Committee considers it appropriate, to the extent that the
performance conditions would have been met at the end of the original performance period, in the Committee’s opinion. Invested
shares no longer have to be retained.
Upon agreement with the acquiring company, the participant may choose to roll over their awards into awards in the acquiring company.
Other corporate events
2006 Performance Share Plan – If the Company is voluntarily wound up, the Committee may allow awards to vest on the same basis
as set out above for a takeover. If the Company is, or is expected to be, affected by a demerger, special dividend or other transaction
which would materially affect the value of awards, the Committee may allow some or all of the outstanding awards to vest to the extent
the performance conditions applicable to these awards have or are likely to have been met, in the Committee’s opinion.
2006 Executive Share Option Plan – If the Company is, or is expected to be, affected by a demerger, special dividend or other
transaction which in the Committee’s opinion is likely to affect the current or future value of any options, the Committee may allow
options to be exercised, taking into account the performance conditions, the period that has elapsed since grant and any other factors
it considers relevant. If the Company is voluntarily wound up, options may be exercised to the extent that the performance conditions
have been met.
External appointments for executive directors
Executive directors may undertake external directorships with the consent of the board. Any proposed external directorships are
considered by the Nomination Committee to ensure they do not cause a conflict of interest. The executive directors do not currently
hold any such directorships.
Debenhams plc Annual Report & Accounts 2014
66
Remuneration policy table for non-executive directors
Element
Fees
Purpose and link to
remuneration policy
• Fees for non-executive
directors are set at an
appropriate level to recruit
and retain directors of a
sufficient calibre without
paying more than is necessary
to do so
Benefits and
expenses
• To provide suitable
arrangements to allow
non-executive directors
to discharge their
duties effectively
What is the maximum
potential value?
• Fees paid to non-executive
directors and the non-
executive Chairman will not
exceed the aggregate limit set
out in the Company’s articles
of association, currently
£1 million
• Fee levels for 2015 are set out
in the annual report on
remuneration
None
Key features/operation
• Paid in cash
• Fees for non-executive directors are set
taking into account the time commitment
required to fulfil the role and typical
practice at other companies of a similar
size and complexity to Debenhams
• The fees for the Chairman’s role are set
taking into account the time commitment
of the role, the skills and experience of
the individual and typical market practice
for other companies of a similar size
and complexity
• Our non-executive director fees policy is
to pay a basic fee for membership of the
board and additional fees for the Senior
Independent Director, chairmanship
of a committee and membership of
a committee to take into account the
additional responsibilities and time
commitment of these roles
• Additional fees may be paid to reflect
additional board or committee
responsibilities as appropriate
• Fees are reviewed at appropriate
intervals by the board
• Reasonable costs in relation to travel and
accommodation for business purposes
are reimbursed to the Chairman and
non-executive directors. The Company
may meet any tax liabilities that may arise
on such expenses
• The Chairman and non-executive
directors are eligible for a staff discount
and an annual health assessment
• The Chairman and non-executive
directors are not entitled to participate
in any of the Group’s incentive plans or
pension plans
• The Chairman and non-executive
directors have the benefit of directors’
and officers’ liability insurance and
provision of indemnity on the same basis
as other directors and officers of other
Group companies
• The board may introduce additional
benefits for the Chairman or non-
executive directors if it is considered
appropriate to do so
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67
C O R P O R A T E G O V E R N A N C E
R E M U N E R A T I O N P O L I C Y C O N T I N U E D
Terms and conditions for the Chairman and non-executive directors
Nigel Northridge was appointed as a non-executive director of the Company on 1 January 2010 and became Chairman on 1 April 2010.
His appointment as Chairman is subject to the terms of a letter of appointment dated 28 January 2010 and his initial appointment was
for three years ending on 31 March 2013. This was extended by mutual agreement for a further three years to 31 March 2016 and may
be extended by further terms of three years by mutual agreement.
The Chairman’s appointment may be terminated by the Company in accordance with the Company’s Articles of Association and the
Companies Act 2006 or upon the Chairman’s resignation. In the event that the Chairman’s appointment is terminated early, there will
be no payment for loss of office or for the unexpired appointment term. The Chairman is permitted to hold other directorships
provided that any such appointment does not interfere with his position at the Company.
The non-executive directors have letters of appointment from the Company covering matters such as duties, time commitment, fees
and other business interests. The non-executive directors are appointed for an initial three years which may be extended for further
terms of three years by mutual agreement. Both Martina King and Sophie Turner Laing were appointed for a further three years
to 31 July 2015 following the end of their initial engagement on 31 July 2012. Mark Rolfe was appointed for a further three years to
30 September 2016 following the end of his initial engagement on 1 October 2013. Dennis Millard was appointed on 9 May 2006 and
following two three year terms his appointment has been extended on an annual basis.
Non-executive director appointments may be terminated by the Company in accordance with the Company’s Articles of Association
and the Companies Act 2006 or upon the director’s resignation. In the event that a non-executive director’s appointment is terminated
early, there will be no payment for loss of office or for the unexpired appointment term. Dennis Millard’s appointment may be
terminated by either party giving one month’s notice. Dennis Millard is not eligible for any payment in lieu of notice.
All appointments are subject to the Company’s Articles of Association and the annual re-election by shareholders. The service
agreements for non-executive directors are available to shareholders to view on request from the Company Secretary at the
Company’s registered office.
Considering all-employee remuneration arrangements
When determining remuneration policy and arrangements for the executive directors, the Committee considers pay and employment
conditions elsewhere in the Group to ensure that pay structures throughout the Group are appropriately aligned and that levels of
remuneration remain appropriate in this context.
When considering salary increases for the executive directors, the Committee considers the general level of salary increase across
the Group. Whilst the Committee does not consult with employees about executive director pay, the Committee is provided with
an annual update of the Debenhams employee survey which includes questions on their own remuneration.
The remuneration arrangements for the members of the Executive Committee who are not executive directors fall within the
Committee’s remit engendering a common approach to the design of reward and determining reward outcomes for the most
senior people within the organisation.
Considering shareholder views
The Committee is committed to an ongoing dialogue with shareholders and seeks shareholder views when any significant changes
are being made to remuneration arrangements. Over the last few years the Committee has consulted with shareholders regarding
the performance measures for the PSP and the use of the DBMP. The Committee takes into account the views of shareholders when
formulating and implementing the policy as it has done this year when it consulted with major shareholders on the changes to the PSP
performance measures.
Debenhams plc Annual Report & Accounts 2014
68
T H E A N N U A L R E P O R T O N R E M U N E R A T I O N
This report sets out details of the implementation of the remuneration policy during 2014 and provides details as to how the Committee
intends to implement the policy during 2015. This part of the report will be subject to an advisory shareholder vote at the 2014 AGM.
This report contains unaudited information except where stated that it is audited.
What did executive directors earn in respect of 2014 and 2013? (audited)
The table below sets out a single figure of remuneration for each executive director for 2014 and 2013.
2014
2013
Executive
director
Base
salary
Benefits
Retirement
benefits
Bonus
PSP
awards
Total
Base
salary
Benefits
Retirement
benefits
Bonus
PSP
awards
Total
Michael Sharp
– Chief Executive £615,000
£34,999 £141,500
Nil £207,235 £998,734 £615,000
£36,896
£102,500
Nil
Nil £754,396
Suzanne Harlow
– Group Trading
Director1
Former directors
Simon Herrick
– former CFO
£289,743
£11,687
£54,554
Nil
N/A £355,984
N/A
N/A
N/A
N/A
N/A
N/A
£143,6022
£6,224
£21,540
Nil
Nil £171,366 £410,000
£18,375
£61,500
Nil
Nil £489,875
1 Appointed 11 December 2013.
2
Includes pensionable holiday pay.
The following provides details of how the single figure for 2014 has been calculated:
• Base salary – The executive directors did not receive a salary increase for 2014. Simon Herrick’s base salary is in respect of the period
to 2 January 2014. Suzanne Harlow’s base salary is in respect of the period 11 December 2013 to 30 August 2014.
• Benefits – Executive directors receive a benefits allowance which can be used to purchase benefits under the Group scheme.
In addition, the executive directors receive life assurance. The Chief Executive also receives a financial planning allowance, a travel
allowance and a fuel allowance. The value of the benefits allowance and the additional benefits is included in the table above. The
Group Trading Director used a part of her benefits allowance (£7,692) to purchase an additional five days’ holiday during the year.
This amount has not been reflected in the above figures.
• Retirement benefits – Michael Sharp is a deferred member of the Debenhams Executive Pension Plan. The increase in his accrued
pension, calculated using the methodology set out in the revised remuneration reporting regulations, was £18,500. Michael Sharp
received a cash contribution in lieu of pension of 20% of base salary (£123,000). Suzanne Harlow is a deferred in service member of
the Debenhams Executive Pension Plan. The increase in her accrued pension, calculated using the methodology set out in the
revised remuneration reporting regulations, was £5,298. Suzanne Harlow also received a cash contribution in lieu of pension of 17%
of base salary (£49,256). Simon Herrick received a cash contribution (£21,540) in lieu of pension of 15% of base salary for the period in
which he was employed.
• PSPs due to vest in 2014 (in respect of the performance period 4 September 2011 to 30 August 2014) – The PSP value shown
in the single figure is for the award expected to vest in November 2014. The share price used to calculate the single figure is based
on the three month average share price to 30 August 2014 (67.43 pence).
Performance
measure
Absolute EPS
growth per
annum
Weighting
Threshold
target
(30% vests)
Maximum
target
(100% vests)
Outcome
Vesting
(% of maximum)
75%
6%
12%
-6.3%
0%
2011 PSP awards
Average ROCE
vs the cost
of capital
25%
Average
ROCE equal
to the cost
of capital
Average
ROCE equal
to the cost of
capital plus 5%
Average ROCE
exceeded the
cost of capital
by 4.1%
22%
Suzanne Harlow also received a PSP award in 2011 but this has not been included in the single figure as it was granted prior to her
becoming an executive director.
• Annual bonus for 2014 – The maximum bonus for the year was 100% of base salary. The bonus for the period was based 80% on
PBT and 20% on a like-for-like sales growth and gross margin percentage matrix. Bonuses start accruing for meeting threshold levels
of performance, with the maximum bonus only being payable for achieving performance significantly in excess of this level. The PBT
target set was not met and the like-for-like sales and gross margin performance targets were not achieved. No bonus was therefore
paid in respect of 2014.
Debenhams plc Annual Report & Accounts 2014
69
C O R P O R A T E G O V E R N A N C E
T H E A N N U A L R E P O R T O N R E M U N E R A T I O N C O N T I N U E D
Pensions (audited)
Michael Sharp is a deferred member of the Debenhams Executive Pension Plan. Suzanne Harlow is a deferred in service member of the
Debenhams Executive Pension Plan. The table below shows the pension accrued at the year end.
Transfer value
as at
30 August
2014 of
accrued
pension as at
30 August
2014
(£)
Transfer value
as at
1 September
2013 of
accrued
pension as at
1 September
2013
(£)
Accumulated
total accrued
pension at
30 August
2014
(£)
211,476
38,895
6,584,718
5,656,919
916,800
772,367
Increase
in accrued
pension
during
the year
(£)
6,460
1,279
Increase
in accrued
pension
during
the year
(net of
inflation)
(£)
Increase in
transfer value
during the
period
(£)
925
265
927,799
144,433
Michael Sharp
Suzanne Harlow
Michael Sharp participated in the Debenhams Executive Pension Plan (a defined benefit plan) until 2006 when he ceased to participate
in the plan and is now a deferred member of this scheme. His normal retirement date under this plan is 31 March 2017. He is not entitled
to any additional benefits if he retires prior to this date; any benefits drawn early will be actuarially reduced to reflect early retirement.
He also receives a cash allowance in lieu of pension contribution of 20% of base salary.
Suzanne Harlow participated in the Debenhams Executive Pension Plan until 2006 when it was closed to future accruals and is now
a deferred in service member of this scheme. Her normal retirement date under this plan is 31 July 2026. She is not entitled to any
additional benefits if she retires prior to this date; any benefits drawn early will be actuarially reduced to reflect early retirement.
She also receives a cash allowance in lieu of pension contribution of 17% of base salary.
Scheme interests awarded during the financial year (audited)
No long-term incentive awards were granted during 2014.
Directors’ shareholdings and share interests (audited)
In order to align the interests of executive directors with those of shareholders and to demonstrate the executive directors’ ongoing
personal financial commitment to the business, executive directors are expected to build and maintain a holding of Debenhams shares
equal to one times base salary. Executives are expected to retain 50% of any post-tax shares that vest under any share incentive plans
until this shareholding is reached. The Committee expects executives to have met the shareholding guideline policy by the fifth
anniversary of their appointment as an executive director (or the introduction of the guidelines, if later). The value of their current
shareholding shown in the table below has been calculated using the three month average closing share price to the end of August
2014 and includes the net value of shares vested but not exercised under the Executive Share Option Plan.
Ordinary
shares held
as at
30 August
2014
Ordinary
shares held
as at
1 September
2013
Unvested
awards
subject to
performance
Unvested
options
subject to
performance
Vested
options not
exercised
Shareholding
requirement
(£)
Current
shareholding
(£)
Requirement
met?
Michael Sharp
– Chief
Executive
Suzanne Harlow
– Group Trading
Director
Former
directors
Simon Herrick
– CFO
6,460,0671
6,360,0671
2,391,314
545,366
545,3662
689,582
34,9003
34,900
0
0
0
0
473,961
615,000
4,539,492
169,689
400,000
440,417
Yes
Yes
0
410,000
N/A
N/A
1 Shareholding includes 374,392 ordinary shares held by The Sharp Discretionary Settlement of which Michael Sharp is a trustee.
2 Ordinary shares held at appointment to the board on 11 December 2013.
3 As at date of resignation from the board – 2 January 2014.
Debenhams plc Annual Report & Accounts 2014
70
Scheme interests (audited)
Performance Share Plan
Director
Michael
Sharp
Suzanne
Harlow
Former
directors
Simon
Herrick
Date of
award
1 November
2011
1 November
2012
1 November
2011
1 November
2012
1,396,973
994,341
378,346
311,236
1 November
2011
1 November
2012
620,877
331,447
Number
of shares
held at
1 September
2013
Shares
awarded
during
the year
Shares
forfeited
during
the year
Shares
exercised
during
the year
Number
of shares
held at
30 August
2014
Market
value
on date
of award
Earliest
date of
vesting
Expiry
date of
vesting
period
0
0
0
0
0
0
0
0
0
0
620,877
331,447
0
0
0
0
0
0
1,396,973
64.43
1.11.14
1.5.15
994,341
123.7
1.11.15
1.5.16
378,346
64.43
1.11.14
1.5.15
311,236
123.7
1.11.15
1.5.16
0
0
64.43
1.11.14
1.5.15
123.7
1.11.15
1.5.16
Executive Share Option Plan
Date of
award
Approved
scheme
24 November
2009
Unapproved
scheme
24 November
2009
Approved
scheme
24 November
2009
Unapproved
scheme
24 November
2009
Michael
Sharp
Suzanne
Harlow
Number
of shares
held at
1 September
2013
Shares
granted
during
the year
Shares
lapsed
during
the year
Shares
vested
during
the year
Number
of shares
held at
30 August
2014
Option
price
Earliest
date of
exercise
Expiry
date of
options
35,108
438,853
35,108
134,581
0
0
0
0
0
0
0
0
0
0
0
0
35,108
85.45
24.11.12
24.11.19
438,853
85.45
24.11.12
24.11.19
35,108
85.45
24.11.12
24.11.19
134,581
85.45
24.11.12
24.11.19
Payments to past directors (audited)
No payments were made to past directors during the year.
Payments for loss of office (audited)
Simon Herrick’s service agreement contained a notice period of 12 months. From 2 January 2014 monthly payments in lieu of notice
commenced, based on a base salary of £410,000, a flexible benefits payment of £18,375 per annum and an annual pension contribution of
£61,500; a total of £489,875 per annum. He was also provided with life assurance cover. Simon Herrick continues to receive these amounts in
12 monthly instalments; however, should he receive any payments as a result of alternative employment or provision of services during this
period, other than in respect of one non-executive position, subsequent instalments will be reduced by the amount of such payments.
The Company also agreed to a payment of up to £10,000 plus VAT in respect of his legal fees and a £10,000 plus VAT contribution to
outplacement support. The Committee agreed to these payments to assist in a smooth succession process for the benefit of the business.
Debenhams plc Annual Report & Accounts 2014
71
C O R P O R A T E G O V E R N A N C E
T H E A N N U A L R E P O R T O N R E M U N E R A T I O N C O N T I N U E D
Simon Herrick did not receive a bonus in respect of 2014. All unvested awards under the PSP were forfeited.
Total shareholder return performance graph
The performance graph below shows the Company’s total shareholder return (TSR) against the FTSE 350 General Retailers Index over
the period from 29 August 2009 to 30 August 2014. The General Retailers Index has been chosen as Debenhams has been a member
throughout the period and it is made up of a broad spectrum of retail competitors (including major general retail listed comparators)
in the principal product areas in which the Company trades.
250
200
150
100
50
0
29 Aug 09
28 Aug 10
3 Sep 11
1 Sep 12
31 Aug 13
30 Aug 14
Source: DataStream
Debenhams
FTSE 350 General Retailers
Historical Chief Executive pay
The table below sets out details of the Chief Executive’s pay for the current year and the previous four years and the payout of incentive
awards as a proportion of the maximum opportunity for each period. The Chief Executive’s pay is calculated as per the single figure of
remuneration shown on page 69.
2010*
2011*
2012
2013
2014
Single figure of total remuneration
£1,477,607
£1,044,515
£1,288,857
£754,396
£998,734
Annual variable element award rates against
maximum opportunity
Long-term incentive vesting rates against
maximum opportunity
100%
33.3%
40%
N/A
N/A
PSP: 32%
ESOP: 100%
0%
N/A
0%
22%
* The Chief Executive position for the period 2009-2011 was held by Rob Templeman. The Chief Executive position for 2012-2014 has been held by the current incumbent
Michael Sharp who previously held the role of Deputy Chief Executive.
Percentage change in remuneration of the Chief Executive
The change in remuneration from 2013 to 2014 of the Chief Executive and the Group’s UK employee population is shown below. This
group has been chosen as the comparator group as the majority of Debenhams employees are based in the UK.
Base salary
Benefits
Bonus
Chief
Executive
UK
employees
(Average FTE)
0%
-5%
-%*
3%
9%
-100%
* No bonus was paid to the Chief Executive in respect of 2013 and 2014.
Relative importance of spend on pay
The chart below sets out the amounts paid in 2013 and 2014 in respect of the remuneration of all employees and dividends
to shareholders.
£m
400
300
200
100
0
Profit before tax
Dividends declared during the year
Overall expenditure on
remuneration for all employees
(1.6%)
(24%)
2013
2014
2013
(0.5%)
2014
2013
2014
Debenhams plc Annual Report & Accounts 2014
72
Implementation of the remuneration policy for executive directors in 2015
Components of remuneration
The following table provides a summary of the different elements of pay that will be operated for 2015.
Fixed pay
Base salary + benefits + pension
Performance-related pay
Cash bonus one year
Performance share plan three year
Short-term performance
Long-term performance
100% financial
70% EPS growth, 30% strategic measures
Base salary
Executive director salaries as at 1 September 2014 are as follows:
Chief Executive, Michael Sharp
Chief Financial Officer, Matt Smith*
Group Trading Director, Suzanne Harlow
*Salary to be paid upon joining the Company.
£615,000
£400,000
£400,000
The annual salary review date for the executive directors going forward will be 1 April in line with the new single annual review date
of the rest of the management population and may take into account the movement in the review date.
Annual bonus
The Committee has decided to base the annual bonus for 2015 entirely on underlying profit before tax in order to simplify the plan and
to ensure that executives are focused on increasing profit.
Specific targets are not disclosed because they are considered to be market sensitive by the Committee.
The maximum bonus opportunity will remain at 100% of base salary, payable in cash.
The bonus will begin accruing for delivering threshold levels of performance with the maximum bonus only being payable on the
delivery of performance significantly in excess of plan.
Debenhams’ Performance Share Plan
It is intended that a PSP award will be granted to the Chief Executive of 150% of base salary for 2014, in line with the usual limit.
For the first year of his appointment, the Chief Financial Officer will be awarded a PSP award of 200% of base salary. The Committee
determined that this level of award was appropriate to compensate him for awards forfeited on leaving his previous employer (no
further “buyout” awards have been made) and to provide an additional incentive to drive the performance of the business in the initial
period of his tenure. His normal annual PSP award will be 100% of base salary.
As part of her appointment to the board, the Group Trading Director will be awarded a 2014 PSP award of 150% of base salary as an
incentive to drive performance and to recognise the increased scope of her role on appointment to the board. Her normal annual PSP
award will be 100% of base salary.
In light of both the ongoing challenges within the UK retail sector and our evolving business strategy, the Committee has decided
that it is appropriate to amend the performance measures attached to 2015 PSP awards to ensure that they are fully aligned with
our strategy and to incentivise management to deliver long-term sustainable value for our shareholders.
Debenhams plc Annual Report & Accounts 2014
73
C O R P O R A T E G O V E R N A N C E
T H E A N N U A L R E P O R T O N R E M U N E R A T I O N C O N T I N U E D
Going forward, awards will be based 70% on absolute underlying EPS growth targets and 30% on financial measures that underpin our
strategy. The Committee feels that it is important that EPS is retained as the primary measure for the PSP to ensure management is
incentivised to continue to drive sustainable earnings improvement and is rewarded for generating bottom line value for shareholders.
At the 2014 interim results, Chief Executive Michael Sharp set out the strategic priorities in support of our strategy to build a leading
international, multi-channel brand. Financial strategic objectives for the PSP have therefore been selected to reflect these priorities
under the four pillars of the strategy. These measures, and their relevance and linkage to the strategy, are as follows:
Strategic measures for 2015:
Key strategic pillars
Delivering a compelling
customer proportion
Proposed metric
(7.5% of award each)
Rationale
Group gross margin improvement We have commenced a programme to refocus our
Increasing availability and choice
through multi-channel
Online EBITDA growth rate
Focusing on UK retail
UK gross transaction value
growth (UK GTV)
Expanding the brand
internationally
International EBITDA growth rate
approach to promotions which, over time, will result in
a reduction of the number of days we are on promotion
as well as improving clarity around value. The result will
be higher full price sales and lower markdown. This will
ultimately lead to an increase in Group gross margin which
the Committee believes is an appropriate measure of the
success of this strategy.
Over the next three years we will be making significant
changes to our multi-channel fulfilment operations to
improve convenience and cost effectiveness. This will
drive sales, allow us to recover a high proportion of
delivery costs and achieve a significant reduction in
the cost per unit of fulfilment.
The result of this work will be an improvement in the
rate of online EBITDA growth which has therefore been
adopted as a strategic measure.
Currently c.10% of our UK store space is sub-optimal in
terms of sales density. We have set out a space optimisation
plan to address this by introducing additional choice of
products and brands in our stores to drive footfall, improve
sales density and increase total sales. This will enable us to
improve the return on the store cost base.
The Committee believes UK GTV is an appropriate measure
as it reflects increased sales through stores and recognises
the importance of stores in generating multi-channel sales
through maintaining Debenhams’ profile in the marketplace
and as locations for click and collect.
The international business will be a substantial and
growing part of Debenhams over next ten years.
Our existing international activities show that we
have a credible, exportable proposition which has the
capacity to generate significant shareholder value.
Through the PSP, management will be incentivised
to continue to drive profit growth from the
international business.
The intention is that the precise strategic measures used will be reviewed each year to ensure that they continue to be appropriate and
aligned with strategy. Each strategic measure will vest independently.
In order for the award to vest, the Committee must be satisfied that the underlying financial performance of the Company over the
performance period is sufficient to justify the vesting of the award and, specifically, vesting of any strategic measure will be subject to a
ROCE underpin. The definition of ROCE has been refined from previous years and capital employed will include a capitalised value of
future store rental payments and profitability items on a pre-rental basis.
Debenhams plc Annual Report & Accounts 2014
74
Having reviewed the EPS targets for the PSP the Committee decided to set the target range at 3% per annum (25% vesting) to 10% per
annum (100% vesting). The Committee considers that these targets are appropriate in the context of the outlook for the UK retail sector
over the next few years and believes that the current market consensus is at the lower end of this range.
Each financial strategic measure will be subject to a single performance test (ie each measure will either vest at 0% or in full). Financial
strategic targets are specific, measurable and the performance hurdle is set at a level which is considered by the Committee to be
sufficiently stretching. The financial targets for the strategic measures are considered by the board to be market sensitive and therefore
we will not disclose these measures at the current time. However, indications of performance against strategic targets will be provided
during the vesting period. We will also disclose the targets in full, along with actual performance against targets, at the time of vesting.
The Debenhams Retail Employee Trust 2004
The Debenhams Retail Employee Trust 2004 (“the Trust“) currently holds 473,537 shares in the Company. 200,000 shares are held in the
Trust to satisfy a potential award made under the Debenhams 2008 Share Incentive Plan (a plan for employees who are not executive
directors). Dividends arising on the shares held in the Trust are waived on the recommendation of the Company.
Funding of share schemes
It is the Company’s current intention to satisfy any future requirements of its share schemes in a method best suited to the interests of
the Company, either by utilising shares held as treasury shares, acquiring shares in the market or issuing new shares. Where the awards
are satisfied by newly issued shares or treasury shares, the Company will comply with Investment Management Association guidelines
on shareholder dilution.
Current levels of shareholder dilution are 0.70% (2013: 0.83%) of share capital.
What did non-executive directors earn in respect of 2014 and 2013? (audited)
The table below sets out the fees payable to each director not performing an executive function in respect of 2014 and 2013.
2014
2013
Fees
Benefits
Total
Fees
Benefits
Total
£175,000
0 £175,000
£175,000
0
£175,000
Nigel
Northridge
Non-executive Chairman, Chairman of
Nomination Committee, member of
Remuneration Committee
Dennis
Millard
Martina
King
Senior Independent Director, Chairman of
Remuneration Committee, member of Audit
and Nomination Committees
Chairman of sustainability committee, member
of Remuneration, Audit and Nomination
Committees
£65,000
0
£65,000
£65,000
£55,000
0
£55,000
£55,000
Mark Rolfe
Chairman of Audit Committee, member of
Remuneration and Nomination Committees
£55,000
Sophie
Turner Laing
Member of Remuneration, Audit and Nomination
Committees
£47,500
Peter
Fitzgerald
Stephen
Ingham
Member of Audit Committee
£42,500
Member of Remuneration Committee
£42,500
0
0
0
0
£55,000
£54,971
£47,500
£47,500
£42,500
£38,494
£42,500
£27,734
Non-executive directors do not participate in the annual bonus plan or any long-term incentive plans.
Debenhams plc Annual Report & Accounts 2014
75
0
0
0
0
0
0
£65,000
£55,000
£54,971
£47,500
£38,494
£27,734
C O R P O R A T E G O V E R N A N C E
T H E A N N U A L R E P O R T O N R E M U N E R A T I O N C O N T I N U E D
The total interests of the Chairman and non-executive directors in the share capital of the Company as at 30 August 2014 are shown below.
Director
Nigel Northridge
Peter Fitzgerald
Stephen Ingham
Martina King
Dennis Millard
Mark Rolfe
Sophie Turner Laing
Ordinary
shares held
as at
1 September
2013
Ordinary
shares held
as at
30 August
2014
Ordinary
shares held
as at
23 October
2014
100,000
100,000
100,000
0
0
10,000
69,455
30,000
20,000
0
0
10,000
69,455
30,000
20,000
0
0
10,000
69,455
30,000
20,000
Note: The information in the table above is audited.
Implementation of non-executive director remuneration policy in 2015
There were no changes to non-executive directors’ fees with effect from 1 September 2014.
Fees for the year are as follows:
• Basic fee – £40,000
• Senior Independent Director – £10,000
• Committee chairmanship fee (Audit and Remuneration) – £10,000
• Committee chairmanship fee (Sustainability) – £7,500
• Committee membership fee (per committee) – £2,500
Consideration of matters in relation to directors’ remuneration
Committee members
The Committee chairman, Dennis Millard, is joined by Nigel Northridge, Stephen Ingham, Martina King, Mark Rolfe and Sophie Turner
Laing to form the Committee. Details of the members’ background and experience is provided within their biography on pages 42
and 43.
Director
Position
Dennis Millard, Committee chairman
Senior Independent Director
Stephen Ingham
Martina King
Nigel Northridge
Mark Rolfe
Sophie Turner Laing
Independent non-executive director
Independent non-executive director
Independent non-executive Chairman
Independent non-executive director
Independent non-executive director
Number of meetings held
and attended during the year
(of those eligible to attend)
4/5*
5/5
5/5
5/5
5/5
5/5
*Dennis Millard was unable to attend the meeting in June 2014 due to a family bereavement.
Role of the Committee
The full terms of reference for the Committee, which are reviewed annually, are available on the Company’s website at
http://debenhamsplc.com. In summary, the Committee has responsibility for determining all elements of the remuneration of the
executive directors and the Company Secretary together with the provisions of their service agreements, reviewing the bonus structure
for the Executive Committee, reviewing the appropriateness and relevance of the Company’s remuneration policy (taking into account
the remuneration arrangements and levels across the Company) and administering all aspects of any share incentives in operation for
senior management. The remuneration of the non-executive directors is a matter for the Company’s Chairman and the executive
members of the board.
Debenhams plc Annual Report & Accounts 2014
76
The Committee’s main activities during the year
• Approved the directors’ remuneration report for 2013
• Reviewed performance against targets for the executive directors’ 2014 bonuses
• Reviewed performance against targets for the executive directors’ 2012 PSP awards
• Reviewed the executive remuneration strategy for 2015
• Reviewed the operation of the PSP, in particular the performance measures for 2015
• Approved the executive directors’ bonus plan for 2015
• Agreed the leaver arrangements for Simon Herrick, the former Chief Financial Officer
• Agreed the remuneration package for the new Chief Financial Officer, Matt Smith, and the Group Trading Director, Suzanne Harlow,
upon her appointment to the board
• Evaluated the performance of the Committee
• Reviewed the revised reporting regulations and prepared a new look directors’ remuneration report
• Consulted with shareholders on certain aspects of the remuneration policy
Performance evaluation of the Committee
This year’s formal evaluation of the Committee was conducted by Lintstock Ltd, an external facilitator.
The Committee considered the results of the review at its meeting in October 2014 and concluded that the Committee continues to be
effective, uses its time effectively and has the correct composition. The quality of the information it receives was highly rated.
The review identified certain areas where the Committee would benefit from additional support and the Chairman and the Company
Secretary are to look at these issues.
Advisors to the Committee
In performing its duties, the Committee has received advice from Deloitte LLP (“Deloitte”) who acted as external advisors to the
Committee throughout the financial year, providing independent advice on directors’ remuneration and share incentives. The fees
for advice provided to the Committee during the financial year were £39,000.
Deloitte is one of the founding members of the Remuneration Consulting Group (“RCG“) and complies with the voluntary code
of conduct in respect of the provision of remuneration consulting services. Deloitte provides industry and comparative employee
remuneration data to Debenhams’ management. Deloitte also provided unrelated advisory services in respect of corporate and
employment taxes during the year.
Deloitte was appointed by the Committee. It is the view of the Committee that the Deloitte LLP engagement partner and team that
provide remuneration advice to the Committee do not have connections with Debenhams that may impair their independence. The
Committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts.
During the year, the Committee undertook an evaluation of its advisors and concluded that the advice received is independent.
The Chief Executive and HR Director have attended certain Committee meetings and provided advice to the Committee during
the year. They are not in attendance when matters relating to their own compensation or contracts are discussed.
Summary of shareholder voting
Debenhams remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. In the event of a
substantial vote against a resolution in relation to directors’ remuneration, Debenhams would seek to understand the reasons for any
such vote and would set out in the following annual report and accounts any actions in response to it.
The following table sets out actual voting in respect of our previous report:
2013 directors’ remuneration report (December 2013 Annual General Meeting)
9,629,523 votes were withheld in relation to this resolution (c.0.79% of share capital).
On behalf of the board
Dennis Millard
Chairman of the Remuneration Committee
23 October 2014
Debenhams plc Annual Report & Accounts 2014
77
For
99.58%
Against
0.42%
C O R P O R A T E G O V E R N A N C E
D I R E C T O R S ’ R E P O R T
The Company is required by the Companies
Act 2006 to include a strategic report within
the directors’ report. The directors’ report
of Debenhams plc for the year ended
30 August 2014 therefore comprises these
pages and the information referred to in the
table opposite, all of which are incorporated
into this report by reference.
The contents of the directors’ report have
been drawn up and presented in accordance
with, and in reliance upon, applicable
English company law and any liability of
the directors is restricted to the extent
prescribed by the Companies Act 2006.
Profit and dividends
The profit after tax for the financial year
ending 30 August 2014 was £87.2 million
(2013: £115.9 million adjusted for IAS 19
revised). The directors recommend the
payment of a final dividend of 2.4 pence
per ordinary share, to be paid on 9 January
2015 to members on the register at the
close of business on 5 December 2014.
This, together with the interim dividend of
1.0 pence per share paid in July, gives a
full year dividend of 3.4 pence per share.
Directors
The following persons were directors of
the Company during the year ended
30 August 2014 and, unless otherwise
stated, at the date of this annual report:
Nigel Northridge
Michael Sharp
Suzanne Harlow (appointed 11 Dec 2013)
Simon Herrick (resigned 2 Jan 2014)
Dennis Millard
Peter Fitzgerald
Stephen Ingham
Martina King
Mark Rolfe
Sophie Turner Laing
The membership of the board and
biographical details of the directors are
given on pages 42 and 43. The business
of the Company shall be managed by the
board who may exercise all the powers of
the Company, subject to the provisions of
the Companies Act 2006, the Company’s
Articles of Association and any shareholder
resolution. In accordance with the
Company’s Articles of Association, the
directors shall be no less than two and no
more than 25 in number. Directors may be
appointed by the Company by ordinary
resolution or by the board. A director
Information
Location in annual report
Review of the business,
principal risks and uncertainties and KPIs
Market overview, Chief Executive’s report,
KPI’s, risk review and financial review
Strategy
Business model and strategy, strategy
at a glance
Business model
Business model and strategy
Future business developments
Chief Executive’s report, strategy
at a glance
Greenhouse gas emissions
Resources, relationships and sustainability
Environmental matters, employees
and social, community and human
rights issues (including information
about the Company’s policies in
relation to these matters)
Employment policy for disabled
persons and employee engagement
throughout the workforce
Resources, relationships and sustainability,
directors’ report
Directors’ report
Gender diversity of the board
Corporate governance report
appointed by the board holds office only
until the next Annual General Meeting.
The Company may, by ordinary resolution,
remove any director from office. The office
of a director shall be vacated if s/he
(i) resigns or retires; (ii) becomes bankrupt or
makes an arrangement or composition with
his or her creditors generally; (iii) becomes
physically or mentally incapable of acting
as a director and may remain so for more
than three months, or by reason of his or her
mental health a court has made an order
that prevents the director from acting and,
in either case, the board resolves that his or
her office is vacated; (iv) has been absent for
more than six consecutive months without
the board’s permission from meetings of the
board held during that period and his or her
alternate director (if any) has not attended in
his or her place during that period and
board resolves that his/her office be
vacated; and (v) receives a notice signed by
not less than three quarters of the other
directors stating that that person should
cease to be a director. Any amendments to
the Company’s Articles of Association may
be made in accordance with the Companies
Act 2006 by way of special resolution.
In accordance with the UK Corporate
Governance Code, all of our directors will
retire at the forthcoming Annual General
Meeting of the Company and offer
Debenhams plc Annual Report & Accounts 2014
78
themselves either for election, in the case
of Suzanne Harlow, or for re-election, in
the case of all other directors. A formal
evaluation of the performance of each
director and of the board has been
carried out and the performance of each
of them continues to be effective and to
demonstrate commitment to his or her role.
There is more information on the evaluation
and its outcome within the corporate
governance report on page 48.
In addition to the indemnity provisions in
their Articles of Association, the Company
and other Group companies have entered
into a direct indemnity agreement with
each of the directors and certain other
officers or senior employees of the Group.
These indemnities constitute qualifying
indemnities for the purposes of the
Companies Act 2006 and remain in force at
the date of approval of this report without
any payment having been made under
them. The Company also maintains
directors’ and officers’ liability insurance
which gives appropriate cover for any legal
action brought against its directors.
No director had, during or at the end
of the year, any material interest in any
contract of significance in relation to the
Group’s business.
Interests in voting rights
In accordance with Listing Rule 9.8.6(2)(a), the following investor interests have been
disclosed to the Company pursuant to the Disclosure and Transparency Rules as at
30 August 2014:
Shareholder
Number
of shares
Percentage
of voting rights
Schroder Investment Management
179,585,845
14.65%
Milestone Resources Group Ltd
The Goldman Sachs Group Inc
Bestinver Gestión, S.A.
LSV Asset Management
GIC Private Limited
Norges Bank
89,183,155
73,655,413
60,554,248
59,976,652
50,069,986
37,407,430
7.27%
6.00%
4.94%
4.89%
4.08%
3.05%
In accordance with Listing Rule 9.8.6 (2)(b), the following notifications have been received
during the period 31 August 2014 to 10 October 2014:
Date of notification
Shareholder
Number
of shares
Percentage
of voting rights
2 September 2014
3 October 2014
Schroder Investment
Management
Sports Direct
International plc
167,887,912
13.69%
56,381,164
4.6%
Share buyback programme
At the December 2013 Annual General
Meeting, shareholders authorised the
Company to purchase up to 122,651,325
ordinary shares in the market. However,
on 31 December 2013, the Company
announced that the share buyback
programme which commenced in April
2012 would cease with immediate effect.
As at 30 August 2014 the Company had
purchased 61,793,402 ordinary shares of
0.01 pence at a total cost of £60.3 million
of which 14,351,525 ordinary shares of
0.01 pence were purchased (representing
1.1% of the Company’s share capital) at a
cost of £15.1 million during 2014. All shares
purchased and retained by the Company
are held in treasury. 429,108 treasury shares
were transferred out of treasury during the
year to satisfy awards granted under the
Company’s share plans.
Although the share buyback programme
has ceased, approval will be sought from
shareholders at the forthcoming Annual
General Meeting to renew its authority to
purchase shares in the market for a further
year. This is a standard authority and it is
the Company’s present intention, should
shares be bought back, for them to be
cancelled or retained in treasury pending
a subsequent sale, cancellation or transfer.
The Company will only buy back shares if
the directors believe that it is in shareholders’
best interests and will increase earnings
per share.
Share capital
The issued share capital of the Company
and the number of shares held in treasury
as at 30 August 2014 are shown in note 27
to the financial statements on pages 129
and 130. In addition to the shares trading
on the London Stock Exchange, the
Company operates a level 1 American
depositary receipt (ADR) programme.
Each American depositary share (ADS)
represents four ordinary shares of 0.01
pence each.
Voting rights
If voting on a resolution at any general
meeting of the Company is on a show of
hands, every member present in person
has one vote and every proxy appointed
by one or more members has one vote
regardless of the number of shares held
by the shareholder or represented by the
proxy. On a poll, every shareholder who is
present in person or by proxy has one vote
for every share held by that shareholder but
a shareholder or proxy entitled to more
than one vote need not cast all his/her
votes or cast them all the same way.
No member shall be entitled to vote at any
general meeting of the Company, either in
person or by proxy, in respect of any share
held unless all moneys payable in respect
of that share have been paid. There are no
known arrangements which may restrict
voting rights.
The Debenhams Retail Employee Trust
2004 (“the Trust”) holds 473,537 ordinary
shares in the Company (0.04%). Any voting
or other similar decisions relating to the
shares held by the Trust would be taken by
the trustees, who may take account of any
recommendations of the Company.
Transfer of shares
Any member may transfer all or any of his
or her certificated shares by an instrument
of transfer in any usual form or in any form
which the board may approve. The board
may, in its absolute discretion, decline to
register any instrument of transfer of a
certificated share which is not a fully paid
share (although not so as to prevent
dealings in shares taking place on an
open and proper basis). The board may
also refuse to register the transfer of a
certificated share where the instrument
of transfer is invalid. There are no known
arrangements which may restrict the
transfer of shares.
Significant agreements
There are no significant agreements to
which the Company is a party which take
effect, alter or terminate in the event of
change of control of the Company
except that:
• The multi-currency revolving credit
facility dated 18 June 2014 contains
mandatory prepayment
• The terms and conditions of the 5.25%
senior notes due 2021 contain a
requirement for the Company to make
an offer to re-purchase all of the notes
at a price equal to 101% of the principal
amount thereof, plus any accrued
unpaid interest
• The supplier agreements with certain
major cosmetic suppliers contain
termination provisions on change
of control
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79
C O R P O R A T E G O V E R N A N C E
D I R E C T O R S ’ R E P O R T C O N T I N U E D
There are no agreements providing for
compensation for directors or employees
on change of control. Details concerning
the impact on share options and share
awards held by directors or employees
in the event of a change of control are
set out on page 66 of the directors’
remuneration report.
Essential contracts
Debenhams has contractual arrangements
with many organisations but no one
contract is so material as to be essential
to our business, with the exception of the
warehouse operators and the e-commerce
platform provider.
Employees
Debenhams directly employs some 28,000
people in the UK, the Republic of Ireland,
Bangladesh, Hong Kong and Denmark.
Debenhams is committed to ensuring that
employees or applicants for employment
are treated equally regardless of gender,
race, ethnic or national origin, religious,
political or philosophical beliefs, disability,
marital or civil partnership status, sexual
orientation, gender reassignment and age.
Through our equal opportunities policy we
aim to create an environment that offers all
employees the chance to use their skills
and talent.
As part of the Company’s policy on
equality of opportunity, decisions on
recruitment, training, promotion, pay terms
and conditions and leavers are based solely
on objective, job-related criteria and
personal competence and performance.
The Company seeks wherever possible to
make reasonable adjustments to ensure
that an employee who becomes disabled
during the course of his or her employment
is able to continue working effectively. This
includes: providing equipment or altering
working arrangements; providing
additional training; re-allocating on a
temporary or permanent basis some of
the employee’s duties to other members
of staff; transferring the employee to a
suitable alternative role; and adjusting
working times. Any such adjustment will be
monitored and reviewed on a regular basis
to ensure it continues to be effective.
Business information and key messages are
cascaded to all employees throughout the
business via personal briefings and email.
Briefings are also held by the Chief
Executive and members of the Executive
Committee to update employees on the
performance of the Company and the
Company’s strategy. The Employee
Consultation Forum, which is attended by
elected representatives from stores and
head office, is another medium by which
employees receive information on the
Company as well as giving employees the
opportunity to be consulted on certain
activities of the business.
Human rights
The Company has a number of policies in
place to protect and promote employee
welfare and is committed to supporting all
human rights in our business operations
and in our relationships with our suppliers
and other stakeholders.
Political donations
There were no disclosable expenses made
during the financial year which fall within
the definition of a political donation under
the Political Parties, Elections and
Referendums Act 2000. It is the Group’s
policy not to make donations to political
organisations or independent election
candidates or incur political expenditure.
Financial instruments
Debenhams does not enter into financial
instruments for speculative trade.
Details of financial instruments entered
into for underlying risks are set out in
note 22 on pages 122 and 123 of the
financial statements.
Going concern
After making enquiries, the directors
consider that the Group has adequate
resources to continue in operation for the
foreseeable future. For this reason, they
have adopted the going concern basis
in preparing the financial statements.
Corporate governance statement
In accordance with the Financial Services
Authority’s Disclosure and Transparency Rule
(“DTR”) 7.2.1, the disclosures required by
DTR 7.2.2R to DTR 7.2.7 and DTR 7.2.10 are
within the corporate governance report on
pages 44 to 53 and risk review on pages 26
and 27 and are therefore incorporated into
this report by reference.
Disclosure of information
to auditors
Each of the directors of the Company at
the time when the directors’ report was
approved confirms that:
a) So far as the director is aware, there is no
information needed by the Company’s
auditors in connection with preparing their
report of which the Company’s auditors
are unaware; and
b) s/he has taken all the steps that s/he
ought to have taken as a director in order
to make herself or himself aware of any
information needed by the Company’s
auditors in connection with preparing
the report and to establish that the
Company’s auditors are aware of
that information.
Independent auditors
PricewaterhouseCoopers LLP has indicated
its willingness to continue in office and a
resolution dealing with its re-appointment as
auditors of the Company will be proposed at
the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting of Debenhams
plc will be held at Debenhams’ head office,
10 Brock Street, Regent’s Place, London
NW1 3FG on Tuesday 9 December 2014 at
2.00pm. The notice is given, together with
explanatory notes, in the booklet which
accompanies this report.
The directors’ report was approved by a duly
appointed and authorised committee of the
board of directors on 23 October 2014 and
signed by its order by Paul Eardley,
the Company Secretary.
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80
S T A T E M E N T O F D I R E C T O R S ’
R E S P O N S I B I L I T I E S
• The strategic report contained in this
report includes a fair review of the
development and performance of
the business and the position of the
Company and the Group, together with
a description of the principal risks and
uncertainties that it faces
• The directors consider that the
annual report and accounts, taken
as a whole, is fair, balanced and
understandable and gives shareholders
the information needed to assess the
Group’s performance, business model
and strategy.
On behalf of the board
Michael Sharp
Chief Executive
23 October 2014
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose with
reasonable accuracy at any time the
financial position of the Company and the
Group and enable them to ensure that the
financial statements and the directors’
remuneration report comply with the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation. They are also responsible
for safeguarding the assets of the
Company and the Group and hence
for taking reasonable steps for the
prevention and detection of fraud
and other irregularities.
The directors are responsible for
maintenance and integrity of the
Company’s website. Legislation in
the United Kingdom governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Responsibility statement
Each of the directors, whose names and
functions are detailed on pages 42 and 43,
confirms that to the best of his/her
knowledge:
• The Group financial statements, which
have been prepared in accordance with
IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities,
financial position and profit of the Group
The directors are responsible for preparing
the annual report, the directors’
remuneration report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors to
prepare financial statements for each
financial year. Under the law, the directors
have elected to prepare the Group
financial statements in accordance with
International Financial Reporting Standards
(“IFRSs”) as adopted by the European
Union (“EU”) and the Company financial
statements in accordance with United
Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards and applicable law). Under
company law, the directors must not
approve financial statements unless they
are satisfied that they give a true and fair
view of the state of affairs of the Group and
the Company and of the profit or loss of
the Group for that period. In preparing
these financial statements, the directors
are required to:
• Select suitable accounting policies
and then apply them consistently
• Make judgements and accounting
estimates that are reasonable
and prudent
• State whether IFRSs as adopted by
the EU and applicable UK Accounting
Standards have been followed, subject
to any material departures disclosed
and explained in the Group and
Company financial statements
respectively
• Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business
Debenhams plc Annual Report & Accounts 2014
81
In this section
84 Independent auditors’ report to the members
of Debenhams plc (Group)
90 Consolidated income statement
91 Consolidated statement of
comprehensive income
92 Consolidated balance sheet
93 Consolidated statement of changes
in equity
94 Consolidated cash flow statement
95 Notes to the financial statements
135 Five year record income statements
136 Five year record balance sheets
137 Independent auditors’ report to the
members of Debenhams plc (Company)
139 Company balance sheet
140 Notes to the Company financial statements
F I N A N C I A L
S T A T E M E N T S
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82
F I N A N C I A L
S T A T E M E N T S
Debenhams plc Annual Report & Accounts 2014
83
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S
O F D E B E N H A M S P L C ( G R O U P )
D E B E N H A M S P L C ( G R O U P )
Report on the Group financial statements
Our opinion
In our opinion, Debenhams plc’s Group financial statements (the “financial statements”):
• Give a true and fair view of the state of the Group’s affairs as at 30 August 2014 and of its profit and cash flows for the year
then ended;
• Have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the
European Union; and
• Have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
What we have audited
Debenhams plc’s financial statements comprise:
• The consolidated balance sheet as at 30 August 2014;
• The consolidated income statement and consolidated statement of comprehensive income for the year then ended;
• The consolidated cash flow statement for the year then ended;
• The consolidated statement of changes in equity for the year then ended; and
• The notes to the financial statements, which include a summary of significant accounting policies and other explanatory
information.
Certain required disclosures have been presented elsewhere in the annual report and accounts (the “annual report”),
rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and
IFRSs as adopted by the European Union.
Our audit approach
Overview
• Overall group materiality: £5.5 million which represents 5% of profit before tax.
• The Group is structured into two operating segments UK and International;
• We conducted our audit work on both operating segments from the UK with the exception of the
Danish business (Magasin du Nord), which is in the International operating segment, where the
audit was performed in Denmark;
• Our audit work covered both operating segments and accounted for 100% of group revenue and
100% of group profit before tax.
Our areas of focus:
• Risk of fraud in revenue recognition in relation to manual adjustments posted to revenue and the
cut-off of wholesale invoicing to franchises;
• Inventory valuation using the retail method and stock provisioning for out of season inventory.
• Goodwill and store assets impairment assessment;
• Defined benefit pension plan net liability.
Debenhams plc Annual Report and Accounts 2014
Debenhams plc Annual Report & Accounts 2014
84
84
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits,
we also addressed the risk of management override of internal controls, including evaluating whether there is evidence of bias
by the directors that may represent a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and
effort, are identified as “areas of focus” in the table below together with an explanation of how we tailored our audit to
address these specific areas. The first two areas of focus are significant risks and the second two are other risks. This is not
a complete list of all risks identified by our audit.
Area of focus
How our audit addressed the area of focus
For both retail and franchise revenue we examined journal
entries and consolidation adjustments to identify unusual or
irregular items and tested such items by agreeing details to
supporting documentation.
In addition, for franchise revenue, we tested a sample of
sales back to supporting documentation such as cash
receipts or purchase orders and goods despatched notes
to check the occurrence and the recording of revenue in the
correct period. We also assessed the monthly level of sales
to franchises to identify any unusual patterns around the
year end, and tested any such items by agreeing details
to supporting documentation.
Risk of fraud in revenue recognition in relation to manual
adjustments posted to revenue and the cut-off of
wholesale invoicing to franchises.
See note 2 to the financial statements for the directors’
disclosures of the related revenue recognition accounting
policy.
ISAs (UK & Ireland) presume there is a risk of fraud in
revenue recognition because of the pressure management
may feel to achieve the planned results.
The Group’s revenue principally relates to retail trading and
wholesale trading with franchise partners.
Retail revenue comprises high volume, low value
transactions where the principal risk of fraud comes from
journals and adjustments posted into revenue and therefore
not subject to the main controls over revenue to cash
reconciliations.
The principal risks of fraud for franchise sales come from
journals and adjustments posted into franchise sales as
well as the risk of wholesale invoicing to franchises in the
incorrect period artificially inflating revenue for the
current year.
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85
85
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S
O F D E B E N H A M S P L C ( G R O U P ) C O N T I N U E D
D E B E N H A M S P L C ( G R O U P ) C O N T I N U E D
Area of focus
How our audit addressed the area of focus
Inventory valuation using the retail method and stock
provisioning for out of season inventory
We evaluated the relevant IT systems and tested the internal
controls over the inventory valuation process.
Refer to pages 52 and 53 (Audit Committee report) and note
5 to the financial statements for the directors’ disclosures of
the critical accounting estimates and judgements related to
the valuation of inventory.
As inventory is valued using the retail method we performed
a number of specific tests of the operating effectiveness of
controls and detailed substantive tests over the inputs into
the inventory valuation calculations including:
The valuation of inventory in the UK and Ireland is
determined using the retail method. This is an industry
specific accounting method used to derive a weighted
average product cost. This method contains significant
assumptions, which can vary between retail entities. The
methodology is also impacted by the timing of processing
markdowns which could significantly affect gross margin.
• Testing the controls over the sales price of inventory;
• Assessing the margin rate applied to the sales price to
identify any unusual margins, and testing any such items
by agreeing details to supporting documentation;
• Testing the margin rate applied to the sales price to
derive the cost of inventory;
The ongoing economic situation within the retail sector
continues to create competition on the high street. This
could put pressure on the level of out of season stock
identified for markdown within the Group and on the year
end stock provisions/markdowns. As such there is a risk
that the realisable value of stock will be lower than its
recorded cost.
• Checking the purchase price of inventory used within cost
of sales to a sample of supplier invoices; and
• Checking other cost adjustments for example designer
royalties applied to the inventory margin back to
supporting documentation.
We also assessed the level of out of season inventory at the
year-end, which included:
• Testing the operating effectiveness of controls in relation
to classifying stock as current, continuity (inventory with
no season) or out of season inventory; and
• Assessing the spend on mark-downs in the month
following the year end and the level of out of season
inventory at the end of this period to assess the
reasonableness of the judgement involved in the
markdown provisions applied to the year end
inventory valuation.
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86
86
Area of focus
How our audit addressed the area of focus
Goodwill and store asset impairment assessment
Goodwill
Refer to note 5 to the financial statements for the directors’
disclosures of the critical accounting estimates and
judgements related to the goodwill impairment assessment
and note 13 for further details on the impairment test.
Ongoing economic pressures on the high street continue to
be considered as a trigger for an impairment assessment of
the underlying value of the £819 million goodwill held by the
Group which relates primarily to the acquisition in December
2003 of the Debenhams Group by Debenhams plc.
Store assets
Refer to note 14 to the financial statements.
Ongoing economic pressures on the high street continue to
be considered as a trigger for an impairment assessment of
the underlying value of store assets in particular those stores
that have demonstrated lower profitability in recent years.
Defined benefit pension plans
Refer to note 5 for the directors’ disclosures on the critical
accounting estimates and judgements related to the defined
benefit pension plans and note 23 for detailed disclosures in
relation to these plans.
The Group has two defined benefit pension plans which
comprise total pension assets of £748 million and total
pension liabilities of £751 million. The valuation of the
pension liabilities requires significant levels of judgement
and technical expertise in choosing appropriate
assumptions. Changes in a number of the key assumptions
(including inflation, discount rates, and mortality) can have
a material impact on the calculation of the liability.
We tested that the impairment model used by management
is mathematically correct.
We challenged the directors on the inputs into their
impairment assessment calculations, including:
• The directors’ key assumptions for short term growth
rates, by comparing them to historical results and the
prospects for the stores, business and industry;
• The directors’ key assumptions for long term growth rates
in the forecasts, by comparing them to historical results,
and economic and industry forecasts; and
• The discount rate, by assessing the cost of capital for the
Company and comparable organisations, forming a view
of risk premiums as appropriate.
Having challenged these assumptions, we focused further
discussions with management on stores where there were
low profit margins or low headroom in the impairment
assessment where we considered the risk of impairment
to be greater.
We also performed sensitivity analysis on the key
assumptions including the short-term growth rates
and discount rates.
We evaluated and tested key assumptions and information
prepared by the actuaries used in the determination of
pension obligations, including using our specialist
knowledge to assess the actuarial calculations.
We obtained third party confirmations for the existence
of assets and tested the valuation of plan assets.
Both schemes are closed to new entrants; we tested the
accuracy of census data used to calculate the liability at the
date of each triennial valuation by checking details to the
Group’s personnel/payroll documentation. The date of the
last triennial valuation was 31 March 2011 with the results
included in the 31 March 2012 financial statements.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group is structured into two operating segments being, UK and International. The International operating segment
includes operations in the Republic of Ireland, Denmark, sales to franchises and internet sales made outside of the UK.
For the purposes of our audit of the Group consolidated position, Magasin du Nord is considered as a separate reporting unit.
Whilst, based on its size relative to the Group, Magasin du Nord did not require an audit of its complete financial information,
we deemed this the most appropriate method to gain the necessary audit evidence for the financial statements. The rest of
the Group as a whole was subject to an audit of its complete financial information as a result of its size.
All operations were audited from the UK with the exception of Magasin du Nord where we used PwC Denmark, who are
familiar with the local laws and regulations, to perform this audit work. We determined the level of involvement we needed
to have in the audit work of PwC Denmark to be able to conclude whether sufficient appropriate audit evidence had been
obtained as a basis for our opinion on the Group financial statements as a whole and that involvement included a conference
call with PwC Denmark and local management to discuss the findings of the audit.
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F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S
O F D E B E N H A M S P L C ( G R O U P ) C O N T I N U E D
D E B E N H A M S P L C ( G R O U P ) C O N T I N U E D
Materiality
The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
How we determined it
Rationale for benchmark applied
£5.5 million (2013: £7.9 million).
5% of profit before tax.
We have applied this benchmark, a generally accepted auditing practice, in the
absence of indicators that an alternative benchmark would be appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £500,000
(2013: £500,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 80 in relation to going concern.
We have nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded that it is appropriate to prepare the financial statements
using the going concern basis of accounting. The going concern basis presumes that the Group has adequate resources to
remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were
signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the
Group’s ability to continue as a going concern.
Other required reporting
Consistency of other information
Companies Act 2006 opinions
In our opinion:
• The information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• The information given in the corporate governance statement set out on pages 44 to 49 with respect to internal control and
about share capital structures is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• Information in the annual report is:
‒ Materially inconsistent with the information in the audited
financial statements; or
‒ Apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
Is otherwise misleading.
‒
• The statement given by the directors on page 81,
in accordance with provision C.1.1 of the UK Corporate
Governance Code (“the Code”), that they consider the
annual report taken as a whole to be fair, balanced and
understandable and provides the information necessary for
members to assess the Group’s performance, business model
and strategy is materially inconsistent with our knowledge
of the Group acquired in the course of performing our audit.
• The section of the Annual Report on pages 51 to 53 , as
required by provision C.3.8 of the Code, describing the work of
the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report arising from this
responsibility.
We have no exceptions to report arising from this
responsibility.
We have no exceptions to report arising from this
responsibility.
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Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information
and explanations we require for our audit. We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not
been prepared by the Company. We have no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of the corporate governance statement relating to the Company’s
compliance with nine provisions of the UK Corporate Governance Code. We have nothing to report having performed
our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the statement of directors’ responsibilities set out on page 81, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of:
• Whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and
adequately disclosed;
• The reasonableness of significant accounting estimates made by the directors; and
• The overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Other matter
We have reported separately on the Company financial statements of Debenhams plc for the year ended 30 August 2014 and
on the information in the directors’ remuneration report that is described as having been audited.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 October 2014
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F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
C O N S O L I D A T E D I N C O M E S T A T E M E N T
C O N S O L I D A T E D I N C O M E S T A T E M E N T
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance income
Total finance costs
Analysed as:
Recurring finance costs
Non-recurring finance costs
Profit before taxation
Taxation
Profit for the financial year attributable to owners of the parent
52 weeks
ended
30 August
2014
£m
2,312.7
(2,033.4)
279.3
(98.5)
(52.2)
128.6
0.6
(23.4)
(18.9)
(4.5)
105.8
(18.6)
87.2
Note
3, 4
6
8
9
9
10
Earnings per share attributable to owners of the parent (expressed in pence per share)
Basic earnings per share attributable to owners of the parent
Diluted earnings per share attributable to owners of the parent
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
Pence
per share
7.1
7.1
12
12
Restated1
52 weeks
ended
31 August
2013
£m
2,282.2
(1,982.6)
299.6
(97.5)
(46.7)
155.4
1.5
(17.9)
(17.9)
–
139.0
(23.1)
115.9
Restated1
Pence
per share
9.2
9.2
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C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E
C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
Profit for the financial year
Other comprehensive (expense)/income
Items that will not be reclassified to the income statement
Remeasurements of pension schemes
Taxation relating to items which will not be reclassified
Items that may be reclassified to the income statement
Currency translation differences
Change in the valuation of available-for-sale investments
(Losses)/gains on cash flow hedges
Transferred to the income statement on cash flow hedges
Recycled and adjusted against cost of inventory
Taxation relating to items that may be reclassified
Total other comprehensive (expense)/income
Total comprehensive income for the financial year
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
52 weeks
ended
30 August
2014
£m
87.2
Note
Restated1
52 weeks
ended
31 August
2013
£m
115.9
23
10
15
9
21
10
8.8
(1.6)
7.2
(4.2)
2.5
(24.9)
2.7
8.1
3.0
(12.8)
(5.6)
81.6
30.6
(6.8)
23.8
3.6
(0.8)
11.9
3.3
(7.6)
(1.8)
8.6
32.4
148.3
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F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
C O N S O L I D A T E D B A L A N C E S H E E T
C O N S O L I D A T E D B A L A N C E S H E E T
As at 30 August 2014
As at 30 August 2014
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Available-for-sale investments
Derivative financial instruments
Trade and other receivables
Retirement benefit surplus
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Liabilities
Current liabilities
Bank overdraft and borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Net current liabilities
Non-current liabilities
Bank overdraft and borrowings
Derivative financial instruments
Deferred tax liabilities
Other non-current liabilities
Provisions
Retirement benefit obligations
Net assets
Shareholders’ equity
Share capital
Share premium account
Merger reserve
Reverse acquisition reserve
Hedging reserve
Other reserves
Retained earnings
Total equity
30 August
2014
£m
31 August
2013
£m
Note
13
14
15
22
17
23
24
16
17
22
18
20
22
19
26
20
22
24
25
26
23
27
892.8
689.2
3.6
3.0
15.6
6.9
51.0
1,662.1
345.7
74.7
1.5
64.4
486.3
(202.1)
(11.4)
(529.3)
(9.2)
(6.0)
(758.0)
(271.7)
(223.8)
(2.7)
(53.4)
(332.7)
(1.1)
(9.3)
(623.0)
767.4
0.1
682.9
1,200.9
(1,199.9)
(7.9)
(9.4)
100.7
767.4
876.5
692.1
1.1
1.9
16.8
4.6
69.3
1,662.3
357.9
78.3
7.3
27.0
470.5
(163.1)
(2.1)
(545.8)
(25.3)
(5.6)
(741.9)
(271.4)
(235.9)
(3.7)
(59.1)
(322.1)
(1.1)
(24.6)
(646.5)
744.4
0.1
682.9
1,200.9
(1,199.9)
3.2
(7.7)
64.9
744.4
The financial statements on pages 90 to 134 were approved by the board on 23 October 2014 and were signed on its
behalf by:
Michael Sharp
Chief Executive
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C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
Balance at 1 September 2012
Profit for the financial year
Other comprehensive income
for the financial year
Total comprehensive income for
the financial year
Share-based payment charge
Share option receipts
Purchase of treasury shares
Dividends paid
Total transactions with owners
Balance at 31 August 2013
Profit for the financial year
Other comprehensive
(expense)/income for the
financial year
Total comprehensive
(expense)/income for the
financial year
Share-based payment credit
Purchase of treasury shares
Dividends paid
28
27
11
28
27
11
Share
capital and
share
premium
account
£m
683.0
–
Note
Merger
reserve
£m
1,200.9
–
Reverse
acquisition
reserve
£m
(1,199.9)
–
Hedging
reserve
£m
(2.6)
–
Other
reserves
£m
(10.5)
–
–
–
–
–
–
–
–
–
–
683.0
–
–
–
–
–
–
–
1,200.9
–
–
–
–
–
–
–
(1,199.9)
–
5.8
5.8
–
–
–
–
–
3.2
–
2.8
2.8
–
–
–
–
–
(7.7)
–
Restated1
(Accumulated
losses)/
retained
earnings
£m
(9.9)
115.9
Restated1
Total
equity
£m
661.0
115.9
23.8
32.4
139.7
1.5
0.1
(25.1)
(41.4)
(64.9)
64.9
87.2
148.3
1.5
0.1
(25.1)
(41.4)
(64.9)
744.4
87.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11.1)
(1.7)
7.2
(5.6)
(11.1)
–
–
–
–
(7.9)
(1.7)
–
–
–
–
(9.4)
94.4
(1.8)
(15.1)
(41.7)
81.6
(1.8)
(15.1)
(41.7)
(58.6)
100.7
(58.6)
767.4
Total transactions with owners
Balance at 30 August 2014
–
–
683.0 1,200.9
–
(1,199.9)
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
For a description of the nature and purpose of each reserve, together with an analysis of other reserves, see note 27.
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F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
C O N S O L I D A T E D C A S H F L O W S T A T E M E N T
C O N S O L I D A T E D C A S H F L O W S T A T E M E N T
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
Cash flows from operating activities
Cash generated from operations
Finance income
Finance costs
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Issue of senior notes
Drawdown of revolving credit facility
Repayment of term loan and revolving credit facilities
Settlement/(repurchase) of term loan facility
Purchase of treasury shares
Dividends paid
Share option receipts
Finance lease payments
Debt issue costs
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Net cash and cash equivalents at beginning of financial year
Net cash and cash equivalents at end of financial year
52 weeks
ended
30 August
2014
£m
52 weeks
ended
31 August
2013
£m
240.5
1.2
(14.3)
(20.6)
206.8
(102.3)
(25.7)
(128.0)
225.0
200.0
(410.7)
13.3
(15.1)
(41.7)
–
(2.2)
(7.1)
(38.5)
40.3
24.1
64.4
241.1
0.4
(12.9)
(29.3)
199.3
(113.7)
(19.6)
(133.3)
–
6.0
–
(13.3)
(25.1)
(41.4)
0.1
(2.3)
(0.5)
(76.5)
(10.5)
34.6
24.1
Note
30
20
20
20
11
31
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
1 General information
Introduction
Debenhams plc (“the Company”) is a public limited company incorporated and domiciled in the United Kingdom under the
Companies Act 2006 (Company number 5448421). The address of the registered office is 10 Brock Street, Regent’s Place,
London NW1 3FG.
The principal activity of the Company is that of a holding company. The principal activities of the Company and its subsidiaries
(together the “Group” or the “Debenhams Group”) is the sale of fashion clothing and accessories, cosmetics and products
for use in the home. The Group trades from department stores in the UK, the Republic of Ireland and Denmark, on the internet
and has international franchise stores.
The Group prepares its financial statements for the financial year ending on the nearest Saturday to 31 August of a given
calendar year.
The principal subsidiary undertakings within the Group during the financial year ended 30 August 2014 are disclosed in
note 33.
2 Accounting policies
The Group’s principal accounting policies, as described below, have been consistently applied to all financial years presented,
unless otherwise stated. A prior year restatement as a result of the adoption of IAS 19 “Employee benefits” revised is
described on page 102.
Basis of preparation
The consolidated financial statements have been prepared on the going concern basis and in accordance with International
Financial Reporting Standards (“IFRS”) including International Accounting Standards (“IAS”) and IFRS Interpretations
Committee (“IFRS IC”) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting
under accounting standards as adopted for use in the EU. The consolidated financial statements for the financial years ended
30 August 2014 and 31 August 2013 have been prepared under the historical cost convention as modified by the revaluation
of available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value
through the income statement.
The preparation of the financial statements, in conformity with IFRS, requires the use of estimates and assumptions that affect
the reporting amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and
expenses during the reporting period. Although these results are based on management’s best knowledge of the amounts,
events or actions, actual results ultimately may differ from those estimates (see note 5).
Consolidation
The financial statements comprise a consolidation of the accounts of Debenhams plc and all its subsidiaries. Subsidiaries
include all entities over which the Group has the power to govern the financial and operating policies. The existence and
effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group
controls another entity. Subsidiaries are fully consolidated from the date on which the Group has the power to control.
They are de-consolidated from the date that control ceases.
On consolidation, inter company transactions, balances and unrealised gains on transactions between Group companies
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. On acquisition, accounting policies of the Company and its subsidiaries have been changed where these have a
significant impact on the Group’s income statement or balance sheet to ensure consistency with the policies adopted by the
Group.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for
goods and services provided in the normal course of business, net of staff discounts, and is stated net of value added tax and
other sales-related taxes. Revenue is also adjusted for the fair value of loyalty points awarded. Loyalty points awarded are
reflected within liabilities until such time as they are redeemed.
Revenue on department store sales of goods and commission on concession and consignment sales is recognised when
goods are sold to the customer. Retail sales are usually in cash or by credit or debit card. Internet sales are recognised when
the goods are despatched to the customer. Revenue from gift cards and gift vouchers sold by the Group is recognised on the
redemption of the gift card or gift voucher. Revenue from sales to franchisees is recognised when the goods are despatched.
Revenue from franchise fees is recognised when earned.
It is the Group’s policy to sell its products to the end customer with a right of return. Accumulated experience is used to
estimate and provide for such returns at the time of sale.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
2 Accounting policies continued
Segmental reporting
IFRS 8 “Operating segments” requires segment information to be presented based on what is reported to the Chief
Operating Decision Maker. The Group has identified the Executive Committee as its Chief Operating Decision Maker
and has identified two operating segments, UK and International.
Interest recognition
Finance income and finance costs are recognised in the period to which they relate using the effective interest rate method.
Dividend distribution
A final dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s and Group’s financial
statements in the period in which the dividend is approved by the Company’s shareholders. Interim dividends are recognised
when paid.
Retirement benefit costs
The Group operates various defined benefit and defined contribution or money purchase schemes for its employees.
A defined benefit scheme is a pension plan that defines an amount of pension benefit that an employee will receive on
retirement. The Group accounts for pensions and other post-employment benefits under IAS 19 “Employee benefits” revised.
The pension scheme surplus or deficit recognised in the balance sheet represents the difference between the fair value
of the plan assets and the present value of the defined benefit obligation at the balance sheet date. This surplus or deficit
is actuarially calculated on an annual basis using the projected unit credit method. The income statement is charged or
credited with a net interest expense which is calculated by applying the discount rate to the net defined benefit liability or
asset. Administration costs of pension funds are recognised as an expense when the administration services are performed.
Actuarial gains and losses are recognised immediately in the statement of comprehensive income. A retirement benefit
surplus is only recognised to the extent that it is expected to be recoverable in the future.
A defined contribution scheme is a pension plan under which the Group pays fixed contributions to a separate entity.
Payments to defined contribution pension schemes are charged as an expense as they fall due. Any contributions unpaid at
the balance sheet date are included as an accrual as at that date. The Group has no further payment obligations once the
contributions have been paid.
Share-based payments
The Group issues equity-settled share-based awards to certain employees. A fair value for the equity-settled share awards
is measured at the date of grant. The Group measures the fair value of each award using the Black-Scholes model where
appropriate.
The fair value determined at the grant date is expensed on a straight line basis over the vesting period, based on the
Group’s estimate of the shares that will eventually vest and adjusted for the effect of non-market vesting conditions.
At each balance sheet date, the Group revises its estimates of the number of awards that are expected to vest. Non-market
performance and service conditions are included in assumptions about the number of awards that are expected to vest.
It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment
to equity.
When the awards are exercised, the Company may, if permitted, issue new shares, utilise shares held as treasury shares or
those held within the Debenhams Retail Employee Trust. The proceeds received net of any directly attributable transaction
costs (for new share issues) are credited to share capital (at nominal value) and share premium when the awards are exercised.
Foreign exchange
a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in sterling, which is the Group’s presentation currency.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
b) Group companies
The results and financial position of all Group entities that have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
Assets and liabilities are translated at the closing rate at the date of the balance sheet.
Income and expenses are translated at the average exchange rate unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the
dates of the transaction.
Resulting exchange differences are recognised in other comprehensive income and accumulated as a separate component
of equity.
c) Transactions and balances
Transactions denominated in foreign currencies are translated into the respective functional currency at the exchange rates
prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation, at the balance
sheet date exchange rate, of monetary assets and liabilities denominated in foreign currencies, are recognised in the income
statement, except when deferred in other comprehensive income as qualifying cash flow hedges.
Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the closing rates ruling at the
balance sheet date.
Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in other
comprehensive income and accumulated as a separate component of equity.
Foreign exchange gains and losses that relate to borrowings, cash and cash equivalents and the translation of inter company
loans are presented in the income statement within finance income or costs. All other foreign exchange gains and losses are
presented in the income statement within cost of sales.
Taxation
Taxation expense represents the sum of current tax and deferred tax. Taxation which relates to items recognised in other
comprehensive income or equity is recognised in other comprehensive income or equity respectively.
Current tax is based on taxable profits for the financial period using tax rates that are in force during the period. Taxable profit
differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable
or deductible in other financial years and it further excludes items that are never taxable or deductible.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes. If deferred tax arises from initial recognition of
an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates that have been
enacted or substantially enacted at the balance sheet date and are expected to apply when the related deferred income
tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the
reversals of the temporary differences is controlled by the Group and it is probable that the temporary differences will not
reverse in the foreseeable future.
Leased assets
a) Finance leases
Leases of assets which transfer substantially all the risks and rewards of ownership to the Group are classified as finance
leases. Finance leases are classified as a financial liability and measured at amortised cost. Finance leases are capitalised
at the inception of the lease at the lower of the fair value of the asset or the present value of the minimum lease payments
and depreciated over the useful economic life or the period of the lease. The resulting lease obligations are included
in liabilities.
Lease payments are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate
of interest on the remaining balance of the liability.
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97
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
2 Accounting policies continued
b) Operating leases
All other leases are classified as operating leases. Rentals payable under operating leases, net of lease incentives, are charged
to the income statement on a straight line basis over the period of the lease.
Where property lease contracts contain guaranteed fixed minimum incremental rental payments, the total committed cost
is determined and is calculated and amortised on a straight line basis over the life of the lease.
Business combinations
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the consideration given, liabilities incurred or assumed and equity
instruments issued by the Group in exchange for control of the acquiree. All costs directly attributable to an acquisition are
expensed to the income statement.
Identifiable assets, liabilities and contingent liabilities acquired in a subsidiary are initially measured at their fair values at the
acquisition date, provided they meet the conditions set out in IFRS 3 Revised “Business combinations”. The excess of cost
over the Group’s share of identifiable net assets acquired is recognised as goodwill. If, after reassessment, the cost of
acquisition is less than the fair value of assets acquired, the excess is immediately recognised in the income statement.
Intangible assets
a) Goodwill
Goodwill on acquisition of subsidiaries represents the excess of the cost of an acquisition over the fair value of the Group’s
share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary. Goodwill on acquisition
of subsidiaries is included in intangible assets. Goodwill is not amortised but tested for impairment annually, or when trigger
events occur, and carried at cost less accumulated impairment losses.
Goodwill represents the goodwill for a portfolio of sites which have been allocated to cash-generating units for the purpose
of impairment testing on the basis of UK and other which is the lowest level at which goodwill is monitored for internal
management purposes.
b) Other intangible assets
Other intangible assets are held at cost less accumulated amortisation and any provision for impairment.
Internally generated software costs, where it is clear that the software developed is technically feasible and will be completed
and that the software generated will generate economic benefit, are capitalised as an intangible asset. Included within
intangible assets are assets in the course of construction. These assets include directly attributable costs to bring the assets
into use and may include capitalised borrowing costs. Amortisation is provided at the following rates per annum to write off
the costs of other intangible assets, less residual value, on a straight line basis from the date on which they are brought
into use:
Acquired licences and trademarks
Internally generated software
Purchased software
Up to 10.0%
10.0% to 33.3%
10.0% to 33.3%
Impairment testing
Assets that have an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to
amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss
is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are
grouped by store, which is the lowest level for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that have been impaired are reviewed at each reporting date for possible reversal
of the impairment.
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98
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
Property, plant and equipment
Property, plant and equipment are held at historic purchase cost less accumulated depreciation and any provision for
impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its
working condition for its intended use. This may include capitalised borrowing costs.
Depreciation is provided at the following rates per annum to write off the cost of property, plant and equipment, less residual
value, on a straight line basis from the date on which they are brought into use:
Freehold land
Freehold buildings
Long leasehold land and buildings including landlords’ fixtures and fittings 1.0% or life of lease if shorter
Short leasehold land and buildings including landlords’ fixtures and fittings Life of lease
Retail fixtures and fittings
Office equipment
Computer equipment
Vehicles
4.0% to 25.0%
10.0% to 12.5%
10.0% to 33.3%
25.0% or life of lease
Not depreciated
1.0%
Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in the
income statement.
Included within property, plant and equipment are assets in the course of construction. These assets comprise stores
which are under construction or modernisation, including costs directly attributable to bring the asset into use. Transfers
to the appropriate category of property, plant and equipment are made when the store opens. No depreciation is provided
on stores or other assets under construction.
Impairment testing
Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment. Assets that are
subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped by store, which is the lowest level for which there are separately identifiable cash flows (cash-
generating units). Non-financial assets that have been impaired are reviewed at each reporting date for possible reversal of
the impairment.
Capitalisation of finance costs
Finance costs that are directly attributable to the acquisition or construction of qualifying assets are capitalised to the cost
of the asset, gross of tax relief. Qualifying assets are those that necessarily take a substantial period of time to prepare for
their intended use.
Available-for-sale investments
Purchases and sales of financial assets are recognised on the trade-date, being the date on which the Group commits to
purchase or sell the asset. The Group classifies its investments as available-for-sale financial assets in accordance with IAS 39
“Financial instruments: recognition and measurement” (“IAS 39”). Available-for-sale financial investments are non-derivative
assets that are either designated in this category or are not classified in the other financial instrument categories being “Fair
value through profit or loss” or “Loans and receivables”. They are included in non-current assets unless management intends
to dispose of the investment within 12 months of the balance sheet date. Investments are initially recognised at fair value plus
any transaction costs and subsequently at fair value.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for
unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s
length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option
pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs. The fair value
of available-for-sale investments denominated in a foreign currency is calculated in that foreign currency and translated
at the closing rate at the reporting date. Changes in the fair value of securities classified as “available for sale” are recognised
in other comprehensive income.
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99
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
2 Accounting policies continued
An impairment test is performed annually on the carrying value of each investment. An impairment loss is recognised
for the amount by which the asset’s carrying value exceeds its recoverable amount. Impairment losses are recognised
in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value primarily using the retail method and represent goods for
resale. The retail method is an industry specific accounting method used to derive a weighted average product cost. Product
cost and retail values are aggregated at a departmental level to determine an average margin per department. These margins
are then applied to the retail value of inventory to derive the cost of the inventory.
Cost includes all direct expenditure and other attributable costs, net of volume and settlement supplier discounts, incurred in
bringing inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses. This method intrinsically takes into account any stock loss or
markdown to goods sold below cost. Concession inventories are not included within inventory held by the Group.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently held at amortised cost less provisions for impairment.
A provision for impairment of trade receivables is established when there is evidence that the Group will not be able to collect
all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the
asset’s carrying amount and the present value of future cash flows discounted at the effective interest rate. The movement in
the provision is recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at the bank and other short-term liquid investments with
original maturities of three months or less.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised
in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
Borrowing costs
Borrowing costs are recognised initially at fair value and are amortised over the term of the facilities using the effective
interest rate on the committed amount of each facility.
Debt repurchase
The nominal value of debt repurchased is accounted for as a loan redemption, reducing net borrowings at the
balance sheet date.
Trade payables
Trade payables, defined as financial liabilities in accordance with IAS 39, are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
All of the trade payables are non-interest bearing.
Other payables and non-current liabilities
Included within other payables are lease incentives received from landlords either through developers’ contributions
or rent-free periods. These incentives are being credited to the income statement on a straight line basis over the term
of the relevant lease. Other payables also relate to the spreading of charges in respect of leases with fixed annual increments
in rent (escalating rent clauses) over the term of the relevant lease.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and where
it is more likely than not an outflow of resources will be required to settle the obligation and the amount can be reliably
estimated. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation
at the balance sheet date.
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100
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
Derivatives
Derivatives comprise interest rate swaps and forward foreign exchange contracts. Derivatives are initially recognised at fair
value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The method of
recognising the resulting gain or loss depends on whether the derivative is designated as an effective hedging instrument
and the nature of the item being hedged. The Group designates certain derivatives as hedges of highly probable forecast
transactions (cash flow hedges).
At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items
as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents
its assessment, both at the inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of hedged items.
a) Cash flow hedges
The effective portion of the changes in fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the relevant line
of the income statement which will be affected by the underlying hedged item. Forward exchange contracts designated
as cash flow hedges are de-designated and subsequently classified as “held for trading” when the underlying forecast
transaction is recognised in the financial statements.
Amounts accumulated in equity are reclassified and adjusted against the initial measurement of the underlying hedged
item when the underlying hedged item is recognised on the balance sheet or in the income statement.
When a hedged instrument expires, is sold or when a hedge no longer meets the criteria for hedge accounting, hedge
accounting is discontinued. Any cumulative gain or loss existing in equity at that time is held in equity until the forecast
transaction occurs. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately reclassified to the relevant line of the income statement which would have been affected
by the forecast transaction.
b) Derivatives that do not qualify for hedge accounting
Certain derivatives do not qualify for hedge accounting. Changes in fair value of any derivative instruments that do not qualify
for hedge accounting are recognised immediately in the income statement within finance costs.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares in equity are shown as a deduction, net of tax,
from the proceeds.
Where the Company purchases its own ordinary shares, the consideration paid, including any directly attributable incremental
costs (net of income taxes), is deducted from equity attributable to the Company’s equity holders until the shares are
cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly
attributable incremental transaction costs together with the related income tax effects, is included in equity attributable to
the Company’s equity holders.
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101
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
2 Accounting policies continued
New standards and interpretations
IAS 19 “Employee benefits” has been revised and is effective from periods that commenced on or after 1 January 2013.
The revised standard has retrospective application and consequently the relevant charges or income in the consolidated
income statement and the consolidated statement of comprehensive income for the year ended 31 August 2013 have been
restated. As a result of the change, the expected return on pension scheme assets and the interest cost on pension scheme
liabilities are replaced with a net interest expense calculated by applying the discount rate to the net defined benefit liability
or asset. Administration costs of pension funds are now recognised as an expense when the administration services are
performed. The table below sets out the changes to comparative amounts.
52 weeks to 31 August 2013
Application
of IAS 19
revised
£m
Previously
reported
£m
Restated
£m
Consolidated income statement
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the financial year
Remeasurements of pension schemes
Taxation relating to the pension schemes which will not be reclassified
Items that may be reclassified to the income statement
Total comprehensive income
2,282.2
(1,972.1)
310.1
(97.4)
(44.7)
168.0
1.5
(15.5)
154.0
(26.1)
127.9
15.6
(3.8)
8.6
148.3
–
(10.5)
(10.5)
(0.1)
(2.0)
(12.6)
–
(2.4)
(15.0)
3.0
(12.0)
15.0
(3.0)
–
–
2,282.2
(1,982.6)
299.6
(97.5)
(46.7)
155.4
1.5
(17.9)
139.0
(23.1)
115.9
30.6
(6.8)
8.6
148.3
There is no change to the retirement benefit obligation or to net assets as a result of the adoption of IAS 19 revised and
therefore no restatement of the balance sheet is required. In accordance with IAS 1 (amended) “Financial statement
presentation” a balance sheet as at 1 September 2012 has not been presented.
The Group has also adopted the following standards and interpretations which became mandatory for the first time during
the current financial year. The adoption of these standards has had no material impact on the Group.
• Amendments to IFRS 7 “Financial instruments: Disclosures ‒ offsetting financial assets and financial liabilities”. This
amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial
statements and those that prepare financial statements in accordance with US GAAP.
•
IFRS 13 “Fair value measurement”. IFRS 13 is effective from periods that commenced on or after 1 January 2013. IFRS 13
has affected disclosures only and the Group has included the required disclosures in note 22. In accordance with the
transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has
not provided any comparative information for new disclosures.
Other amendments which apply for the first time in the current financial year and do not have a material impact on the
consolidated financial information of the Group are IFRS 10 “Consolidated financial statements”, IFRS 11 “Joint
arrangements”, IFRS 12 “Disclosure of interests in other entities” and IFRIC 21 “Levies”.
Standards and interpretations in issue, but not yet effective, are not expected to have a material effect on the Group’s net
assets or results.
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102
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
3 Segmental reporting
IFRS 8 “Operating segments” requires disclosure of the operating segments which are reported to the Chief Operating
Decision Maker (“CODM”). The CODM has been identified as the Executive Committee, which includes the executive
directors and other key management. It is the Executive Committee that has responsibility for planning and controlling
the activities of the Group.
The Group’s reportable segments have been identified as the UK and International. The segments are reported to the
CODM to operating profit level, using the same accounting policies as applied to the Group accounts. Current assets,
current liabilities and non-current liabilities are not reported to or reviewed by the CODM on the basis of operating
segment as these are reviewed on a Group-wide basis and therefore these amounts are not presented below.
Segmental analysis of results
Financial year ended 30 August 2014
Gross transaction value
Concessions, consignments and staff discounts
External revenue
Operating profit
Other segment items
– Depreciation
– Amortisation
Financial year ended 31 August 2013
Gross transaction value
Concessions, consignments and staff discounts
External revenue
Operating profit – restated1
Other segment items
– Depreciation
– Amortisation
UK
£m
International
£m
Total
£m
2,275.3
(373.2)
1,902.1
96.3
78.9
11.7
2,254.8
(358.9)
1,895.9
127.2
75.3
8.7
548.6
(138.0)
410.6
32.3
2,823.9
(511.2)
2,312.7
128.6
8.6
1.6
87.5
13.3
522.0
(135.7)
386.3
28.2
9.1
1.5
2,776.8
(494.6)
2,282.2
155.4
84.4
10.2
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
Total segmental operating profit may be reconciled to total profit before taxation as follows:
Total operating profit
Finance income
Recurring finance costs
Non-recurring finance costs
Total profit before taxation
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
30 August
2014
£m
128.6
0.6
(18.9)
(4.5)
105.8
Restated1
31 August
2013
£m
155.4
1.5
(17.9)
–
139.0
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103
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
3 Segmental reporting continued
Revenues analysed by country, based on the customers’ location, are set out below:
United Kingdom
Denmark
Republic of Ireland
Rest of the world
Total external revenue
30 August
2014
£m
31 August
2013
£m
1,902.1
175.8
135.5
99.3
2,312.7
1,895.9
157.8
134.3
94.2
2,282.2
Non-current assets, which comprise intangible assets, property, plant and equipment and other receivables excluding financial
assets analysed by country, are set out below:
United Kingdom
Denmark
Republic of Ireland
Rest of the world
Total non-current assets
30 August
2014
£m
31 August
2013
£m
1,532.9
23.1
25.6
0.4
1,582.0
1,515.6
22.1
30.3
0.8
1,568.8
The 31 August 2013 comparatives have been restated to exclude financial assets.
Additions to property, plant and equipment and intangible assets analysed by operating segment are set out below:
Financial year ended 30 August 2014
Financial year ended 31 August 2013
UK
£m
109.1
124.0
International
£m
9.8
9.6
Total
£m
118.9
133.6
4 Gross transaction value
Revenue from concession and consignment sales is required to be shown on a net basis, being the commission received
rather than the gross value achieved on the sale. Management believes that gross transaction value, which presents revenue
on a gross basis before adjusting for concessions, consignments and staff discounts, represents a good guide to the overall
activity of the Group.
Gross transaction value
A reconciliation of gross transaction value to external revenue is included in note 3.
30 August
2014
£m
31 August
2013
£m
2,823.9
2,776.8
5 Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below.
Estimated impairment of goodwill
The Group tests whether goodwill has suffered any impairment in accordance with the accounting policy stated in note 2.
The recoverable amount of cash-generating units is determined based on a value-in-use calculation. The method requires
an estimate of future cash flows and the selection of a suitable discount rate in order to calculate the net present value of
the cash flows. Actual outcomes could vary; see note 13 for further details.
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104
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
Estimated useful life of property, plant and equipment and intangible assets
At the date of capitalising property, plant and equipment and intangible assets, the Group estimates the useful life of the
asset based on management’s judgement and experience. Due to the significance of capital investment to the Group,
variances between actual and estimated useful economic lives could impact results both positively and negatively.
Inventories
Inventories are stated at the lower of cost and net realisable value primarily using the retail method and represent goods for
resale. The retail method is an industry specific accounting method used to derive a weighted average product cost. Product
cost and retail values are aggregated at a departmental level to determine an average margin per department. These margins
are then applied to the retail value of inventory to derive the cost of inventory. This method intrinsically takes into account any
stock loss or markdown to goods sold below cost. Concession inventories are not included within inventory held by the Group.
Retirement benefits
The Group’s defined benefit schemes’ pension liability/asset, which is assessed each period by actuaries, is based on
key assumptions including discount rates, mortality rates, inflation, future salary costs and pension costs. These assumptions,
individually or collectively, may be different to actual outcomes; refer to note 23 for further details.
A retirement benefit surplus is only recognised to the extent that it is expected to be recoverable in the future.
Taxation and deferred taxation
The Group is subject to income taxes in the UK, the Republic of Ireland, Denmark and Hong Kong. At each financial year end,
judgement is required in determining the provision for income taxes. The Group recognises liabilities for anticipated tax issues
based on the best estimates at the balance sheet date.
Determining the deferred tax on developers’ contributions and other provisions requires an element of judgement. The Group
recognises deferred tax assets and liabilities based on the best estimate at the balance sheet date.
Where the final tax outcome of the above matters is different from the amounts that were initially recorded, such differences
will impact the current tax and deferred tax provisions in the year in which such determination is made. The final outcome of
some of these tax items may give rise to material income statement and/or cash flow movements.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. The fair value determined at the grant date is
expensed on a straight line basis over the vesting period. The fair value is calculated using the appropriate fair value model
with the estimated level of vesting being reviewed annually by management. The key assumptions of this model are set out
in note 28.
6 Operating profit
The following items have been included in arriving at operating profit:
The amounts of inventory written down during the financial year
Cost of inventory recognised as an expense
Employment costs (note 7)
Depreciation of property, plant and equipment (note 14)
Amortisation of intangible assets (note 13)
Loss on disposal of property, plant and equipment
Operating lease rentals
Foreign exchange gains
Auditors’ remuneration
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
30 August
2014
£m
Restated1
31 August
2013
£m
10.4
1,165.0
369.2
87.5
13.3
1.4
216.3
(1.3)
0.5
12.0
1,150.2
375.2
84.4
10.2
0.2
206.9
(7.9)
0.5
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105
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
6 Operating profit continued
Services provided by the Company’s auditors and network firms
During the financial year the Group obtained the following services from the Company’s auditors and its associates as
detailed below:
Audit services
Annual audit fees for the Company and the consolidated accounts
Other services
Audit of subsidiary companies
Tax advisory services
Other non-audit services
30 August
2014
£m
31 August
2013
£m
0.2
0.1
–
0.2
0.2
0.1
0.1
0.1
Other non-audit services for the financial year includes £73,000 relating to the senior notes issue.
It is cost effective for the Group that such other services are provided by its auditors in view of their knowledge of the
Group’s affairs.
7 Employees
Wages and salaries
Social security costs
Other pension costs (note 23)
Share-based payments (note 28)
Employment costs
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
Average monthly number of employees (including key management):
– Full time
– Part time
Total
30 August
2014
£m
Restated1
31 August
2013
£m
334.4
20.5
16.1
(1.8)
369.2
337.6
21.4
14.7
1.5
375.2
Number
Number
7,802
20,431
28,233
8,086
22,077
30,163
Information concerning directors’ remuneration, shares and share interests is included in the directors’ remuneration report
on pages 54 to 77, which forms part of these financial statements.
Key management compensation
Short-term employee benefits
Post-employment benefits
Share-based payments
30 August
2014
£m
31 August
2013
£m
3.5
0.5
(1.2)
2.8
2.9
0.4
1.1
4.4
Members of the Executive Committee (which includes the executive directors) and the non-executive directors are deemed
to be key management. During the financial year key management consisted of 15 members (2013:13 members).
Debenhams plc Annual Report and Accounts 2014
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106
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
8 Finance income
Interest on bank deposits
Other financing income
9 Finance costs
Recurring finance costs
Interest payable on bank loans and overdrafts
Interest payable on senior notes
Cash flow hedges reclassified and reported in the income statement
Amortisation of issue costs on loans and senior notes (note 20)
Interest payable on finance leases
Net interest on net defined benefit pension schemes liability (note 23)
Other financing costs
Capitalised finance costs – qualifying assets (note 14)
Non-recurring finance costs
Unamortised issue costs written off on repayment of term loan
and revolving credit facilities (note 20)
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
10 Taxation
Analysis of taxation charge to the income statement for the financial year:
Current taxation
Current taxation charge on profit for the financial year
Adjustments in respect of prior financial years
Current taxation charge
Deferred taxation
Origination and reversal of temporary differences
Pension cost relief in excess of pension charge
Adjustments in respect of prior financial years
Effect of change in current tax rate on the net deferred tax asset recognised at the beginning
of the financial year
Deferred taxation charge/(credit) (note 24)
Taxation charge for the financial year
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
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106
107
30 August
2014
£m
31 August
2013
£m
0.2
0.4
0.6
0.4
1.1
1.5
30 August
2014
£m
Restated1
31 August
2013
£m
10.9
1.9
2.7
2.0
0.2
0.6
1.2
(0.6)
18.9
10.8
–
3.3
2.7
0.1
2.4
–
(1.4)
17.9
4.5
–
30 August
2014
£m
Restated1
31 August
2013
£m
7.7
(0.8)
6.9
13.0
(0.4)
0.1
(1.0)
11.7
18.6
36.7
(10.8)
25.9
(5.9)
(0.9)
1.7
2.3
(2.8)
23.1
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
10 Taxation continued
The effective tax rate for the financial year is lower at 17.6% (2013: 16.6% (restated1)) than the rate of corporation tax in the UK
of 22.2% (2013: 23.6%). The differences are explained below:
Profit before taxation
Profit on ordinary activities at standard rate of corporation tax in the UK of 22.2% (2013: 23.6%)
Effects of:
Permanent differences
Overseas tax rates
Utilisation of tax losses
Non-qualifying depreciation and lease transactions
Effect on deferred taxation of the change in current tax rate
Adjustments in respect of prior financial years
Taxation charge for the financial year
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
30 August
2014
£m
105.8
23.5
Restated1
31 August
2013
£m
139.0
32.8
(0.7)
1.1
(3.7)
1.7
(2.6)
(0.7)
18.6
–
0.5
(4.7)
1.5
2.1
(9.1)
23.1
The Finance Act 2013 included legislation reducing the main rate of corporation tax from 23.0% to 21.0% from 1 April 2014
with a further reduction in the main rate of corporation tax to 20.0% from 1 April 2015.
The effect of the reduction in the corporation tax rate enacted in the Finance Act 2013 has been to reduce the net deferred
tax asset recognised at 31 August 2013 by approximately £1.0 million. This £1.0 million decrease has been recognised in line
with the treatment of the assets and liabilities giving rise to the net deferred tax liability.
One of the Group’s UK subsidiaries, Debenhams Properties Limited, changed its reporting framework from UK GAAP to FRS
101 “Reduced disclosure framework” (“FRS 101”) at the beginning of the financial year. FRS 101 is one of the new accounting
frameworks being adopted by all companies throughout the UK and Ireland. A consequence of the adoption of FRS 101 is that
income from lease incentives held in that subsidiary is spread over a longer period than previously was the case under UK
GAAP. This has resulted in a temporary reduction in the current taxation charge in this financial year.
In addition to the amount (credited)/charged to the income statement, taxation movements recognised to other
comprehensive income were as follows:
Taxation relating to items that will not be reclassified to the income statement
Current taxation
Pension schemes
Deferred taxation
Remeasurements of pension schemes
Total taxation relating to items that will not be reclassified to the income statement
Taxation relating to items that may be reclassified to the income statement
Deferred taxation
(Losses)/gains on cash flow hedges
Transferred to the income statement on cash flow hedges
Recycled and adjusted against cost of inventory
Total taxation relating to items that may be reclassified to the income statement
Total taxation (credit)/charge to other comprehensive income
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
30 August
2014
£m
Restated1
31 August
2013
£m
(2.3)
3.9
1.6
(5.1)
0.5
1.6
(3.0)
(1.4)
(2.5)
9.3
6.8
2.7
0.8
(1.7)
1.8
8.6
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108
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
11 Dividends
Final paid 2.4 pence (2013: 2.3 pence) per £0.0001 share
– Settled in cash
Interim paid 1.0 pence (2013: 1.0 pence) per £0.0001 share
– Settled in cash
30 August
2014
£m
31 August
2013
£m
29.4
12.3
41.7
28.9
12.5
41.4
A final dividend of 2.4 pence per share (2013: 2.3 pence per share) was paid during the financial year in respect of the financial
year ended 31 August 2013, together with an interim dividend of 1.0 pence per share (2013: 1.0 pence per share) in respect of
the financial year ended 30 August 2014. The directors are proposing a final dividend in respect of the financial year ended
30 August 2014 of 2.4 pence per share (2013: 2.4 pence per share), which will absorb an estimated £29.4 million (2013: £29.4
million) of shareholders’ equity. It will be paid on 9 January 2015 to shareholders who are on the register of members at close
of business on 5 December 2014. No liability is recorded in the financial statements in respect of the final dividend as it was
not approved at the balance sheet date.
12 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the financial year, excluding any shares purchased by the Company and held as
treasury shares.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion
of all dilutive potential ordinary shares. The Group has one class of dilutive potential ordinary shares, those share options
granted to employees where the exercise price is less than the market price of the Company’s ordinary shares during the
financial year.
Basic and diluted earnings per share
Profit for the financial year after taxation
Weighted average number of shares
Shares held by ESOP (weighted)
Shares issuable (weighted)
Weighted average number of shares used in calculating earnings
per share
Earnings per share
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
30 August 2014
Restated1
31 August 2013
Basic
£m
87.2
Number
m
1,227.1
(0.3)
–
Diluted
£m
87.2
Number
m
1,227.1
(0.3)
1.9
Basic
£m
115.9
Number
m
1,255.1
(0.6)
–
Diluted
£m
115.9
Number
m
1,255.1
(0.6)
2.1
1,226.8
1,228.7
1,254.5
1,256.6
Pence
per share
7.1
Pence
per share
7.1
Pence
per share
9.2
Pence
per share
9.2
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109
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
13 Intangible assets
Cost
At 1 September 2012
Additions
Exchange rate movement
Disposals and write-offs
At 31 August 2013
Additions
Exchange rate movement
Disposals and write-offs
At 30 August 2014
Accumulated amortisation
At 1 September 2012
Charge for the financial year
Exchange rate movement
Disposals and write-offs
At 31 August 2013
Charge for the financial year
Exchange rate movement
Disposals and write-offs
At 30 August 2014
Net book value
At 30 August 2014
At 31 August 2013
At 1 September 2012
Acquired
licences and
trademarks
£m
Internally
generated
software
£m
Purchased
software
£m
Goodwill
£m
818.5
–
0.5
–
819.0
–
(0.5)
–
818.5
–
–
–
–
–
–
–
–
–
818.5
819.0
818.5
7.2
–
–
–
7.2
–
–
–
7.2
2.3
0.7
–
–
3.0
0.7
–
–
3.7
3.5
4.2
4.9
84.3
19.3
0.5
(2.8)
101.3
23.6
(0.2)
(5.7)
119.0
46.8
8.0
0.4
(2.8)
52.4
10.7
(0.3)
(5.7)
57.1
61.9
48.9
37.5
12.1
1.7
0.1
(0.2)
13.7
6.4
–
(3.2)
16.9
8.1
1.5
(0.1)
(0.2)
9.3
1.9
–
(3.2)
8.0
8.9
4.4
4.0
Total
£m
922.1
21.0
1.1
(3.0)
941.2
30.0
(0.7)
(8.9)
961.6
57.2
10.2
0.3
(3.0)
64.7
13.3
(0.3)
(8.9)
68.8
892.8
876.5
864.9
Expenditure during the financial year on assets in the course of construction, included in software, was as follows:
Assets in the course of construction
30 August
2014
£m
31 August
2013
£m
15.8
15.4
Amortisation of intangible assets
Amortisation on the Group’s intangible assets has been charged to the income statement as follows:
Included within:
– Cost of sales
– Distribution costs
– Administrative expenses
30 August
2014
£m
31 August
2013
£m
11.0
0.3
2.0
13.3
8.4
0.2
1.6
10.2
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109
110
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
Intangible assets includes the following assets held under finance leases:
Cost
Accumulated amortisation
Net book value
Purchased software
30 August
2014
£m
31 August
2013
£m
3.8
(0.5)
3.3
1.5
(1.3)
0.2
Impairment test for goodwill
Goodwill is not amortised but is reviewed on an annual basis or more frequently if there are indications that goodwill may
be impaired. Goodwill represents the goodwill for a portfolio of sites, which has been allocated to cash-generating units
(“CGUs”) according to the level at which management monitors that goodwill. This allocation has been changed in the current
financial year to align CGUs to the way in which goodwill is now monitored by management. The comparatives have been
restated to reflect this change. The CGUs are set out below:
Goodwill
At 30 August 2014
At 31 August 2013
UK
£m
Other
£m
Total
£m
793.5
793.5
25.0
25.5
818.5
819.0
For the purposes of this impairment review, the recoverable amounts of the CGUs are determined based on value-in-use
calculations. These cash flow projections are based on financial budgets approved by management covering a five year
period. The five year plan is built up using management’s previous experience and incorporates management’s view of current
economic conditions and trading expectations. Management determined sales growth in the five year period to be a key
assumption. The annual sales growth ranges from 0.0% to 4.0% during the five year period. Cash flows beyond the five year
period are extrapolated based on the assumption of 2.0% (2013: 2.0%) growth after year five. The growth rates do not exceed
the long-term average growth rate for the retail sector in which the CGUs operate. The post-tax discount rate used to
calculate the value-in-use was 7.2% (2013: 7.4%) and reflects the specific risks in the retail business. The pre-tax discount
rate is 7.6% (2013: 7.6%).
Management determined the gross margin for each CGU based on performance of individual stores and its expectations
for the market development. The weighted average growth rates used are consistent with the forecasts included in industry
reports. The discount rates used are post-tax and risk-free rates. Based on the value-in-use calculations, there is substantial
headroom against each of the operating segments and a reasonable change in the key assumption used would not cause an
impairment to goodwill.
As a result of the impairment review, as at 30 August 2014 no impairment of goodwill has been required (2013: £nil).
Debenhams plc Annual Report and Accounts 2014
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111
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
14 Property, plant and equipment
Cost
At 1 September 2012
Additions
Exchange rate movements
Disposals and write-offs
At 31 August 2013
Additions
Exchange rate movements
Disposals and write-offs
At 30 August 2014
Accumulated depreciation
At 1 September 2012
Charge for the financial year
Exchange rate movements
Disposals and write-offs
At 31 August 2013
Charge for the financial year
Exchange rate movements
Disposals and write-offs
At 30 August 2014
Net book value
At 30 August 2014
At 31 August 2013
At 1 September 2012
Land and buildings
Long
leasehold
£m
Short leasehold
fixtures and
fittings
£m
Vehicles,
fixtures and
equipment
£m
Freehold
£m
1.6
–
–
–
1.6
–
–
–
1.6
0.2
–
–
–
0.2
–
–
–
0.2
1.4
1.4
1.4
7.1
0.6
–
–
7.7
–
–
–
7.7
0.7
0.3
–
–
1.0
0.2
–
–
1.2
6.5
6.7
6.4
352.6
12.2
1.0
(0.1)
365.7
15.0
(1.3)
(0.7)
378.7
112.1
15.1
0.4
(0.1)
127.5
15.3
(0.4)
(0.4)
142.0
236.7
238.2
240.5
882.1
99.8
5.5
(61.3)
926.1
73.9
(5.8)
(35.0)
959.2
468.8
69.0
3.6
(61.1)
480.3
72.0
(3.8)
(33.9)
514.6
444.6
445.8
413.3
Total
£m
1,243.4
112.6
6.5
(61.4)
1,301.1
88.9
(7.1)
(35.7)
1,347.2
581.8
84.4
4.0
(61.2)
609.0
87.5
(4.2)
(34.3)
658.0
689.2
692.1
661.6
Debenhams plc Annual Report and Accounts 2014
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111
112
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
Expenditure during the financial year on assets in the course of construction included primarily in vehicles, fixtures and
equipment was as follows:
Assets in the course of construction
30 August
2014
£m
31 August
2013
£m
33.7
53.9
Property, plant and equipment includes the following assets held under finance leases included primarily in vehicles, fixtures
and equipment was as follows:
Cost
Accumulated depreciation
Net book value
30 August
2014
£m
31 August
2013
£m
9.1
(4.0)
5.1
9.1
(2.7)
6.4
Contractual commitments at 30 August 2014 were £1.3 million (2013: £3.8 million).
Capitalised finance costs
Finance costs capitalised on qualifying assets included in additions amounted to £0.6 million (2013: £1.4 million). Accumulated
finance costs capitalised included in the cost of property, plant and equipment net of disposals amounted to £2.0 million
(2013: £1.4 million). The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 3.3%
(2013: 3.1%).
15 Financial assets – available-for-sale investments
At 1 September 2012
Decrease in the market value charged to the statement of comprehensive income
At 31 August 2013
Increase in the market value credited to the statement of comprehensive income
At 30 August 2014
£m
1.9
(0.8)
1.1
2.5
3.6
The Group holds 10% (2013: 10%) of the issued shares of Ermes Department Stores Limited (“Ermes”), a company listed
on the Cyprus Stock Exchange whose shares are quoted in Euros. The market value of the shares at 30 August 2014 was
£3.6 million (2013: £1.1 million). Ermes is a company that is registered and trades in Cyprus.
16 Inventories
Items held for resale
30 August
2014
£m
31 August
2013
£m
345.7
357.9
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113
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
17 Trade and other receivables
Non-current
Other receivables
Other receivables include contractual lease deposits of £15.6 million (2013: £16.6 million).
30 August
2014
£m
31 August
2013
£m
15.6
16.8
30 August
2014
£m
31 August
2013
£m
Current
Trade receivables
Allowance for doubtful debts
Other receivables
Prepayments and accrued income
25.8
(0.5)
25.3
2.1
47.3
74.7
At the year end, £22.9 million (2013: £18.1 million) of the trade receivables were denominated in sterling, £0.4 million
(2013: £0.2 million) in Euros and £2.5 million (2013: £2.2 million) in Danish krone.
The movement in the allowance for doubtful debts may be analysed as follows:
At 1 September 2012
Increase in provision
At 31 August 2013
Decrease in provision
At 30 August 2014
20.5
(0.7)
19.8
1.1
57.4
78.3
£m
(0.5)
(0.2)
(0.7)
0.2
(0.5)
Trade receivables which are past their due date but not impaired amount to £4.8 million (2013: £1.9 million). Trade
receivables which are past their due date are provided based on estimated irrecoverable amounts from the sale of
goods. At 30 August 2014, £0.5 million (2013: £0.7 million) of trade receivables were past their due date and impaired.
18 Cash and cash equivalents
Cash at bank and in hand
30 August
2014
£m
64.4
31 August
2013
£m
27.0
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114
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
19 Trade and other payables
Trade payables
Other payables
Taxation and social security
Accruals
Deferred income
20 Bank overdraft and borrowings
Current
Bank overdraft
Revolving credit facility1
Senior notes2
Lease obligations
Total current borrowings
Non-current
Term loan facility3
Senior notes2
Lease obligations
Total non-current borrowings
Total current and non-current borrowings
30 August
2014
£m
31 August
2013
£m
326.2
67.0
33.6
98.6
3.9
529.3
345.0
67.9
24.4
103.7
4.8
545.8
30 August
2014
£m
31 August
2013
£m
–
196.9
1.9
3.3
202.1
–
220.6
3.2
223.8
425.9
2.9
158.4
–
1.8
163.1
232.8
–
3.1
235.9
399.0
1 Revolving credit facility is stated net of unamortised issue costs of £3.1 million (2013: £2.5 million).
2 Senior notes include accrued interest of £1.9 million (2013: £nil) and are stated net of unamortised issue costs of £4.4 million (2013: £nil).
Interest on the senior notes is payable semi-annually.
3 Term loan facility is stated net of unamortised issue costs of £nil (2013: £3.7 million).
On 2 July 2014, Debenhams plc issued £225.0 million of seven year senior notes at a coupon rate of 5.25%. On 2 July 2014, the
Group cancelled its existing term loan and revolving credit facility and drew down on a new revolving credit facility amounting
to £425.0 million. This new revolving credit facility is due to expire in October 2018 and contains an option to request an
extension to October 2019.
At 30 August 2014, the Group’s drawings under credit facilities outstanding comprised revolving credit facility drawings
of £200.0 million (2013: £160.9 million revolving credit facility drawings and £236.5 million term loan).
During the current and prior financial years, the Group has complied with its covenants relating to its credit facilities.
Refinancing costs of £7.9 million were incurred during the year ended 30 August 2014 in respect of the negotiation of the new
credit facility and the issue of the senior notes, which will be amortised over the term of the corresponding borrowings at the
effective interest rate based on the expected amount of those borrowings. The amortisation charge relating to the issue costs
of the term loan and revolving credit facility was £1.9 million for the year ended 30 August 2014 (2013: £2.7 million) and the
amortisation charge relating to the issue costs of the senior notes was £0.1 million for the year ended 30 August 2014 (2013:
£nil). The write-off of unamortised issue costs in relation to the cancelled credit facilities was £4.5 million for the year ended
30 August 2014. This has been separately disclosed in the income statement.
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114
115
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
20 Bank overdraft and borrowings continued
Finance lease obligations
Finance lease obligations relate mainly to software, vehicles, fixtures and equipment leased under hire purchase contracts.
The minimum lease payments under finance leases fall due as follows:
Not later than one year
Later than one year but not later than five years
Interest element of future instalments
Present value of finance lease obligations
The present value of finance lease obligations may be analysed as follows:
Not later than one year
Later than one year but not later than five years
Maturity of borrowings
The maturities of the Group’s borrowings at carrying value are as follows:
Amounts falling due:
In one year or less or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Interest rates
The effective interest rates at the balance sheet dates were as follows:
Bank overdraft
Term loan facility
Revolving credit facility
Senior notes
Lease obligations
30 August
2014
£m
31 August
2013
£m
3.5
3.2
6.7
(0.2)
6.5
2.0
3.2
5.2
(0.3)
4.9
30 August
2014
£m
31 August
2013
£m
3.3
3.2
6.5
1.8
3.1
4.9
30 August
2014
£m
31 August
2013
£m
202.1
2.9
0.3
220.6
425.9
163.1
1.8
234.1
–
399.0
30 August
2014
%
N/A
N/A
2.50
5.25
3.52
31 August
2013
%
1.88
2.24
2.24
N/A
4.09
Borrowing facilities
The Group has the following undrawn committed facilities available at 30 August 2014, in respect of which all conditions
precedent had been met as at that date:
Expiring between two and five years
30 August
2014
£m
225.0
31 August
2013
£m
217.6
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
21 Financial risk management
a) Financial risks and treasury management
The Group conducts its treasury activities within the remit of a treasury policy, which outlines approved policies, procedures
and authority levels. The board delegates its responsibility for reviewing and approving treasury policy to the Audit
Committee. Reports are prepared monthly covering all areas of treasury activity and policy compliance and are reviewed by
the Chief Financial Officer. The board and Audit Committee receive regular reports covering treasury activities and policy
compliance. Group treasury manages the Group’s funding requirements and financial risks in line with the agreed treasury
policies and procedures.
The Group’s financial instruments, other than derivatives, primarily include borrowings, cash and liquid resources, available-
for-sale assets, trade receivables and trade payables. The main purpose of these financial instruments is to manage liquidity
or raise finance for the Group.
Group treasury uses derivative financial instruments to manage its interest rate risks associated with the Group’s financing
and currency risk arising from the Group’s operations. The derivatives used are mainly interest rate swaps and forward
currency contracts.
The Group’s activities expose it to a variety of financial risks, which include:
• Funding and liquidity risk
• Credit risk
• Foreign exchange risk
• Interest rate risk
• Other price risk
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge
certain risk exposures.
The policies and strategies for managing these risks are summarised as follows:
i) Funding and liquidity risk
Prudent liquidity risk management implies sufficient cash and marketable securities, the availability of funding through an
adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of
the underlying business, Group treasury aims to maintain flexibility in funding by keeping committed credit lines available.
The Group finances its operations by a combination of retained profits, debt finance and leases. Group treasury monitors
rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash or working capital facility to meet the
cash flow and covenant requirements of the Group and the current business plan.
Surplus cash held by the operating entities over and above balances required for working capital management are transferred
to Group treasury. Group treasury invests surplus cash in interest bearing current accounts, term deposits, money market
deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient
headroom as determined by the above-mentioned forecasts.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
21 Financial risk management continued
a) Financial risks and treasury management continued
i) Funding and liquidity risk continued
The table below shows the maturity analysis of the Group’s net contractual undiscounted cash flows in respect of
non-derivative financial liabilities and derivative assets and liabilities at the balance sheet date.
At 30 August 2014
Non-derivative financial liabilities
Borrowings excluding finance lease liabilities
Interest payments due on borrowings
Finance lease liabilities
Trade and other payables
Derivative financial assets and liabilities
Interest rate swaps
– Net settled derivative contracts – payments
Forward foreign exchange contracts
– Gross settled derivative contracts – receipts
– Gross settled derivative contracts – payments
Total
At 31 August 2013
Non-derivative financial liabilities
Borrowings excluding finance lease liabilities
Interest payments due on borrowings
Finance lease liabilities
Trade and other payables
Derivative financial assets and liabilities
Interest rate swaps
– Net settled derivative contracts – payments
Forward foreign exchange contracts
– Gross settled derivative contracts – receipts
– Gross settled derivative contracts – payments
Total
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
(200.0)
(12.2)
(3.5)
(468.7)
–
(11.8)
(2.9)
–
–
(35.4)
(0.3)
–
(225.0)
(23.6)
–
–
(1.5)
(1.0)
(0.1)
–
342.4
(352.0)
(695.5)
198.7
(199.8)
(16.8)
114.9
(114.7)
(35.6)
–
–
(248.6)
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
(163.7)
(5.3)
(2.0)
(483.0)
–
(5.3)
(1.9)
–
(236.5)
(6.2)
(1.3)
–
(2.9)
(2.2)
(2.8)
343.8
(337.9)
(651.0)
84.2
(83.2)
(8.4)
–
–
(246.8)
–
–
–
–
–
–
–
–
ii) Credit risk
Credit risk is the risk that the Group may suffer financial loss through default by customers or financial institutions. The Group
has no significant concentrations of credit risk. Sales to retail customers are made in cash or by credit and debit cards;
wholesale sales of products to franchisees are made to customers with an appropriate credit history and, where possible, are
covered by letters of credit and/or credit insurance. Derivative counterparties and cash transactions are limited to high credit-
quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution.
The Group’s policy requires that cash surpluses are placed on deposit for no longer than three months and only with
counterparties with a credit rating of A- or A3 or higher as assigned by Standard & Poor’s or Moody’s respectively.
Exceptions to this policy require board approval.
The Group considers its maximum credit risk to be £115.5 million (2013: £75.0 million) being the Group’s total financial assets
as shown in note 22.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
iii) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
with respect to the US dollar, the Euro, the Chinese yuan and the Danish krone.
To manage the foreign exchange transaction risk, entities in the Group use forward currency contracts transacted by Group
treasury. Foreign exchange risk arises when commercial transactions are denominated in a currency that is not the entity’s
functional currency. Group treasury is responsible for managing the exposure in each foreign currency by using external
forward currency contracts with a settlement of up to three (2013: two) years. Forecast cash flows are hedged to the extent that
those cash flows are deemed highly probable. The Group regularly reviews the need to hedge foreign exchange exposure
arising from the profits, assets and liabilities of its non-sterling businesses, hedging those exposures to the extent that they
are considered appropriate for hedging.
The Group manages foreign exchange translation risk by entering into monthly foreign exchange swap contracts to offset
month by month currency translation impacts within the Group, where appropriate.
A loss of £8.1 million (2013: gain of £7.6 million) was reclassified from equity to the income statement within cost of inventory
during the year in respect of forward foreign exchange contracts designated as cash flow hedges.
The notional value of open forward foreign exchange contracts at 30 August 2014 was £658.2 million (2013: £420.4 million).
The net fair value losses on open forward foreign exchange contracts held in the hedging reserve at 30 August 2014 were
£6.1 million (2013: gains of £5.3 million). This will be recycled and adjusted against the initial measurement of the acquisition
cost of inventory over the next three years.
During the current and prior financial years there were no contracts reclassified to “held for trading” due to cash flow hedges
being ineffective.
iv) Interest rate risk
The Group’s interest rate risk arises from long-term borrowing facilities issued at variable rates that expose the Group to cash
flow interest rate risk. On 2 July 2014 Debenhams plc issued £225.0 million of seven year senior notes at a coupon rate of
5.25% which reduced the Group’s exposure to cash flow interest rate risk.
The interest exposure of the Group is managed within the constraints of the Group’s business plan and the financial covenants
under its facilities. The aim is to reduce exposure to interest rate movements and to take advantage of low interest rates by
hedging an appropriate amount of interest rate exposure whilst maintaining the flexibility to minimise early termination costs.
The Group’s interest rate hedging strategy is to achieve a target fixed percentage of 75%, with a 15% tolerance (60% - 90%).
The impact of movements in interest rates is managed through the use of floating rate debt and interest rate swaps.
These are usually matched with specific loans for a period of time up to their maturity or call date.
The Group’s main interest rate exposure is from the floating rate loans under the credit facilities. At the year end the
percentage of the Group’s total borrowings subject to fixed interest rates (either directly or as a result of hedging) was 100.0%
(2013: 81.4%). This is temporarily outside the 60% - 90% policy range as a result of the recent refinancing but will revert to
policy over the next 12 months.
Interest rate swaps
The Group’s interest rate swaps switch interest from floating rates to fixed rates. The Group’s interest rate swap portfolio
is summarised as follows:
Notional
£m
Rate
%
Maturity
Interest rate swaps
200.0
1.050% - 1.715%
November 2014 to October 2016
The notional principal amount of interest rate swaps at 30 August 2014 was £200.0 million (2013: £330.0 million). The net gains
and losses on these swaps, which are deferred in equity, will reverse through interest in the income statement over the life of
the swaps. During the financial year a loss of £2.7 million (2013: £3.3 million) was reclassified and reported in the income
statement in respect of interest rate swaps.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
21 Financial risk management continued
a) Financial risks and treasury management continued
iv) Interest rate risk continued
Borrowings and cash and cash equivalents
The interest rate profiles of borrowings after taking account of interest rate swaps, swapped from floating to fixed rates, used
to manage interest were as follows:
Borrowings
Sterling1
30 August 2014
Fixed
£m
Floating
£m
Total
£m
31 August 2013
Fixed
£m
Floating
£m
Total
£m
(431.5)
–
(431.5)
(334.9)
(70.3)
(405.2)
1 Unamortised debt issue costs of £7.5 million (2013: £6.2 million) are excluded from the borrowings above.
Fixed sterling borrowings comprise the hedged portion of the debt facility of £200.0 million (2013: £330.0 million), senior notes
of £225.0 million (2013: £nil) and finance lease liabilities of £6.5 million (2013: £4.9 million) at 30 August 2014. The weighted
average interest rate on the fixed rate borrowings as at 30 August 2014 was 4.4% (2013: 3.3%), with the weighted average time
for which rates are fixed being 4.3 years (2013: 3.2 years). Floating rate borrowings are interest bearing at interest rates based
on LIBOR. Cash deposits are interest bearing at rates based on LIBID or relevant base rates. Non-interest bearing cash refers
to cash in stores or in transit.
Floating rate borrowings have been classified as fixed if there were derivative financial instruments hedging the floating rate
interest.
The interest rate profiles of cash and cash equivalents were as follows:
Financial assets
Sterling
Euro
US dollar
Danish krone
Chinese yuan
Other
Total financial assets
30 August 2014
Non-interest
bearing
£m
Floating
£m
28.5
0.1
0.6
1.2
0.1
0.1
30.6
29.4
2.7
0.7
–
–
1.0
33.8
31 August 2013
Non-interest
bearing
£m
Floating
£m
0.1
0.4
0.1
–
0.7
0.2
1.5
22.8
1.8
0.5
–
–
0.4
25.5
Total
£m
57.9
2.8
1.3
1.2
0.1
1.1
64.4
Total
£m
22.9
2.2
0.6
–
0.7
0.6
27.0
v) Other price risk
The Group is exposed to price risk arising from equity investments.
The sensitivity analysis below has been determined based on the exposure to equity price risk at the reporting date. At the
year end, if the market value of equity investments had been 10% higher/lower, when all other variables were held constant:
• Net profit would have been unaffected as the equity investments were classified as available-for-sale investments
• Other reserves would decrease/increase by £0.4 million (2013: £0.1 million) for the Group as a result of the changes in the
fair value of available-for-sale investments
The above movement in rates is considered to represent reasonable possible changes. Other larger or smaller changes
are also possible.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
b) Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, provide
returns for shareholders and benefits to other stakeholders and maintain a structure to optimise the cost of capital. The Group
defines capital as debt and equity.
In order to maintain or adjust the capital structure, the Group may consider: the amount of dividend paid to shareholders;
the return of capital to shareholders; the issue or sale of shares; or the sale of assets to reduce debt.
The Group routinely monitors its capital and liquidity requirements through leverage ratios consistent with industry-wide
borrowing standards, maintaining suitable headroom to bank facility fixed charge, senior notes and leverage covenants
together with credit market requirements to ensure financing requirements continue to be serviceable.
c) Fair value estimates
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of
forward currency contracts has been determined based on discounted market forward currency exchange rates at the balance
sheet date.
The fair values of short-term deposits, loans and overdrafts with a maturity of less than one year are assumed to approximate
to their book values. In the case of the Group’s loans due in more than one year, the fair value of financial liabilities for
disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rates
available to the Group.
Note 22 shows the carrying value and fair value of financial assets and liabilities.
d) Sensitivity analysis
The Group monitors interest rate risk and foreign exchange risk by determining the effect on profit and equity of a range of
possible changes in interest rates and foreign exchange rates. The range of sensitivities chosen, being 1% movement in the
interest rate or 5% movement in sterling when compared to US dollar, Chinese yuan, Danish krone and Euro, reflects the
Group’s view of reasonably possible changes to these risk variables which existed at the year end.
The table below illustrates the estimated impact on the Group as a result of market movements in interest rates in relation to
all the Group’s financial instruments. The analysis has been produced assuming no changes in the borrowings and existing
interest rate swaps portfolio when considering the interest rate movement.
1% increase in interest rate
30 August 2014
31 August 2013
Income
statement
gain/(loss)
£m
Equity
gain/(loss)
£m
Income
statement
gain/(loss)
£m
Equity
gain/(loss)
£m
0.3
2.3
(0.7)
7.5
A 1% decrease in interest rate would result in an equal and opposite change in the income statement and equity respectively.
The table below illustrates the estimated impact on the Group as a result of market movements in foreign exchange rates
in relation to all the Group’s financial instruments.
5% weakening in sterling compared to US dollar
5% weakening in sterling compared to the Euro
5% weakening in sterling compared to Danish krone
5% weakening in sterling compared to Chinese yuan
30 August 2014
31 August 2013
Income
statement
gain/(loss)
£m
Equity
gain/(loss)
£m
Income
statement
gain/(loss)
£m
Equity
gain/(loss)
£m
(0.4)
0.5
0.5
–
20.7
(1.0)
–
2.2
1.6
(0.6)
(0.4)
0.3
10.6
(1.5)
–
1.6
A 5% strengthening in sterling compared to the US dollar, Euro, Danish krone or Chinese yuan would result in an equal and
opposite change in the income statement and equity respectively.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
22 Financial instruments
Financial assets and liabilities by category
Information regarding the Group’s financial risk management policies has been disclosed in note 21. The following table sets
out the classification, carrying value and fair value of each class of financial assets and liabilities within the financial statements:
Total
fair value
£m
Total
carrying
value
£m
Available-
for-sale
£m
Held for
trading
£m
Derivatives
designated
as cash flow
hedges
£m
Loans and
receivables and
financial liabilities
at amortised cost
£m
At 30 August 2014
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Forward foreign currency contracts
Non-current assets
Trade and other receivables
Available-for-sale financial assets
Interest rate swaps
Forward foreign currency contracts
Total financial assets
Liabilities
Current liabilities
Trade and other payables
Current borrowings
Interest rate swaps
Forward foreign currency contracts
Non-current liabilities
Non-current borrowings
Interest rate swaps
Forward foreign currency contracts
Total financial liabilities
Total
At 31 August 2013
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Forward foreign currency contracts
Non-current assets
Trade and other receivables
Available-for-sale financial assets
Interest rate swaps
Forward foreign currency contracts
Total financial assets
Liabilities
Current liabilities
Trade and other payables
Current borrowings
Interest rate swaps
Forward foreign currency contracts
Non-current liabilities
Non-current borrowings
Interest rate swaps
Forward foreign currency contracts
Total financial liabilities
Total
64.4
27.4
1.5
15.6
3.6
0.6
2.4
115.5
(491.8)
(202.1)
(0.2)
(11.2)
(223.8)
(1.2)
(1.5)
(931.8)
(816.3)
27.0
20.9
7.3
16.8
1.1
0.7
1.2
75.0
(516.8)
(163.1)
(0.5)
(1.6)
(235.9)
(3.4)
(0.3)
(921.6)
(846.6)
64.4
27.4
1.5
15.6
3.6
0.6
2.4
115.5
(491.8)
(202.1)
(0.2)
(11.2)
(223.8)
(1.2)
(1.5)
(931.8)
(816.3)
27.0
20.9
7.3
16.8
1.1
0.7
1.2
75.0
(516.8)
(163.1)
(0.5)
(1.6)
(235.9)
(3.4)
(0.3)
(921.6)
(846.6)
–
–
–
–
3.6
–
–
3.6
–
–
–
–
–
–
–
–
3.6
–
–
–
–
1.1
–
–
1.1
–
–
–
–
–
–
–
–
1.1
–
–
0.1
–
–
–
–
0.1
–
–
–
(2.8)
–
–
–
(2.8)
(2.7)
–
–
1.5
–
–
–
–
1.5
–
–
–
(0.1)
–
–
–
(0.1)
1.4
–
–
1.4
–
–
0.6
2.4
4.4
–
–
(0.2)
(8.4)
–
(1.2)
(1.5)
(11.3)
(6.9)
–
–
5.8
–
–
0.7
1.2
7.7
–
–
(0.5)
(1.5)
–
(3.4)
(0.3)
(5.7)
2.0
64.4
27.4
–
15.6
–
–
–
107.4
(491.8)
(202.1)
–
–
(223.8)
–
–
(917.7)
(810.3)
27.0
20.9
–
16.8
–
–
–
64.7
(516.8)
(163.1)
–
–
(235.9)
–
–
(915.8)
(851.1)
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
There were no material differences between the carrying value of non-derivative financial assets and financial liabilities and
their fair values at the balance sheet date.
During the year, as a result of the refinancing referred to in note 20, the Group cancelled £150.0 million of interest rate swap
contracts with a combined balance sheet liability value of £0.1 million.
Fair value measurement
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
• Level 1 – Quoted prices (unadjusted) based on active markets for identical assets or liabilities
• Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (that is, prices) or indirectly (that is, derived from prices)
• Level 3 – Inputs for the asset or liability that are not based on observable market data
The following table shows the Group’s financial assets and liabilities that are measured at fair value:
At 30 August 2014
Assets
Available-for-sale financial assets
Derivative financial instruments:
– Interest rate swaps held as cash flow hedges
– Forward foreign currency contracts held as cash flow hedges
– Other forward foreign currency contracts
Total assets
Liabilities
Derivative financial instruments:
– Interest rate swaps held as cash flow hedges
– Forward foreign currency contracts held as cash flow hedges
– Other forward foreign currency contracts
Total liabilities
At 31 August 2013
Assets
Available-for-sale financial assets
Derivative financial instruments:
– Interest rate swaps held as cash flow hedges
– Forward foreign currency contracts held as cash flow hedges
– Other forward foreign currency contracts
Total assets
Liabilities
Derivative financial instruments:
– Interest rate swaps held as cash flow hedges
– Forward foreign currency contracts held as cash flow hedges
– Other forward foreign currency contracts
Total liabilities
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
3.6
–
–
–
3.6
–
–
–
–
–
0.6
3.8
0.1
4.5
(1.4)
(9.9)
(2.8)
(14.1)
–
–
–
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
1.1
–
–
–
1.1
–
–
–
–
–
0.7
7.0
1.5
9.2
(3.9)
(1.8)
(0.1)
(5.8)
–
–
–
–
–
–
–
–
–
3.6
0.6
3.8
0.1
8.1
(1.4)
(9.9)
(2.8)
(14.1)
Total
£m
1.1
0.7
7.0
1.5
10.3
(3.9)
(1.8)
(0.1)
(5.8)
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in
circumstances that caused the transfer. There have been no transfers of assets or liabilities between levels of the fair value
hierarchy during the year.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
23 Retirement benefit obligation
The Group operates defined benefit type pension schemes, being the Debenhams Executive Pension Plan (“DEPP”) and the
Debenhams Retirement Scheme (“DRS”) (together “the Group’s pension schemes”), the assets of which are held in separate
trustee-administered funds. Both schemes are established under trust law and each has a corporate trustee that is required
to run the schemes in accordance with the Scheme’s Trust Deed and Rules and to comply with the Pensions Act 2004 and all
relevant legislation. Responsibility for governance of the schemes lies with the trustee of each scheme. Each corporate trustee
is a company whose directors comprise of representatives:
• Appointed by the Group; and
• Nominated by scheme members.
The chair of both corporate trustees is independent from the schemes and from the Group.
Both pension schemes were closed for future service accrual from 31 October 2006. The closure to future accrual will not affect
the pensions of those who have retired or the deferred benefits of those who have left service or opted out before 31 October
2006. Future pension arrangements are provided through a money purchase stakeholder plan in the UK and Hong Kong or a
defined contribution scheme for the employees in the Republic of Ireland and Denmark.
In accordance with the recovery plan for the Group’s pension schemes, which is intended to restore the schemes to a fully
funded position on an ongoing basis, the Group agreed to contribute to the pension schemes £8.9 million per annum
for the period from 1 April 2012 to 31 March 2022 increasing by the percentage increase in the RPI over the year to the
previous December. Additionally, the Group has agreed to cover the non-investment expenses and levies of the pension
schemes, including those payable to the Pension Protection Fund. Employees make no further contributions to the schemes.
Investment of the schemes’ assets is arranged by AON Hewitt Limited under a delegated consulting service agreement.
As at 30 August 2014 most of the schemes’ assets are invested in a delegated liability fund or a delegated growth fund.
Actuarial valuations of the Group’s pension schemes using the projected unit basis were carried out at 31 March 2011 and
updated as at each relevant year end for the purposes of IAS 19 “Employee benefits” by Towers Watson Limited, a qualified
independent actuary. The 31 March 2011 actuarial valuation has been used when calculating the IAS 19 “Employee benefits”
revised valuation at 30 August 2014. The actuarial valuation as at 31 March 2014 is under way.
By funding its defined benefit pension schemes, the Group is exposed to the risk that the cost of meeting its obligations is
higher than anticipated. This could occur for several reasons, for example:
• Investment returns on the schemes’ assets may be lower than anticipated, especially if falls in asset values are not matched
by similar falls in the value of the schemes’ liabilities;
• The level of price inflation may be higher from that assumed, resulting in higher payments from the schemes;
• Scheme members may live longer than assumed; and
• Legislative changes could lead to an increase in pension schemes’ liabilities.
The weighted average duration of the defined benefit obligation is 22 years.
The major assumptions used by the actuary were:
Inflation assumption
General salary and wage increase
Rate of increase in pension payments and deferred payments
Pension increase rate
Discount rate
30 August
2014
per annum
%
3.1
3.1
3.1
2.9
3.9
31 August
2013
per annum
%
3.3
3.3
3.3
3.0
4.6
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
The inflation assumption is based on the RPI rate as pension increases both in payment and deferment within the schemes are
set out with reference to this measure.
At the financial year end, the schemes’ assets were as follows:
Assets
Delegated liability fund
Delegated growth fund
Legacy holdings
Cash and other assets
Total market value of assets
Present value of scheme liabilities
Net deficit in schemes
Analysed as:
DEPP scheme surplus
DRS scheme deficit
Quoted
£m
30 August 2014
Unquoted
£m
Total
£m
Quoted
£m
31 August 2013
Unquoted
£m
144.5
450.8
–
3.1
598.4
–
150.0
–
–
150.0
129.3
416.7
–
3.8
549.8
–
122.9
0.9
–
123.8
144.5
600.8
–
3.1
748.4
(750.8)
(2.4)
6.9
(9.3)
Total
£m
129.3
539.6
0.9
3.8
673.6
(693.6)
(20.0)
4.6
(24.6)
At 30 August 2014, 80.0% (2013: 81.6%) of investments were quoted on a recognised stock exchange or held in cash or assets
readily convertible to cash and are therefore considered to be liquid.
The current life expectancies of a pensioner retiring aged 65 underlying the mortality tables for each of the schemes above
are as follows:
Debenhams Retirement Scheme
Member currently aged 65
Member aged 65 in 15 years
Debenhams Executive Pension Plan
Member currently aged 65
Member aged 65 in 15 years
30 August 2014
Years
Male
Years
Female
31 August 2013
Years
Male
Years
Female
22.5
23.5
24.4
25.6
22.4
23.4
24.4
25.5
30 August 2014
Years
Male
Years
Female
31 August 2013
Years
Male
Years
Female
24.6
25.5
25.9
27.0
24.5
25.5
25.8
27.0
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
23 Retirement benefit obligation continued
Changes in the present value of the defined benefit obligations are as follows:
Present value of obligations at start of the financial year
Current service cost
Interest cost on the defined benefit liability
Benefit payments from plan assets
Remeasurements:
Losses from changes in financial assumptions
Gains from changes in demographic assumptions
Experience (gains)/losses
Present value of obligations at end of the financial year
Changes in the fair value of plan assets are as follows:
Fair value of pension scheme assets at start of the financial year
Interest income on plan assets
Benefit payments from plan assets
Company contributions
Remeasurements:
Return on plan assets, excluding amounts included in finance costs
Fair value of pension scheme assets at end of the financial year
Movement in the net deficit during the financial year is as follows:
Net deficit in the schemes at start of the financial year
Movement in the financial year:
– Company contributions
– Current service cost
– Net interest on net defined benefit liability
– Remeasurements of pension schemes
Net deficit in the schemes at end of the financial year
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
30 August
2014
£m
Restated1
31 August
2013
£m
693.6
1.4
31.4
(20.4)
64.2
(13.0)
(6.4)
750.8
641.0
1.3
29.6
(23.2)
42.5
–
2.4
693.6
30 August
2014
£m
Restated1
31 August
2013
£m
673.6
30.8
(20.4)
10.8
53.6
748.4
583.7
27.2
(23.2)
10.4
75.5
673.6
30 August
2014
£m
Restated1
31 August
2013
£m
(20.0)
(57.3)
10.8
(1.4)
(0.6)
8.8
(2.4)
10.4
(1.3)
(2.4)
30.6
(20.0)
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
The table below illustrates the estimated impact on the schemes’ liabilities as a result of movements in the principal
assumptions used to measure those liabilities.
Increase in schemes’ liabilities arising from a 0.5% increase in inflation
Increase in schemes’ liabilities arising from a 1.0% reduction in the discount rate
Increase in schemes’ liabilities arising from a one year increase in life expectancy
30 August
2014
£m
58.5
141.3
23.1
31 August
2013
£m
54.0
130.5
21.3
A 0.5% reduction in the inflation assumption, a 1.0% increase in the discount rate assumption and a one year reduction in the
life expectancy assumption would result in an equal and opposite change in the schemes’ liabilities.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant.
In practice, this is unlikely to occur, and changes in some of the assumptions may be accumulated. When calculating the
sensitivity of the schemes’ liabilities to significant actuarial assumptions the same method has been applied as when
calculating the retirement benefit obligations/asset recognised within the balance sheet.
The contributions expected to be paid during the financial year ending 29 August 2015 amount to £11.0 million.
Other Debenhams defined contribution schemes
The Group contributions to other defined contribution schemes during the financial year were £14.7 million
(2013: £13.4 million).
24 Deferred tax assets and liabilities
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 20.0% for the UK
differences (2013: 22.2% for temporary differences expected to reverse within 12 months of the balance sheet date and 20.0%
for temporary differences expected to reverse more than one year after the balance sheet date). Local tax rates have been
used for overseas differences.
Non-current
Deferred tax assets
Deferred tax liabilities
Deferred tax expected to be reversed within 12 months of the balance sheet date:
Deferred tax assets
Deferred tax liabilities
30 August
2014
£m
31 August
2013
£m
51.0
(53.4)
(2.4)
69.3
(59.1)
10.2
30 August
2014
£m
31 August
2013
£m
2.8
(1.9)
0.9
2.8
(5.9)
(3.1)
Deferred tax assets have been recognised in respect of temporary differences giving rise to deferred tax assets because it is
probable that these assets will be recovered.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
24 Deferred tax assets and liabilities continued
The movement on the deferred tax account is as shown below:
Developers’
contributions
received
£m
Fair value
losses
£m
Other
provisions
£m
Restated1
Retirement
benefit
asset
£m
Restated1
Total
£m
Assets
At 1 September 2012
Credited to the income statement
Result of the change in the standard rate of
corporation tax charged to the income statement
Charged to the statement of comprehensive income
At 31 August 2013
(Charged)/credited to the income statement
Transfer from deferred tax liabilities
Prior year adjustment to the income statement
Credited/(charged) to the statement of
comprehensive income
At 30 August 2014
34.3
0.1
(4.5)
–
29.9
(11.7)
–
–
–
18.2
2.1
0.1
–
(1.2)
1.0
–
(2.0)
–
3.0
2.0
33.6
4.3
(4.4)
–
33.5
(3.1)
–
(0.1)
–
30.3
13.2
0.3
(0.7)
(7.9)
4.9
0.4
(0.9)
–
(3.9)
0.5
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
Liabilities
At 1 September 2012
Credited to the income statement
Prior year adjustment to the income statement
Result of the change in the standard rate of corporation tax
credited to the income statement
Charged to the statement of comprehensive income
At 31 August 2013
Credited/(charged) to the income statement
Transfer to deferred tax assets
Result of the change in the standard rate of corporation tax
credited to the income statement
At 30 August 2014
Accelerated
tax
depreciation
£m
(62.8)
0.9
Fair value
gains
£m
(1.9)
0.5
Restated1
Retirement
benefit
liability
£m
–
0.6
(1.7)
7.3
–
(56.3)
1.9
–
1.0
(53.4)
–
0.1
(0.6)
(1.9)
(0.1)
2.0
–
–
–
(0.1)
(1.4)
(0.9)
–
0.9
–
–
83.2
4.8
(9.6)
(9.1)
69.3
(14.4)
(2.9)
(0.1)
(0.9)
51.0
Restated1
Total
£m
(64.7)
2.0
(1.7)
7.3
(2.0)
(59.1)
1.8
2.9
1.0
(53.4)
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
Within other provisions is a deferred tax asset of £5.2 million (2013: £4.3 million) in relation to overseas operations which has
been recognised. In addition to this there is an unrecognised deferred tax asset of £2.6 million (2013: £8.4 million) relating
to operations in Denmark and the Republic of Ireland.
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127
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
25 Other non-current liabilities
Property lease incentives received
Other non-current liabilities
Total other non-current liabilities
30 August
2014
£m
331.7
1.0
332.7
31 August
2013
£m
320.1
2.0
322.1
Property lease incentives received from landlords either through initial contributions or rent-free periods are recognised as
non-current liabilities and are credited to the income statement on a straight line basis over the term of the relevant lease.
Property lease incentives received also relate to the spreading of the charges in respect of leases with fixed annual increments
in rent (escalating rent clauses) over the term of the relevant lease.
26 Provisions
At 31 August 2013
Charged to the income statement
Utilised during the financial year
At 30 August 2014
Closure
provision
£m
0.1
–
(0.1)
–
Promotional
activities
£m
5.5
18.0
(17.5)
6.0
Other
provisions
£m
1.1
–
–
1.1
Total
£m
6.7
18.0
(17.6)
7.1
Provisions have been analysed between current and non-current as follows:
Current
Non-current
30 August
2014
£m
6.0
1.1
7.1
31 August
2013
£m
5.6
1.1
6.7
Closure provision
Relating to one vacated building which was utilised in full during the financial year.
Promotional activities provision
Provisions for promotional activities represent the cost to the business of operating an internal cosmetics loyalty scheme,
cardholder loyalty scheme and the reward scheme in the Republic of Ireland and they are expected to be utilised during
the next 12 months.
Other provisions
The Group’s other provisions relate to dilapidations on properties based upon the directors’ best estimate of the Group’s
future liability. These provisions are expected to be utilised within the next two years.
27 Share capital and reserves
30 August 2014
31 August 2013
£
Number
£
Number
Issued and fully paid – ordinary shares of £0.0001 each
At start of year
Allotted under share option schemes
At end of year
128,684 1,286,843,441
–
128,684 1,286,843,441
–
128,680
4
128,684
1,286,806,299
37,142
1,286,843,441
During the financial year ended 30 August 2014, 14,351,525 (2013: 23,882,722) of the above shares were purchased by
the Company and transferred to treasury. See retained earnings below.
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129
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
27 Share capital and reserves continued
Employee share trust – interest in share capital
The number of ordinary shares in the Company held by the Debenhams Retail Employee Trust (“DRET”) was as follows:
Debenhams Retail Employee Trust 2004
30 August
2014
Ordinary
shares
Number
473,537
31 August
2013
Ordinary
shares
Number
473,537
The market value of the shares on 30 August 2014 was £0.3 million for DRET (2013: £0.5 million). The cost of the shares held at
the year end is £0.4 million (2013: £0.4 million).
A description of the nature and purpose of each reserve is set out below:
Share premium account
On admission to the London Stock Exchange in 2006, the Company issued 358,974,359 shares at £1.95, generating proceeds
of £700.0 million. Costs directly associated with the issue of the new shares totalled £17.1 million and in accordance with the
Companies Act 2006 these costs were set off against the premium generated on issue of the new shares.
Merger reserve
The merger reserve of £1,200.9 million exists as a result of the 2005 Group reconstruction.
Reverse acquisition reserve
The reverse acquisition reserve exists as a result of the method of accounting for the 2005 Group reconstruction.
In accordance with International Accounting Standards, the 2005 Group reconstruction has been accounted for
as a reverse acquisition.
Hedging reserve
The hedging reserve represents the change in fair value of all interest rate swaps and forward foreign currency contracts which
have been designated as cash flow hedges. The effective portion of the changes in fair value of derivatives that are designated
and qualify as cash flow hedges is recognised in equity. The gain or loss relating to the ineffective portion is recognised
immediately in the relevant line of the income statement which will be affected by the underlying hedged item.
Other reserves
The other reserves represent the change in fair value in respect of the Group’s available-for-sale investments (note 15)
and exchange differences arising as part of a reporting entity’s net investment in a foreign operation. Other reserves may
be analysed as follows:
At 1 September 2012
Currency translation differences
Change in the fair value of available-for-sale investments
At 31 August 2013
Currency translation differences
Change in the fair value of available-for-sale investments
At 30 August 2014
Change in
fair value
of available-
for-sale
investments
£m
(2.3)
–
(0.8)
(3.1)
–
2.5
(0.6)
Translation
reserve
£m
(8.2)
3.6
–
(4.6)
(4.2)
–
(8.8)
Total
£m
(10.5)
3.6
(0.8)
(7.7)
(4.2)
2.5
(9.4)
Retained earnings
The Company commenced its share buyback programme in April 2012. At 30 August 2014 the Company had purchased
61,793,402 (2013: 47,441,877) ordinary shares of £0.0001 at a total cost of £60.3 million of which 14,351,525 (2013: 23,882,722)
ordinary shares of £0.0001 were purchased (representing 1.1% of the Company’s share capital) at a cost of £15.1 million (2013:
£25.1 million) during the financial year. All shares purchased by the Company were transferred to treasury. During the year
429,108 (2013: 655,573) treasury shares were transferred out of treasury to satisfy awards granted under the Company’s
share plans.
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129
130
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
28 Share-based payments
The total (credit)/charge to operating profit relates to the following equity settled schemes:
Performance Share Plan (“PSP”)
Share Incentive Plan (“SIP”)
Deferred Bonus Matching Plan (“DBMP”)
(Credit)/charge for the financial year
30 August
2014
£m
31 August
2013
£m
(1.8)
0.1
(0.1)
(1.8)
1.3
0.1
0.1
1.5
The following table reconciles the movement in shares awarded under the Company share schemes and the weighted average
exercise price (“WAEP”) for the ESOP scheme. Grants under the PSP, SIP and DBMP all comprise a right to acquire shares for
no or nominal consideration.
Outstanding at 1 September 2012
Granted
Exercised
Lapsed
Forfeited
Outstanding at 31 August 2013
Exercised
Lapsed
Forfeited
Outstanding at 30 August 2014
Exercisable
At 30 August 2014
At 31 August 2013
Weighted average remaining contractual life (years)
At 30 August 2014
At 31 August 2013
DBMP
SIP
PSP
ESOP
Number
587,283
–
–
–
(17,604)
569,679
(384,492)
(185,187)
–
–
–
–
–
–
Number
Number
Number
450,000
200,000
(250,000)
–
(200,000)
200,000
–
–
–
200,000
7,476,885
4,380,833
(549,358)
(1,167,435)
(406,300)
9,734,625
–
–
(1,081,969)
8,652,656
–
–
–
–
–
–
–
–
831,623
–
(143,357)
–
–
688,266
(44,616)
–
–
643,650
643,650
688,266
5.25
6.25
WAEP
Pence
85.5
–
85.5
–
–
85.5
85.5
–
–
85.5
85.5
85.5
i) Performance Share Plan
The PSP allows the Company to grant awards of shares to senior management. An award under the PSP will normally vest
on the third anniversary of date of grant and must be exercised within six months of vesting. No payment is required for the
grant of an award. An award under the PSP comprises a right to receive free shares or a nil cost option with performance
conditions attached.
Awards granted on 1 November 2011 and 1 May 2012
The vesting of the shares granted under these awards is dependent upon the growth of both EPS and Return on Capital
Employed (“ROCE”).
75% of the awards is based upon EPS growth. Where growth is less than 6% per annum over the three year period, this
element of the awards lapses. Where growth is 6% per annum, 30% of the shares awarded vests; where growth is 12% per
annum, the EPS element of the awards vests in full. Between these two points, awards vest on a straight line basis between
30% and 100%.
The remaining 25% of the awards is dependent upon ROCE. If average ROCE is below the cost of capital over the three year
period, this element of the awards lapses. If average ROCE is equal to the cost of capital over the three year period, then 30%
of the shares awarded vests. If average ROCE is equal to the cost of capital plus 5% then the ROCE element of the awards
vests in full. Between these two points, awards vest on a straight line basis between 30% and 100%.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
28 Share-based payments continued
i) Performance Share Plan continued
Awards granted on 1 November 2012 and 1 May 2013
The vesting of the shares granted under these awards is dependent upon the growth of both EPS and ROCE.
75% of the awards is based upon EPS growth. Where growth is less than 6% per annum over the three year period, this
element of the awards lapses. Where growth is 6% per annum, 30% of the shares awarded vests; where growth is 12% per
annum, the EPS element of the awards vests in full. Between these two points, awards vest on a straight line basis between
30% and 100%.
The remaining 25% of the awards is dependent upon ROCE. If average ROCE is below the cost of capital plus 1% over the
three year period, this element of the awards lapses. If average ROCE is equal to the cost of capital plus 1% over the three
year period, then 30% of the shares awarded vests. If average ROCE is equal to the cost of capital plus 5% then the ROCE
element of the awards vests in full. Between these two points, awards vest on a straight line basis between 30% and 100%.
ii) Executive Share Option Plan
The ESOP allows the Company to grant options to acquire shares to eligible employees. These options will normally become
exercisable following a three year performance period, only if and to the extent that the performance conditions to which they
are subject have been satisfied. Once the options have vested, the employees have a seven year period in which to exercise.
Options are granted with an exercise price equal to the middle market value of the shares on the day immediately preceding
the date of grant. The options granted on 24 November 2009 became exercisable in full based on ROCE performance
exceeding the cost of capital by 7.8% during the applicable performance period. There are no unvested options under
this plan. The weighted average share price at the date of exercise for ESOP share options exercised during the year was
103.1 pence.
iii) Share Incentive Plan
The SIP allows the Company to grant options to key senior managers below board level, whom the Company wishes to retain
and incentivise in the short to medium term. Once the options have vested the employee has six months in which to exercise.
Options granted on 6 December 2012
The option granted 6 December 2012 has a 24 month vesting period based on the employee’s continued employment and
performance targets specific to the employee’s role within the business and is granted with no exercise price.
iv) Deferred Bonus Matching Plan
The DBMP allows the Company to invite eligible employees to invest up to 100% of their net annual bonus earned into shares
(“invested shares”). If the participant remains in service for three years and retains the beneficial ownership of all the invested
shares, s/he will, subject to the satisfaction of certain performance conditions, be entitled to a matching share award equal to
the amount of the pre-tax bonus that has been invested. Once the options have vested they will be released to the employee
within one month of the vesting date.
All bonus eligible employees were offered the opportunity to invest up to 50% of their 2010 bonus into invested shares. The
entitlement to the matching award was subject to the participant retaining beneficial ownership of their invested shares during
the performance period and to the achievement of the following performance conditions. The Group’s ROCE had to exceed
the cost of capital by 2% over this period otherwise the options would not vest. The Group’s EPS growth had to then exceed
6% per annum over the three year period or the options would not vest. If the Group’s EPS growth was 6% or more per annum
over the three year period 30% of the options would vest; if the growth was 12% or more per annum over the three year
period, 100% of the options would vest. Between these two points the options would vest on a straight line basis between 30%
and 100%.
Of the share options granted under the DBMP in 2010, during the three years to 31 August 2013 the Group’s ROCE condition
was met in full and the Group’s compound average EPS growth was 9.2% which resulted in 67.5% of share options granted
under the DBMP in 2010 vesting on 4 November 2013. The weighted average share price at the date of exercise for DBMP
share options exercised during the year was 101.8 pence.
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F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
29 Operating lease commitments
The future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
Within one year
Later than one year and not later than five years
Later than five years and not later than 10 years
Later than 10 years and not later than 20 years
Later than 20 years
30 August 2014
31 August 2013
Land and
buildings
£m
Other
£m
Land and
buildings
£m
Other
£m
200.2
843.6
1,038.8
1,699.3
1,143.9
4,925.8
1.8
3.0
–
–
–
4.8
199.9
830.0
1,167.7
1,698.1
1,214.7
5,110.4
1.5
2.4
–
–
–
3.9
The Group leases department stores and warehouses under non-cancellable operating leases. The leases have various terms
including escalating rent and contingent turnover rent clauses and renewal rights. The Group has pre-emption rights over a
number of properties, which provides the Group with the right of first refusal to purchase the property in the event the
landlord chooses to sell. The option price payable for the property in each instance is referenced to current market value
prevailing at the point of pre-emption. The Group also leases vehicles and fixtures and equipment under non-cancellable
operating leases.
30 Cash generated from operations
Profit before taxation
Depreciation (note 14)
Amortisation (note 13)
Loss on disposal of property, plant and equipment
Share-based payment (credit)/charge (note 28)
Fair value (gains)/losses on derivative instruments
Net movements in provisions (note 26)
Finance income
Finance costs
Pension current service cost
Cash contributions to pension schemes (note 23)
Net movement in other long-term receivables
Net movement in other non-current liabilities
Changes in working capital
Decrease/(increase) in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operations
30 August
2014
£m
Restated1
31 August
2013
£m
105.8
87.5
13.3
1.4
(1.8)
(1.1)
0.4
(0.6)
23.4
1.4
(10.8)
0.2
10.6
12.4
2.8
(4.4)
240.5
139.0
84.4
10.2
0.2
1.5
2.0
0.3
(1.5)
17.9
1.3
(10.4)
3.6
0.2
(25.5)
(2.9)
20.8
241.1
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
In the cash flow statement, proceeds from the disposal of property, plant and equipment comprise:
Net book value
Loss on disposal of property, plant and equipment (note 6)
Cash proceeds from the disposal of property, plant and equipment
30 August
2014
£m
31 August
2013
£m
1.4
(1.4)
–
0.2
(0.2)
–
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133
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
30 Cash generated from operations continued
Non-cash transactions
Other non-cash movements comprise:
Amortisation of issue costs relating to term loan and revolving credit facilities
Amortisation of issue costs relating to senior notes
Write-off of unamortised issue costs relating to cancelled credit facilities
Non-cash movements associated with term loan facility and senior notes
Non-cash movements associated with finance lease obligations
Non-cash transactions
31 Analysis of changes in net debt
30 August
2014
£m
31 August
2013
£m
1.9
0.1
4.5
1.2
3.8
11.5
2.7
–
–
(0.3)
0.5
2.9
Analysis of net debt
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents
Debt due within one year
Debt due after one year
Finance lease obligations due within one year
Finance lease obligations due after one year
31 August
2013
£m
Cash flow
£m
Non-cash
movements
£m
30 August
2014
£m
27.0
(2.9)
24.1
(158.4)
(232.8)
(1.8)
(3.1)
(372.0)
37.4
2.9
40.3
(36.4)
15.9
2.2
–
22.0
–
–
–
(4.0)
(3.7)
(3.7)
(0.1)
(11.5)
64.4
–
64.4
(198.8)
(220.6)
(3.3)
(3.2)
(361.5)
32 Contingent liabilities
The Group is subject to litigation from time to time as a result of its activities. The Group establishes provisions in connection
with litigation where it has a present legal or constructive obligation as a result of past events and where it is more likely than
not an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
There are a number of contingent liabilities that arise in the normal course of business which if realised are not expected to
result in a material liability to the Group.
33 Principal subsidiary undertakings
The principal subsidiary undertakings of Debenhams plc at 30 August 2014 were as follows:
Company
Debenhams Retail plc
Debenhams Group Holdings Limited*
Debenhams Retail (Ireland) Limited
Aktieselskabet Th. Wessel & Vett Magasin du Nord
Debenhams Properties Limited
Debenhams Hong Kong Limited
Share of issued
ordinary share
capital and
voting rights
Country of
incorporation
Country of
registration
100%
100%
100%
100%
UK
UK
Ireland
Denmark
England
England
Ireland
Denmark
100%
England
100% Hong Kong Hong Kong
UK
Activity
Multi-channel retailing
Holding company
Multi-channel retailing
Department store
retailing
Property investment
Sourcing of goods
* Denotes investments held by the Company. All other investments are held by subsidiary undertakings.
The Company has taken advantage of section 410(2) of the Companies Act 2006 to list only its principal subsidiary and
associated undertakings at 30 August 2014 whose results or financial position, in the opinion of the directors, principally
affected the financial statements. Unless otherwise stated all of these operate predominantly in the UK.
All subsidiary companies are consolidated. A full list of subsidiary and other associated undertakings as at 30 August 2014
will be annexed to the Company’s next annual return filed with the Registrar of Companies.
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134
F I V E Y E A R R E C O R D I N C O M E S T A T E M E N T S
F I V E Y E A R R E C O R D I N C O M E S T A T E M E N T S
Gross transaction value
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit before exceptional items
Exceptional items
Operating profit
Net recurring finance costs
Non-recurring finance costs
Profit before taxation
Taxation
Profit for the financial year attributable
to owners of the parent
52 weeks
2014
£m
2,823.9
2,312.7
Restated1
52 weeks
2013
£m
2,776.8
2,282.2
52 weeks
53 weeks
20122
£m
2,708.0
2,229.8
20112
£m
2,679.3
2,209.8
52 weeks
20102
£m
2,564.3
2,119.9
(2,033.4)
(1,982.6)
(1,927.5)
(1,913.1)
(1,829.5)
279.3
(98.5)
(52.2)
128.6
–
128.6
(18.3)
(4.5)
105.8
(18.6)
299.6
(97.5)
(46.7)
155.4
–
155.4
(16.4)
–
139.0
(23.1)
302.3
(81.0)
(46.3)
175.0
–
175.0
(16.7)
–
158.3
(33.0)
296.7
(70.2)
(42.8)
183.7
–
183.7
(23.4)
–
160.3
(43.1)
290.4
(55.1)
(40.2)
195.1
(5.4)
189.7
(49.8)
–
139.9
(42.9)
87.2
115.9
125.3
117.2
97.0
1 Restatement relates to the adoption of IAS 19 “Employee benefits” revised (note 2).
2 Prior to the application of IAS 19 “Employee benefits” revised.
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135
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
F I V E Y E A R R E C O R D B A L A N C E S H E E T S
F I V E Y E A R R E C O R D B A L A N C E S H E E T S
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Financial assets
Trade and other receivables
Retirement benefit surplus
Deferred tax assets
Total non-current assets
Net current liabilities
Non-current liabilities
Net assets
Shareholders’ equity
Share capital
Share premium account
Other reserves
Retained earnings/(accumulated losses)
Total equity
2014
£m
2013
£m
2012
£m
2011
£m
2010
£m
892.8
689.2
6.6
15.6
6.9
51.0
876.5
692.1
3.0
16.8
4.6
69.3
864.9
661.6
2.7
19.3
–
83.2
858.1
634.6
4.0
18.3
3.9
75.7
846.2
676.1
8.7
17.2
–
92.0
1,662.1
1,662.3
1,631.7
1,594.6
1,640.2
(271.7)
(623.0)
767.4
0.1
682.9
(16.3)
100.7
767.4
(271.4)
(646.5)
744.4
0.1
682.9
(3.5)
64.9
744.4
(267.5)
(703.2)
661.0
0.1
682.9
(12.1)
(9.9)
661.0
(292.0)
(643.0)
659.6
0.1
682.9
(8.3)
(15.1)
659.6
(636.5)
(500.3)
503.4
0.1
682.9
(3.4)
(176.2)
503.4
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I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F D E B E N H A M S P L C ( C O M P A N Y )
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S
O F D E B E N H A M S P L C ( C O M P A N Y )
Report on the Company financial statements
Our opinion
In our opinion, Debenhams plc’s Company financial statements (the “financial statements”):
• Give a true and fair view of the state of the Company’s affairs as at 30 August 2014;
• Have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• Have been prepared in accordance with the requirements of the Companies Act 2006.
What we have audited
Debenhams plc’s financial statements comprise:
• The Company balance sheet as at 30 August 2014; and
• The notes to the financial statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report and Accounts (the “Annual Report”), rather
than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as
audited.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion, information in the Annual Report is:
• Materially inconsistent with the information in the audited financial statements; or
• Apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired
in the course of performing our audit; or
•
Is otherwise misleading.
We have no exceptions to report arising from this responsibility.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• We have not received all the information and explanations we require for our audit; or
• Adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• The financial statements and the part of the directors’ remuneration report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance
with the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
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137
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F D E B E N H A M S P L C ( C O M P A N Y )
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S
O F D E B E N H A M S P L C ( C O M P A N Y ) C O N T I N U E D
C O N T I N U E D
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 81, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of:
• Whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied
and adequately disclosed;
• The reasonableness of significant accounting estimates made by the directors; and
• The overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Other matter
We have reported separately on the Group financial statements of Debenhams plc for the year ended 30 August 2014.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
23 October 2014
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138
C O M P A N Y B A L A N C E S H E E T
C O M P A N Y B A L A N C E S H E E T
Company number 5448421
Company number 54 48421
As at 30 August 2014
As at 30 August 2014
Fixed assets
Investments
Derivative financial instruments
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Derivative financial instruments
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Derivative financial instruments
Net assets
Capital and reserves
Called up share capital
Share premium account
Hedging reserve
Profit and loss account
Total shareholders’ funds
30 August
2014
£m
31 August
2013
£m
Note
4
5
6
7
8
5
9
5
12
13
13
13
14
2,248.0
0.6
2,248.6
83.1
1.2
84.3
(815.4)
(0.2)
(815.6)
(731.3)
1,517.3
(220.6)
(1.2)
(221.8)
1,295.5
0.1
682.9
(0.5)
613.0
1,295.5
2,248.0
0.7
2,248.7
89.9
0.9
90.8
(715.7)
(0.5)
(716.2)
(625.4)
1,623.3
(246.3)
(3.4)
(249.7)
1,373.6
0.1
682.9
(2.5)
693.1
1,373.6
The financial statements on pages 139 to 146 were approved by the Board on 23 October 2014 and were signed
on its behalf by:
Michael Sharp
Chief Executive
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139
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
1 Accounting policies
Basis of preparation
These financial statements have been prepared on the going concern basis and in accordance with UK GAAP using the historical cost
convention as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
These financial statements have been prepared in accordance with applicable accounting standards within the United Kingdom and
the Companies Act 2006.
The principal accounting policies, which have been applied consistently for each financial year unless stated otherwise, are set out below.
Exemptions
The directors have taken advantage of the exemption available under section 408 of the Companies Act 2006 and have not presented
a profit and loss account for the Company alone. However, the Company’s profit and loss account has been produced for approval
by the board.
The Company is also exempt under the terms of FRS 8 “Related party disclosures” from disclosing related party transactions with entities
that are wholly owned subsidiaries.
The consolidated financial statements of the Group include a consolidated cash flow statement which includes the cash flows
of the Company.
Investments
Investments comprise the Company’s investment in subsidiaries and are shown at cost less any provision for impairment.
Impairment testing
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject
to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s net realisable value and value-in-use.
Borrowings
All borrowings are stated at the fair value of the consideration received after deduction of issue costs. Issue costs, together with interest
payable, are charged to the profit and loss account over the term of the borrowings. Interest payable represents a constant proportion
of the balance of capital repayments outstanding.
Revenue recognition
a) Interest income
Interest receivable and interest payable are recognised in the period to which they relate using the effective interest method.
b) Dividend income
Dividend income is recognised when the right to receive payment is established.
Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates that are in force during the period.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the
balance sheet date. Timing differences are differences between the taxable profits and the results as stated in the financial statements
that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the
financial statements.
Deferred tax is measured on a non-discounted basis. A deferred tax asset is regarded as recoverable and therefore recognised only
when, on the basis of all available evidence, it can be regarded as more likely than not that there will be taxable profits from which the
future reversal of the underlying timing differences can be deducted.
Deferred tax is measured at the average tax rates which are expected to apply in the periods in which the timing differences are
expected to reverse, based upon tax rates and laws which have been enacted or substantively enacted by the balance sheet date.
Dividend distribution
A final dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements
in the period in which the dividend is approved by the Company’s shareholders. Interim dividends are recognised when paid.
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140
Share-based payments
The Company issues equity-settled share-based payments to certain employees. A fair value for the equity-settled share awards is
measured at the date of grant. The Company measures the fair value of each award using the Black-Scholes model where appropriate.
The fair value determined at the grant date is expensed on a straight line basis over the vesting period, based on the Company’s
estimate of the shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. At each balance sheet
date, the Company revises its estimates of the number of awards that are expected to vest. Non-market performance and service
conditions are included in assumptions about the number of awards that are expected to vest. It recognises the impact of the revision
to original estimates, if any, in the profit and loss account, with a corresponding adjustment to equity.
When the awards are exercised, the Company may issue new shares or utilise shares held as treasury shares or within the Debenhams
Retail Employee Trust. The proceeds received net of any directly attributable transaction costs are credited to share capital (at nominal
value) and share premium when the awards are exercised.
Where the Company has granted options over the Company’s shares to employees of its subsidiaries, a capital contribution has been
deemed made by the Company. This is then recharged to the subsidiary and is based on the fair value of the options issued spread over
the option’s vesting period.
Foreign exchange
Transactions denominated in foreign currencies are translated into the respective functional currency at the exchange rates prevailing
at the dates of the transaction. Monetary assets and liabilities that are denominated in foreign currencies are translated into sterling
at the closing rates ruling at the balance sheet date.
Derivatives
The derivative instruments used by the Company to manage its interest rate risk are interest rate swaps.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at
fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as an effective hedging
instrument and the nature of the item being hedged. The Company designates certain derivatives as hedges of highly probable forecast
transactions (cash flow hedges).
The Company documents, at the inception of the transaction, the relationship between hedging instruments and hedged items as
well as its risk management objectives and strategy for undertaking various hedge transactions. The Company also documents its
assessment, both at the inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in cash flows of hedged items.
i) Cash flow hedges
The effective portion of the changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognised in
equity. The gain or loss relating to the ineffective portion is recognised immediately in the relevant line of the profit and loss account
which will be affected by the underlying hedged item.
Amounts accumulated in equity are reclassified and adjusted against the initial measurement of the underlying hedged item when
the underlying hedged item is recognised on the balance sheet or in the profit and loss account.
When a hedged instrument expires, is sold or when a hedge no longer meets the criteria for hedge accounting, hedge accounting
is discontinued. Any cumulative gain or loss existing in equity at that time is held in equity until the forecast transaction occurs.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately
reclassified to the relevant line of the profit and loss account which would have been affected by the forecast transaction.
ii) Derivatives that do not qualify for hedge accounting
Certain derivatives do not qualify for hedge accounting. Changes in fair value of any derivative instruments that do not qualify for
hedge accounting are recognised immediately in the profit and loss account.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown as a deduction,
net of tax, from the proceeds.
Where the Company purchases its own ordinary shares, the consideration paid, including any directly attributable incremental costs
(net of income taxes), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued.
Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental
transaction costs together with the related income tax effects, is included in equity attributable to the Company’s equity holders.
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F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S C O N T I N U E D
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
2 Profit and loss account
A loss of £21.5 million is attributable to shareholders for the financial year ended 30 August 2014 (2013: £18.3 million).
The contracts of employment for all the executive directors are held by Debenhams plc. The total cost of employing the directors
is disclosed in the remuneration report.
Auditors’ remuneration relating to the audit of the Company financial statements of £0.1 million (2013: £0.1 million) is borne by another
Group undertaking. Other non-audit service fees payable to the Company’s auditors during the financial year ended 30 August 2014
were £73,000 (2013: £nil) and related to the senior notes issue.
3 Dividends
Final paid 2.4 pence (2013: 2.3 pence) per £0.0001 share
– Settled in cash
Interim paid 1.0 pence (2013: 1.0 pence) per £0.0001 share
– Settled in cash
30 August
2014
£m
31 August
2013
£m
29.4
12.3
41.7
28.9
12.5
41.4
A final dividend of 2.4 pence per share (2013: 2.3 pence per share) was paid during the year in respect of the financial year ended
31 August 2013, together with an interim dividend of 1.0 pence per share (2013: 1.0 pence per share) in respect of the financial year
ended 30 August 2014. The directors are proposing a final dividend in respect of the financial year ended 30 August 2014 of
2.4 pence per share (2013: 2.4 pence per share), which will absorb an estimated £29.4 million (2013: £29.4 million) of shareholders’
funds. It will be paid on 9 January 2015 to shareholders who are on the register of members at close of business on 5 December 2014.
No liability is recorded in the financial statements in respect of the final dividend as it was not approved at the balance sheet date.
4 Investments
Cost
At 31 August 2013 and 30 August 2014
Provision for impairment
At 31 August 2013 and 30 August 2014
Net book value
At 31 August 2013 and 30 August 2014
Investments
in subsidiary
undertakings
£m
3,375.9
1,127.9
2,248.0
Investment in subsidiary undertakings
In accordance with FRS 11 “Impairment of fixed assets and goodwill,” the carrying values of the Company’s subsidiary undertakings
have been compared to their recoverable amounts represented by the value-in-use to the Company. The review has resulted in an
impairment of £nil (2013: £nil). The discount rate used in the calculation to arrive at the valuation was 7.2% (2013: 7.4%) on a post-tax basis.
The directors consider that the carrying value of the investments is supported by their discounted future cash flows. The pre-tax rate was
7.6% (2013: 7.6%).
The principal subsidiary undertakings of the Company at 30 August 2014 are shown in note 33 of the Debenhams Group
financial statements.
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142
5 Derivative financial instruments
Non-current assets
Interest rate swaps – cash flow hedges
Current liabilities
Interest rate swaps – cash flow hedges
Non-current liabilities
Interest rate swaps – cash flow hedges
30 August
2014
£m
31 August
2013
£m
0.6
(0.2)
(1.2)
(0.8)
0.7
(0.5)
(3.4)
(3.2)
Information relating to the derivatives held by the Company is shown in note 22 to the Debenhams Group financial statements.
6 Debtors
Deferred tax asset (note 11)
Amounts owed by Group undertakings
Prepayments and accrued income
30 August
2014
£m
31 August
2013
£m
0.1
82.9
0.1
83.1
0.7
88.5
0.7
89.9
Amounts owed by Group undertakings are unsecured, repayable on demand and carry an average rate of interest of 2.5% (2013: 2.5%).
7 Cash at bank and in hand
Cash at bank and in hand
8 Creditors: amounts falling due within one year
Bank and other borrowings (note 10)
Amounts owed to Group undertakings
Accruals and deferred income
30 August
2014
£m
31 August
2013
£m
1.2
0.9
30 August
2014
£m
31 August
2013
£m
198.8
615.5
1.1
815.4
167.5
547.3
0.9
715.7
Amounts owed to Group undertakings are unsecured, have no fixed date of redemption and either carry an average interest rate of 2.5%
(2013: 2.5%) or are interest free.
9 Creditors: amounts falling due after more than one year
Bank and other borrowings (note 10)
30 August
2014
£m
31 August
2013
£m
220.6
246.3
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143
143
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S C O N T I N U E D
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
10 Borrowings
Creditors: amounts falling due within one year
Revolving credit facility
Less: revolving credit facility issue costs
Senior notes accrued interest
Creditors: amounts falling due in more than one year
Term loan facility
Less: term loan facility issue costs
Senior notes
Less: senior notes issue costs
Maturity of debt
Amounts falling due:
In one year or less or on demand
In more than two years but not more than five years
In more than five years
30 August
2014
£m
31 August
2013
£m
200.0
(3.1)
1.9
198.8
–
–
225.0
(4.4)
220.6
170.0
(2.5)
–
167.5
250.0
(3.7)
–
–
246.3
30 August
2014
£m
31 August
2013
£m
200.0
–
225.0
425.0
170.0
250.0
–
420.0
Information relating to the borrowings of the Company is shown in note 20 of the Debenhams Group financial statements.
On 2 July 2014, Debenhams plc issued £225.0 million of seven year senior notes at a coupon rate of 5.25%. On 2 July 2014, the Group
cancelled its existing term loan and revolving credit facility and drew down on a new revolving credit facility amounting to £425.0 million.
This new revolving credit facility is due to expire in October 2018 and contains an option to request an extension to October 2019.
At 30 August 2014 the Company’s drawings under credit facilities outstanding comprised revolving credit facility drawings of £200.0
million (2013: £170.0 million revolving credit facility drawings and £250.0 million term loan). During the current and prior financial years
the Company has complied with its covenants relating to its facilities.
Refinancing costs of £7.9 million were incurred during the year ended 30 August 2014 in respect of the negotiation of the new credit
facility and the issue of the senior notes, which will be amortised over the term of the corresponding borrowings at the effective interest
rate based on the expected amount of those borrowings. The amortisation charge relating to the issue costs of the term loan and
revolving credit facility was £1.9 million for the year ended 30 August 2014 (2013: £2.7 million) and the amortisation charge relating to the
issue costs of the senior notes was £0.1 million for the year ended 30 August 2014 (2013: £nil). The write-off of unamortised issue costs in
relation to the cancelled credit facilities was £4.5 million for the year ended 30 August 2014.
11 Deferred taxation
At 31 August 2013 – asset
Charged to reserves
At 30 August 2014 – asset
Fair value
gains
£m
0.7
(0.6)
0.1
Deferred tax is calculated in full on all temporary differences under the liability method using a tax rate of 20.0% (2013: 22.2%) for
temporary differences expected to reverse within 12 months of the balance sheet date and 20.0% (2013: 20.0%) for temporary differences
expected to reverse more than one year after the balance sheet date for the UK differences. The Finance Act 2013 included legislation
reducing the main rate of corporation tax from 23.0% to 21.0% from 1 April 2014 with a further reduction in the main rate of corporation
tax to 20.0% from 1 April 2015.
The effect of the reduction in the corporation tax rate enacted in the 2013 Act has been to reduce the net deferred tax asset recognised
at 31 August 2013 by £nil.
Deferred tax provided on the fair value gains represents the deferred tax on the derivatives that qualify for cash flow hedges.
Debenhams plc Annual Report and Accounts 2014
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144
144
12 Called up share capital
Issued and fully paid – ordinary shares of £0.0001 each
At start of year
Allotted under share option schemes
At end of year
30 August 2014
£
Number
31 August 2013
£
Number
128,684
–
128,684
1,286,843,441
–
1,286,843,441
128,680
4
128,684
1,286,806,299
37,142
1,286,843,441
The Company commenced its share buyback programme in April 2012. As at 30 August 2014 the Company had purchased 61,793,402
(2013: 47,441,877) ordinary shares of £0.0001 at a total cost of £60.3 million of which 14,351,525 (2013: 23,882,722) ordinary shares of
£0.0001 were purchased (representing 1.1% of the Company’s share capital) at a cost of £15.1 million (2013: £25.1 million) during the
financial year. All shares purchased by the Company were transferred to treasury. During the year 429,108 (2013: 655,573) treasury shares
were transferred out of treasury to satisfy awards granted under the Company’s share plans.
The number of ordinary shares in the Company held by the Debenhams Retail Employee Trust 2004 (“DRET”) in connection with the
Group’s employee ownership plan described is as follows:
Debenhams Retail Employee Trust 2004
30 August
2014
Ordinary
shares
Number
31 August
2013
Ordinary
shares
Number
473,537
473,537
The market value of the shares at 30 August 2014 was £0.3 million for the DRET (2013: £0.5 million). The cost of the shares held at the year
end was £0.4 million (2013: £0.4 million).
Share option schemes
At 30 August 2014 the Group had three (2013: four) schemes in operation: the Performance Share Plan (“PSP”), the Executive Share
Option Plan (“ESOP”) and the Share Incentive Plan (“SIP”) (2013: the PSP, the ESOP, the SIP and the Deferred Bonus Matching
Plan (“DBMP”)).
Of the share options granted under the DBMP in 2010, 67.5% vested on 4 November 2013.
For further information on these schemes please see note 28 to the Debenhams Group financial statements.
13 Reserves
At 31 August 2013
Loss for the financial year
Cash flow hedges – net fair value gains (net of tax)
Employee share ownership plans
Purchase of treasury shares (note 12)
Dividends to shareholders (note 3)
At 30 August 2014
Share
premium
account
£m
682.9
–
–
–
–
–
682.9
Hedging
reserve
£m
Profit and
loss account
£m
(2.5)
–
2.0
–
–
–
(0.5)
693.1
(21.5)
–
(1.8)
(15.1)
(41.7)
613.0
Share premium account
On admission to the London Stock Exchange in 2006, the Company issued 358,974,359 shares at £1.95, generating proceeds of £700.0
million. Costs directly associated with the issue of the new shares totalled £17.1 million and in accordance with the Companies Act 2006
these costs were set off against the premium generated on issue of the new shares.
Hedging reserve
The hedging reserve represents the change in fair value of the interest rate swaps which have been designated as cash flow hedges.
Profit and loss account
A dividend of £41.7 million (2013: £41.4 million) was paid by the Company during the financial year ended 30 August 2014.
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145
145
F I N A N C I A L S T A T E M E N T S
F I N A N C I A L S T A T E M E N T S
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S C O N T I N U E D
N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S C O N T I N U E D
For the financial year ended 30 August 2014
For the financial year ended 30 August 2014
14 Reconciliation of movements in shareholders’ funds
Loss for the financial year
Dividends paid (note 3)
Accumulated deficit for the year
Cash flow hedges:
– Net fair value gains, net of tax
Purchase of treasury shares
Employee share ownership plans
Net decrease to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
30 August
2014
£m
31 August
2013
£m
(21.5)
(41.7)
(63.2)
2.0
(15.1)
(1.8)
(78.1)
1,373.6
1,295.5
(18.3)
(41.4)
(59.7)
3.9
(25.1)
1.5
(79.4)
1,453.0
1,373.6
15 Contingent liabilities
The Company is subject to litigation from time to time as a result of its activities. The Company establishes provisions in
connection with litigation where it has a present legal or constructive obligation as a result of past events and where it is more
likely than not an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
There are a number of contingent liabilities that arise in the normal course of business which if realised are not expected to result
in a material liability to the Company.
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146
146
S T O R E L I S T
UK
Aberdeen
Altrincham
Ashford
Ayr
Ballymena
Banbury
Bangor
Barrow
Basildon
Basingstoke
Bath
Bedford
Belfast
Birmingham
Birmingham Fort
Blackburn
Blackpool
Bolton
Bournemouth
Brighton
Bristol
Bromley
Bury
Bury St Edmunds
Cambridge
Canterbury
Cardiff
Carlisle
Carmarthen
Chatham
Chelmsford
Cheltenham
Cheshire Oaks
Chester
Chesterfield
Clapham
Colchester
Coventry
Crawley
Croydon
Derby
Doncaster
Dumfries
Dundee
Dunfermline
East Kilbride
Eastbourne
Edinburgh
Eltham
Exeter
Falkirk
Fareham
Farnborough
Folkestone
Foyleside
Gateshead –
Metro Centre
Glasgow
Glasgow Silverburn
Gloucester
Gravesend
Great Yarmouth
Pakistan
Karachi
Philippines
Davao Abreeza Mall
Fairview Terraces
Manila – Glorieta
Manila – Shangri La
Manila – Trinoma
Paeso Santa Rosa
Qatar
Doha
Russia
Moscow
Saudi Arabia
Dhahran Mall
Jeddah – Bin Homran
Jeddah – Mall of Arabia
Madinah Al Noor
Mecca Abra Al Bait
Red Sea Mall
Riyadh – Gallery Mall
Riyadh – Granada Mall
Riyadh – Kingdom Mall
Riyadh – Rabwa
Riyadh – Sahara Mall
Turkey
Istanbul – Cevahir
Istanbul – Mall of
Istanbul
UAE
Abu Dhabi – Dalma
Abu Dhabi – Khalidja
Mall
Dubai – Deira
Dubai – Dubai Mall
Dubai – Ibn Battuta
Dubai – Mall of Emirates
Dubai – Mirdiff
Sharjah Sahara Centre
Guildford
Hanley
Harrogate
Harrow
Hastings
Haverfordwest
Hemel Hempstead
Hereford
Hounslow
Hull
Ilford
Inverness
Ipswich
Kidderminster
King’s Lynn
Kirkcaldy
Lakeside
Leamington Spa
Leeds – City Centre
Leeds – White Rose
Leicester
Leith
Lichfield
Lincoln
Liverpool
Livingston
Llandudno
Llanelli
London – Oxford Street
London – Westfield
Luton
Manchester
Manchester –
Trafford Park
Mansfield
Merryhill
Merthyr Tydfil
Middlesbrough
Milton Keynes
Monks Cross
Newbury – Outlet
Newbury – Parkway
Newcastle-upon-Tyne
Newry
Northampton
Norwich
Nottingham
Nuneaton
Oldham
Orpington
Oxford
Perth
Plymouth
Portsmouth
Preston
Reading
Redditch
Romford
Rushmere
Salisbury
Scarborough
Sheffield
Sheffield – Meadowhall
Slough
Southampton
Southend
Southport
Southsea
South Shields
Staines
Stirling
Stockport
Stockton
Stratford-upon-Avon
Sunderland
Sutton
Swansea
Swindon
Taunton
Telford
Torquay
Truro
Uxbridge
Wakefield
Walsall
Walton
Warrington
Welwyn Garden City
Westwood Cross
Weymouth
Wigan
Wimbledon
Winchester
Witney
Woking
Worcester
Workington
Worthing
Wrexham
York
International
Magasin du Nord
Århus
Copenhagen – Field’s
Copenhagen –
Kgs Nytorv
Lyngby
Odense
Rødovre
Republic of Ireland
Cork – Mahon Point
Cork – Patrick Street
Dublin – Blackrock
Dublin –
Blanchardstown
Dublin – Henry Street
Dublin – Tallaght
Galway
Limerick
Newbridge
Tralee
Waterford
Franchise stores
Armenia
Yerevan
Azerbaijan
Baku
Bahrain
Manama
Bulgaria
Sofia – Bulgaria Mall
Cyprus
Apollon
Central
Engomi
Kinyras
Korivos
Ledra
Nicosia
Olympia
Zenon
Czech Republic
Prague
Egypt
Alexandria
Estonia
Tallinn
Iceland
Reykjavik
India
Bangalore
Mumbai
Indonesia
Jakarta – Senayan City
Karawaci
Kemang Village
Iran
Mashad
Shiraz
Tehran
Tehran – Jame Jam
Jordan
Amman
Kuwait
Airport
Avenues
Gate Mall
Souq Sharq
Latvia
Spice Mall
Libya
Tripoli
Malaysia
Kuala Lumpur –
Star Hill
Kuala Lumpur –
The Curve
Penang
Malta
Paola
Tigne Point
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147
G L O S S A R Y A N D R E F E R E N C E S
Concessions
Brands which are sold through our
stores where the stock belongs to
a third party concessionaire. They
are found chiefly in womenswear
(eg Wallis, Oasis, Warehouse) and
accessories (eg Tripp luggage).
Core brands
Brands designed and produced
exclusively by Debenhams. They include
brands such as The Collection, Mantaray,
Maine New England and Red Herring.
They are found in all product categories.
CRM/eCRM
Customer relationship management
programmes.
Designers at Debenhams
Exclusive diffusion ranges designed
for Debenhams by leading international
designers including Jasper Conran,
John Rocha and Julien Macdonald.
Direct sourcing
Sourcing from suppliers who own all
or part of the supply chain processes.
Earnings per share (EPS)
The profit for the year attributable to
shareholders, divided by the weighted
average number of shares in issue.
EBITDA
Earnings before interest, taxation,
depreciation and amortisation.
Footfall
The number of people who visit our stores.
Free cash flow
Cash generated from operations before
exceptional items less net cash used
in investing activities.
Gross margin
Gross transaction value less the cost of
goods sold, as a percentage of gross
transaction value.
Own bought brands
Brands for which Debenhams owns the
stock. They include core brands, Designers
at Debenhams and international brands.
Gross transaction value (GTV)
Sales (excluding VAT) on a gross
basis before adjusting for concessions,
consignments and staff discounts. All
references to sales in this report refer to
GTV. All references to revenue refer to
statutory revenue.
International brands
Brands such as Levi’s, Ben Sherman,
Clarins and Estée Lauder for which
Debenhams owns the stock.
International segment
Comprises sales to international franchise
partners, sales from our stores in Denmark
and the Republic of Ireland and online sales
to addresses outside of the UK.
Like-for-like sales
Sales from stores which have been open
for at least one year plus online sales.
Market share
The percentage of the market or
market segment that is being serviced
by Debenhams. For instance, if 100
T-shirts were sold a year in the UK and
Debenhams sold ten of them, it would
have 10% market share.
Multi-channel
Multi-channel sales comprise those
from online, mobile, apps and instore
ordering as well as those which include
more than one channel in a single
shopping journey such as click and collect.
We use online sales as a measure of the
growth of the multi-channel business as
it is the largest of these sales channels.
Own brands
Debenhams’ exclusive brands, comprising
core brands and Designers at Debenhams.
Reported profit before tax and
earnings per share
Profit before tax and earnings per share
calculated after the impact of a non-
recurring £4.5 million write-off of
unamortised issue costs associated with
the refinancing of borrowing facilities
during 2014.
Retail method of inventory
valuation
An industry specific accounting method
used to derive a weighted average
product cost. Product cost and retail
values are aggregated at department
level to determine an average margin
per department. These margins are then
applied to the retail value of inventory
in each department to derive the cost
of inventory.
Terminal stock
The stock, as at the balance sheet date,
which is classified as previous season or
older. It is expressed as a percentage of
total stock measured at retail value.
UK segment
Comprises sales from our UK stores
and online sales to UK addresses.
Underlying profit before tax
and earnings per share
Profit before tax and earnings per share
calculated before the impact of exceptional
or non-recurring items. In 2014 there was
a non-recurring £4.5 million write-off of
unamortised issue costs associated with
the refinancing of borrowing facilities
during 2014.
With thanks to Maureen Hinton of Columino
and Darren Winder of The Lazarus Partnership.
Debenhams plc Annual Report & Accounts 2014
148
Cautionary statement
This report is intended to focus on matters
which are relevant to the interests of
shareholders of the Company. The purpose
of this report is to assist shareholders in
assessing the strategies adopted and
performance delivered by the Company
and the potential for those strategies to
succeed. It should not be relied on by any
other party for any other purpose.
Forward-looking statements are made
in good faith, based on a number of
assumptions concerning future events
and information available to directors at
the time of their approval of this report.
These forward-looking statements should
be treated with caution due to the inherent
uncertainties underlying any such forward-
looking information. The user of this report
should not rely unduly on these forward-
looking statements, which are not a
guarantee of performance and which are
subject to a number of uncertainties and
other facts, many of which are outside the
Company’s control and could cause actual
events to differ materially from those in
these statements. No guarantee can be
given of future results, levels of activity,
performance or achievements.
A D D I T I O N A L I N F O R M A T I O N
Registered office and head office
10 Brock Street
Regent’s Place
London NW1 3FG
Registered in England and Wales
Company number: 5448421
Financial advisors
Lazard
50 Stratton Street
London W1J 8LL
Stockbrokers
Citigroup Global Markets Limited
Citigroup Centre
Canada Square
London E14 5LB
Oriel Securities Limited
150 Cheapside
London EC2V 6ET
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London EC4Y 1HS
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and
Statutory Auditors
1 Embankment Place
London WC2N 6RH
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone: 0871 384 2766*
www.shareview.co.uk
* Calls to this number cost 8p per minute plus
network extras. Lines are open 8.30am to
5.30pm, Monday to Friday.
Printed in-house by Debenhams
Designed and produced by Luminous
www.luminous.co.uk
10 Brock Street, Regent’s Place, London NW1 3FG
www.debenhams.com
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