ANNUAL REPORT
& ACCOUNTS 2015
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WHO WE ARE
We are a leading international multi-channel brand with a proud British heritage,
trading from 248 department stores across 27 countries, and available online
in more than 60 countries.
We give our customers around the world a unique, differentiated and exclusive
mix of own brands, international brands and concessions.
WHAT WE DO
HOW WE DO IT
We have a flagship digital store and great shops in prime locations in which we sell
outstanding and innovative product. We offer our customers good value at fair prices
with excellent customer service. We continue to provide what customers want, when,
where and how they want it, staying in tune with a rapidly changing marketplace.
OUR BUSINESS MODEL
We aim to create value for shareholders by serving our customers well, with a clear
understanding of what they want, supported by our expertise in how to develop,
source and sell products through the channel that best meets their needs.
1. CHANNELS
Giving our customers more ways
to browse, discover and buy
2. CUSTOMERS
A family department store
with something for everyone
Debenhams trades through 248 department stores
across 27 countries, and is available online in more than
60 countries. In the UK one third of sales are from customers
who shop more than one channel, with more than a quarter
of UK online orders via click & collect and more than 40% of
online orders via mobile. Overseas, as well as continuing to
expand in new and existing markets, we are launching local
language and local currency websites. We are continuing
to invest to give top quality service whichever channel
customers wish to use.
One in four of the UK population visits our stores
each year and we are a destination for beauty, gifts and
occasionwear. We have a broad demographic appeal,
which is a key strength, and our well known promotions
remain as popular as ever. Via our flagship digital store,
as well as our franchise and owned stores overseas,
customers around the world can access an even
wider choice of products and services.
Store numbers
UK Customer profile by age (%)
UK
Own operated
international (Republic
of Ireland, Denmark)
Franchised
international
161
17
70
18-24
25-34
35-44
45-54
55-64
65+
Sales by channel (%)
UK Customer profile by demographic (%)
Online*
In store
14%
86%
* Restated for online returns to stores.
AB
C1
C2
DE
12%
17%
19%
20%
14%
18%
35%
31%
19%
15%
3. PRODUCTS
Unique, differentiated
and exclusive products
4. SUSTAINABLE GROWTH
A 200 year old business
that is here to stay
We have a unique proposition with our combination
of exclusive brands, designer brands and international
brands across multiple product categories, offering
choice and innovation across fashion, accessories, beauty
and homewares. Our stable of concession partners offers
an edit of the best of the high street. We have a strong track
record in brand development: our own brands, including
Designers at Debenhams, account for around half our sales.
Debenhams has been part of the history of the UK high
street for over 200 years and our business model is evolving
to ensure that we are in good shape to be part of its future
and to deliver sustainable growth for all our stakeholders.
We are investing to support multi-channel international
growth in tandem with our supplier and franchise partners;
to support and develop our people to provide the leaders
of the future; and to meet our customers’ expectations that
our products are produced in a sustainable and ethical way.
Sales by brand type (%)
Our brand sourcing by country (%)
Core own brands
Designer own brands
International brands
Concessions
28%
16%
31%
25%
China
India
Bangladesh
Vietnam
Kampuchea
Turkey
Romania
UK
Other
43%
14%
12%
6%
6%
4%
4%
3%
8%
Sales by category (%)
Breakdown of capital expenditure (%)
Womenswear
Menswear
Childrenswear
Lingerie
Accessories
Beauty
Home
Food services
Other
16%
14%
9%
6%
14%
25%
12%
3%
1%
New UK stores
UK modernisations
UK maintenance
International
Group systems
Other
13%
10%
17%
5%
45%
10%
FINANCIAL HIGHLIGHTS
Gross transaction value
£2.9bn
Profit before tax
£113.5m
Net debt
£319.8m
STRATEGIC HIGHLIGHTS
Full price sell-through
+7%
Online sales growth
11%
UK click & collect
26%
of online orders
SHAREHOLDER RETURNS
Basic earnings per share
7.6p
Dividend per share
3.4p
Chairman’s letter
Chief Executive’s report
Market context
Our strategy
Strategy in action
Risk review
Principal risks and uncertainties
Key performance indicators
Financial review
Resources, relationships
and sustainability
Chairman’s introduction
Board of directors
Corporate governance report
Nomination Committee report
Audit Committee report
Directors’ remuneration report
Directors’ report
Statement of directors’
responsibilities
2
4
7
8
10
20
22
28
30
34
40
42
44
50
52
56
82
85
94
95
86
93
Independent auditors’
report to the members of
Debenhams plc (Group)
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of
96
changes in equity
97
Consolidated cash flow statement
Notes to the financial statements
98
Five year record income statements 138
Five year record balance sheets
139
Independent auditors’
report to the members of
Debenhams plc (Company)
Company balance sheet
Notes to the Company
financial statements
140
142
143
Store list
Glossary and references
Additional information
151
152
153
1
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39Governance 40-85Financial statements 86-153 CHAIRMAN’S
LETTER
Delivering sustainable shareholder returns
“ A YEAR OF
STRONG CASH
GENERATION”
2
DEAR SHAREHOLDER
2014/15 has been a year of good
profit performance and strong cash
generation, as the management focused
on delivering progress in the strategy to
develop a leading international multi-
channel brand.
In particular, over the past year there
is clear evidence that the business has
made a step forward in online service,
which our multi-channel growth supports;
our market share has improved despite
tough competition, which reflects our
compelling customer offer; our refocused
promotional strategy has underpinned
growth in full price sales; and we continue
to drive growth internationally despite
foreign exchange headwinds.
Our strategy
We are continuing to evolve our
business model to ensure that the
Group remains competitive, effective
and successful within changing markets,
and that our infrastructure is best-in-
class in order to support international
multi-channel growth. The pillars of our
strategy – delivering a compelling
customer proposition; focusing on UK
retail; increasing availability and choice
through multi-channel; and expanding
the brand internationally – remain
central to the creation of shareholder
value and are enabled by continuing
investment in operational effectiveness.
An explanation of our strategy and
the progress we have made in 2014/15,
together with a discussion of how we
manage risk and integrate a sustainable
approach across our activities, is shown
on the following pages.
Our finances
During the year we have made
considerable progress in cash
generation and having diversified
our funding sources last year, we
continue to have flexible and
sustainable financial resources.
As a result of good cash flows, we have
reduced our leverage from 1.6 times net
debt/EBITDA to 1.3 times at the financial
year end. With 90% of UK trading space
either in new or recently modernised
stores, our UK store business is well
invested. The Group is continuing with
a systems investment programme to
support its multi-channel growth both
in the UK and overseas.
Our dividend
Debenhams is a cash generative
business and the board has decided
to maintain the total cash dividend at
3.4 pence per share for 2015. As part
of the capital structure discussion, the
Debenhams plc Annual Report & Accounts 2015 board has reviewed its dividend policy
and intends to adopt a progressive
dividend policy as earnings increase
and dividend cover is rebuilt over time.
Our board
Michael Sharp has been Chief Executive
of Debenhams since September 2011 and
it has always been his intention to serve a
five year term. Michael is now two months
into his fifth year and has indicated this is
the right time for the board to commence
a succession planning process so that he
can step down some time in 2016.
Michael will remain in post during the
Christmas trading period and into 2016
and will assist the board in the process of
identifying his successor. This process
will evaluate internal and external
candidates and Michael has agreed
to remain in post to ensure an orderly
and smooth handover to his successor.
On behalf of the board I would like to
thank Michael for continuing to lead
Debenhams through a crucial time of
change in retailing and for the good
progress the Company has made
under his leadership. He has worked
enormously hard to develop the
Company’s strategy and the benefits
of this are really starting to show in the
results. I am pleased Michael will remain
with us until we have appointed a suitable
replacement and will help facilitate an
orderly succession process. The board is
confident we have a clear and effective
strategy and when Michael steps down,
he will leave Debenhams in a strong
position to compete and deliver
long-term sustainable growth.
There have been a number of changes to
the board in 2015.
Debenhams welcomed our new Chief
Financial Officer, Matt Smith, to the
board on his appointment in January.
Matt has excellent retail experience at
both Mothercare plc and Home Retail
Group plc. Terry Duddy, former
Chief Executive of Home Retail Group
plc, was appointed an independent
non-executive director in April. Terry’s
long and distinguished career in retail
ensures that his experience and expertise
will be a great addition to the board.
Sophie Turner Laing stood down as an
independent non-executive director on
the expiry of her second three year term.
Sophie’s input during her six years’
service on the board of Debenhams has
been extremely valuable. We are very
grateful to have had the benefit of her
insight and support and wish her well
in her future endeavours.
Dennis Millard has agreed to stand
for re-election by shareholders at the
January 2016 Annual General Meeting
(“AGM”) before stepping down from
the board at some point in 2016. He
will provide continuity and balance
to the composition of the board given
his exceptional knowledge of and
commitment to the business and will assist
in the Chief Executive succession process.
Dennis would not be considered
independent as a result of his nine
years as a member of the board, so
in the interests of good governance,
he has agreed to stand down as
Senior Independent Director, as chair
of the Remuneration Committee and
as a member of the Audit Committee.
As a result Terry Duddy will be
appointed Senior Independent
Director, and Martina King will
become chair of the Remuneration
Committee. These appointments
will take effect on 14 January 2016,
subject to shareholders approving
the respective directors’ election/
re-election at the AGM.
Our people
We take the board’s role in establishing
the culture and values of the Company
very seriously. I am impressed with
progress in both staff engagement
and setting goals for our employees,
so that all can see and be rewarded
for the part they play in driving the
performance of the business. More
detail can be found on the way our
organisation is continuing to evolve
and how we are developing the next
generation of leaders for Debenhams
within the resources, relationships
and sustainability section.
On behalf of the board, I would like
to offer all of our people my gratitude
for their hard work and dedication that
has helped to deliver a successful year
for the business in 2015. With their
support and commitment we look
forward to further progress in 2016.
NIGEL NORTHRIDGE
CHAIRMAN
22 OCTOBER 2015
INVESTMENT CASE
Business model
We aim to create value for shareholders by serving our customers well, with a clear
understanding of what they want, supported by our expertise in how to develop,
source and sell products through the channel that best meets their needs.
Read more on the inside front cover
Strategy
To be a leading international, multi-channel brand by delivering a compelling
customer proposition and increasing availability and choice through our flagship
digital platform and well invested, well located stores around the world.
Read more on page 8
Brands
We offer a unique, differentiated and exclusive mix of owned, international
and concession brands. Our exclusive Designers at Debenhams ranges
showcase internationally renowned British design talent. We are a market
leader in premium beauty in the UK.
Read more on page 11
Key performance indicators (KPIs)
The board assesses the performance of the business on a range of financial,
strategic and sustainability key performance indicators, some of which are
linked to the management performance share plan.
Read more on page 28
Risks and how we manage them
The management of risk plays a central role in strategic planning and is
systematised to ensure that the Group’s reputation is protected and the
strategic and operational goals of the business can be delivered.
Read more on page 20
Dividend policy
Debenhams is a cash generative business. The board has reviewed
the capital structure and intends to adopt a progressive dividend policy
which is compatible with the investment requirements of the business.
Read more on page 32
3
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 CHIEF
EXECUTIVE’S
REPORT
Delivering on our strategic priorities
Michael Sharp has been Chief
Executive of Debenhams
since September 2011.
Here he discusses the
progress we have made
in 2015 in executing our strategy.
Q. Why did you announce on
22 October 2015 that you intend
to step down in 2016 after five years
as Chief Executive?
It is a privilege to lead Debenhams and
I am very proud of our achievements
since September 2011. I believe
Debenhams is now capable of
competing in the ever changing and
challenging world of multi-channel
retailing. I accepted the job of Chief
Executive with the intention of spending
five years in the role and although it will
be difficult to leave a fabulous company
like Debenhams, now is the right time
for the board to begin the process of
identifying my successor. I will continue
as Chief Executive throughout the
Christmas trading period and into
2016 until a suitable successor has
been appointed and settled into the
role. We have a strong and talented
management team and I would like to
thank them and our 30,000 colleagues
for their continuing support, hard work
and passion. I hope being transparent
about my intentions will stop recent
speculation becoming a distraction,
allowing me and the Debenhams team
to focus on delivering our strategy and
the important Christmas trading period.
Q. How would you describe the
Group’s performance in 2015?
I am pleased that having laid out our
strategic priorities last year, we have
delivered a good financial performance
this year, with measurable progress
against each of our key priorities.
There is plenty more for us to do but
4
the results we have achieved so far are
encouraging. Highlights this year have
been the fantastic job our staff did to
deliver a successful peak trading period;
the real step forward in multi-channel
service; and improving market shares
in all our major product categories.
Q. Do you have the team and
resources to deliver the strategy?
We have strengthened our senior team
this year, with the appointment of Matt
Smith as our Chief Financial Officer. Matt
brings a wealth of experience from his
time at Mothercare and Home Retail
Group before that. We have an excellent
senior team with a good blend of external
and internal experience, which makes me
confident in the delivery of our strategy.
As far as resources are concerned, we
have a well invested store portfolio, we
are part way through a major systems
upgrade to support our international
multi-channel ambitions, we have the
financial resources to invest to deliver
sustainable growth, and of course, we
have our colleagues who work so hard
across the entire business. I am delighted
that our “Your Voice” survey of employees
has shown increased scores across a
number of categories.
Q. How will you ensure that
customers continue to be engaged
by Debenhams’ proposition?
We put product at the heart of what we
do in order to deliver breadth and choice
to our customers. We know they want
newness so we are continuing to invest in
design and developing brands. Designers
at Debenhams remains absolutely key to
our proposition and I am delighted that
we are able to inject fresh talents such as
Savannah Miller and Giles Deacon this
autumn, as well as introducing new
products and services to give customers
more reasons to visit our stores.
Q. What progress have you made
in refocusing promotional activity?
We know our customers love our
promotions and they will continue to
enjoy the events we are famous for, such
as New Season Spectaculars and Blue
Cross promotions. We have worked to
differentiate our activities better and
align the events to our customers’
mindset, taking out 17 promotional days
across the year. We have invested in
price in key categories – our “first price
right price” strategy. As a result full price
sales are up 7% over the year. Looking
ahead, the trading calendar is now
broadly as we want it and our focus is
shifting towards maximising the effect
of the events we have and driving full
price sales on less stock.
Q. What best demonstrates the
improvement in your multi-channel
service compared with competitors?
We started behind our competitors in
multi-channel, being set up with the
infrastructure to support a UK department
store business. The investment we have
put behind our operations to serve our
multi-channel customers better has taken
us from behind the pack to top quartile.
We have a profitable online business, which
is optimised for mobile shoppers, and
mobile is our fastest-growing channel. We
have extended the cut-off times for next
day delivery to home. Having launched our
free next day click & collect service last
autumn it now accounts for almost 30%
of orders, and as our lowest-cost delivery
channel which also brings customers back
into stores we are delighted with progress.
We are enhancing our offer further with the
introduction of interest-free credit for larger
purchases in time for peak alongside more
service initiatives. There is plenty more for
us to do in the coming months but we
expect continuing progress in multi-channel.
Q. How will you support your store
performance as spend shifts online?
The differences between channels
are blurring. Stores are a key part of
multi-channel shopping and we have
a number of initiatives in train to define
their role more clearly and ensure that
they remain relevant to our customers.
We identified space in our larger stores
where we could improve performance
by adding new products and services.
We asked customers what they would
like to buy from us that we were not
already selling and as a result of their
feedback we have been trialling a number
of new offers in sportswear, younger
fashion, casual dining and beauty services.
We are pleased with progress and are
moving from trial to roll-out of this
programme. We are fortunate in that
our stores are in great locations and by
giving our customers more choice,
more brands and more in-store services
we are confident they will continue to
be central to the customer experience.
Debenhams plc Annual Report & Accounts 2015 “WE HAVE BUILT A
STRONG PLATFORM
FROM WHICH TO
DELIVER LONG TERM
SUSTAINABLE GROWTH”
Profit before tax
£113.5m
Increase in 2014/15 EPS
+7%
Mike Goring,
Retail Director
Richard Cristofoli,
Marketing Director
Suzanne Harlow,
Group Trading
Director
Peter Swann,
Operations Director
Michael Sharp,
Chief Executive
Matt Smith,
Chief Financial Officer
Ross Clemmow,
E-commerce Director
Nikki Zamblera,
Human Resources
Director
Read more on our Executive Committee on page 45
5
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
CHIEF EXECUTIVE’S
REPORT CONTINUED
be sold outside of Debenhams, giving
us another leg of growth.
market to remain competitive, we are
in good shape to build on last year’s
strong performance over peak trading.
Q. Is the infrastructure ready
to cope with growth internationally
and via multiple channels?
We are part way through a multi-
year investment programme that will
deliver an infrastructure to support
profitable international multi-channel
growth. We are minimising risk by using
tried and tested systems and phasing
implementation of the programme. We
have excellent warehousing facilities but
investment in further automation will
drive cost and service efficiencies in the
future and support our expansion plans.
Q. What are the key challenges and
opportunities for the Group in 2016?
Having made good progress on
our strategic priorities for 2015 I am
moving the focus on for 2016. We have
five new stores opening in the UK this
autumn and we are making sure these
are compelling, exciting and fun places
to shop. Our Bradford store will be the
only department store in this major
city, which is among the top 30 retail
markets in the UK. We have exciting
new and extended brand offers, such
as Nine by Savannah Miller, Hammond
& Co. and Principles – which all feature
in our “A match made in Debenhams”
advertising campaign which has
launched this season. Our space
optimisation programme is moving
from trial to implementation, and
performance of our new brands and
new concessions over the Christmas
peak will be a key test of the strategy.
We will have filled at least half the
identified space by next spring. We
now offer top quartile service for our
multi-channel customers and there is
plenty more to go for both in the UK
and overseas. While we expect the
Q. How can Debenhams continue
to compete in a changing retail
marketplace?
Rather than just looking to play
catch-up with the competition we
have thought hard about the skills,
capabilities and investments needed
to ensure Debenhams remains relevant
and competitive for the foreseeable
future. The decisions we are making
about allocating our resources
effectively are focused on how we
can continue to add value for our
customers, how we maintain the
differentiation of our brand, and
grow profitably across channels
and geographies.
Q. What are your plans to deliver
longer-term growth in the business?
In the UK our focus is to maximise the
performance of our store portfolio and to
exploit our opportunity within the channel
shift online. As a one-stop shop for a
broad choice of international and exclusive
brands across fashion, accessories, beauty
and homewares, we are in a tremendous
position to drive multi-channel growth.
Internationally we have the opportunity
to drive growth via a number of different
models, all of which are cost and
capital-light. We expect to continue
to generate good cash flow, giving us
a strong platform to drive long-term
sustainable growth for our shareholders.
MICHAEL SHARP
CHIEF EXECUTIVE
22 OCTOBER 2015
Our exclusive
Hammond & Co.
collection from Savile
Row tailor Patrick
Grant was extended
to 98 stores following
its successful launch
last year.
Q. What are the key drivers for
growth in international markets?
I see a number of potential drivers for
international growth. Our store chain
in Denmark, Magasin du Nord, is
consolidating its market leadership and
has delivered a year of exceptional
growth. We expect continuing positive
momentum this year. The Republic of
Ireland remains a challenging market,
but our teams are working hard to
deliver a great customer experience.
We continue to open franchise stores
in both new and existing markets, with
continuing opportunities in the Middle
East, balanced by growth in newer
regions in the Far East and Eastern
Europe. We are testing new channels to
market which have exciting longer-term
prospects: this year we will offer some
of our international online customers
local language and local currency
websites; we are entering Australia with
a new multi-channel model; and
following some successful trials we see
potential for some of our own brands to
6
Debenhams plc Annual Report & Accounts 2015
MARKET CONTEXT
An independent view of the UK retail market background from
Research Analysts at Deutsche Bank
MARKET CONDITIONS IN 2015
UK household cash flow trends appear to be very positive
Employment and consumer confidence are high, credit is
available and non-discretionary items such as food and fuel
are deflationary. Other positive factors include nominal wage
growth, an increase in the tax free personal allowance and
mortgage rates continuing at historically low levels.
CUSTOMER SENTIMENT
Consumer confidence is high by historical standards…
Q1 recorded the highest ever level of the total number of people
in work and nominal wage growth has accelerated since Q4 2014.
These factors have translated into positive consumer confidence,
which returned to a positive reading in January 2014, and has
remained in positive territory.
More cash, the same spending
Despite this, the pace of total non-food retail sales growth has
been fairly modest and certainly has not accelerated in step with
household budgets. LFL sales growth has moderated since the
first half of 2014, running at c+2%.
… with a greater appetite to make major purchases
Confidence to make major purchases has steadily strengthened
and jumped to a record high in the latest survey (July 2015).
However, the data show a widening gap in consumer confidence
between higher income and lower income consumers. Lower
income consumers tend to spend a greater proportion of their
income, which may explain why sales have not been stronger.
Non-food retail sales vs spending power
Consumer confidence gap by income levels
16%
12%
8%
4%
0%
-4%
-8%
0
1
1
Q
0
1
2
Q
0
1
3
Q
0
1
4
Q
1
1
1
Q
1
1
2
Q
1
1
3
Q
1
1
4
Q
2
1
1
Q
2
1
2
Q
2
1
3
Q
2
1
4
Q
3
1
1
Q
3
1
2
Q
3
1
3
Q
3
1
4
Q
4
1
1
Q
4
1
2
Q
4
1
3
Q
4
1
4
Q
5
1
1
Q
5
1
2
Q
Spending power YoY %* (LHS)
Non-food LFL (RHS)
4%
3%
2%
1%
0%
-1%
-2%
25%
20%
15%
10%
5%
0%
8
0
n
a
J
8
0
8
0
8
0
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A
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9
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9
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2
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3
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5
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A
(Source: CEBR, BRC, Asda Income Tracker)
(Source: GFK)
Gap between lower and higher income consumers
SHOPPER TRENDS
Retail sales – price deflation persists
Volume growth in retail sales has decelerated from a peak in
mid-2014, while price deflation has persisted. The non-food
categories which have seen the sharpest level of deflation are
clothing and electrical goods, according to the British Retail
Consortium (“BRC”).
CHANNEL SHIFT
Depressed high street footfall
Taken together, data from BDO High Street Sales Tracker (which
exclude online sales) and weak BRC store LFLs suggest weak
footfall and continued share shift to online. Store-only LFLs have
been the slowing channel. Fashion has been particularly weak,
and the more buoyant homewares category has begun to slow.
Clothing impacted by tough weather comparatives
Kantar Worldpanel data suggest the overall clothing market has
been in growth so far in 2015, but that this has been driven by
volume growth rather than average selling price. Temperatures
have been materially below 2014 levels which inevitably affects
spring/summer footfall and sales. The BDO High Street Sales
Tracker indicates that monthly sales on the high street since
August 2014 have generally declined year on year.
Alternative areas of consumer spending gaining
Data from Visa and Barclaycard suggest that total spending has
been at a fairly constant growth rate rather than accelerating like
household available cash flows. However, expenditure growth on
leisure areas such as eating out and holidays has outstripped
non-food and food retail.
BDO High Street LFL sales by category (%)
Online sales growth contribution to retail sales
22.5
17.5
12.5
7.5
2.5
-2.5
-7.5
3
1
n
a
J
3
1
b
e
F
3
1
3
1
r
p
A
3
1
r
y
a
a
M
M
Fashion
3
1
n
u
J
3
1
l
u
J
3
1
g
u
A
3
1
3
1
3
1
4
1
n
a
J
3
1
p
v
o
e
N
S
Homewares
c
e
D
t
c
O
4
1
b
e
F
4
1
r
a
M
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
3
1
y
a
M
3
1
n
u
J
3
1
l
u
J
3
1
g
u
A
3
1
p
e
S
3
1
t
c
O
Store only LFL %
4
1
g
u
A
4
1
p
e
S
4
1
4
1
4
1
t
c
O
v
o
N
c
e
D
5
1
n
a
J
5
1
b
e
F
5
1
r
a
M
5
1
r
p
A
5
1
y
a
M
5
1
n
u
J
5
1
l
u
J
3
1
4
1
4
1
4
1
4
1
n
a
J
3
1
v
o
N
4
1
g
u
A
Space contribution % Online contriubution to non-food growth %
4
1
v
o
N
4
1
p
e
S
5
1
b
e
F
4
1
b
e
F
4
1
t
c
O
4
1
n
u
J
5
1
n
a
J
y
a
M
y
a
M
c
e
D
c
e
D
r
a
M
r
a
M
r
p
A
r
p
A
5
1
5
1
5
1
4
1
4
1
u
J
l
4
1
r
p
A
4
1
n
u
J
4
1
4
1
l
u
J
y
a
M
Lifestyle
(Source: BDO LLP High Street Sales Tracker)
(Source: BRC, Deutsche Bank estimates)
7
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
OUR STRATEGY
At a glance
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
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
DELIVERING A
COMPELLING
CUSTOMER
PROPOSITION
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
Risk management
Debenhams applies a regular
and systematic approach to the
management of risk in order to
provide assurance that strategic and
operational goals can be met and the
Group’s reputation will be protected.
Read more on page 20
Resources and relationships
Our model is underpinned by a series
of relationships with stakeholders
contributing to the long-term success
and sustainability of our business.
Read more on page 34
KPIs
The board assesses the performance
of the business on a range of financial,
strategic and sustainability indicators,
some of which also form part of
executive remuneration.
Read more on page 28
Corporate governance
Debenhams’ leadership seeks to act
responsibly and effectively, whilst
demonstrating honesty, transparency
and accountability, in order to
encourage good behaviours
throughout our business.
Read more on page 40
8
Strategic pillars
Delivering a compelling
customer proposition
Priorities and delivery in 2015
• We aimed to refocus promotional activity
towards events we are famous for
• We made changes to the promotional
calendar to match customer mindset.
We reduced the number of days on
promotion in FY2015 by 17
• As a result, full price sell-through has
increased by 7% and we have reduced
year end stock levels by 4%
Outlook in 2016
• We will continue to focus on driving full
price sell-through and to optimise trading
within our promotions
• We are planning more new and exclusive
product, with some exciting product
launches this autumn and an evolution
of our effective “Found It” Christmas
marketing campaign
• We will build on our strong track record of
brand development in order to maximise
their potential
Risk awareness
• In competitive markets it is vital to keep
our customers engaged and to understand
their concerns. Our customer insight team
provides us with valuable intelligence to
identify changes in customer priorities
• We seek the best possible return from
our marketing activity so we monitor its
effectiveness across all channels and aim
to leverage activity where appropriate
• To maintain the flow of product, we
depend on supply chain partners from a
wide geographical diversity with whom we
have close and collaborative relationships
Debenhams plc Annual Report & Accounts 2015
Increasing availability
and choice through
multi-channel
Priorities and delivery in 2015
• Our aim is to build a more competitive and
more economic online business: we saw
good progress in both sales (up 11.4%) and
profits (EBITDA up 11.5%) this year
• We continue to invest in our flagship digital
store, with improved landing pages
and navigation, taking a “mobile first”
approach. As a result mobile penetration
is now more than 40% of online orders
• We have improved service levels by
extending cut-off times for ordering for
next day delivery, offering next day click &
collect and lowering delivery charges
Outlook in 2016
• We are aiming to achieve a market-leading
service proposition and will make further
strides this year through continuing
improvements to website presentation
and further service enhancements
• By Christmas around half of concession
orders will be eligible for next day delivery
and click & collect services, and more will
be enabled by year end. Separately, we will
more than double the number of stores to
150 that will be able to fulfil online orders
from store stock
• We expect the cost of fulfilment to reduce
through a combination of more efficient
service and improved cost recovery
Risk awareness
• Peak trading places pressure on service
levels but we traded successfully over
peak in 2014 and have processes in place
to minimise the risk of service failure
• We have a good existing platform for our
website and we are landing upgrades as
we go, so as to minimise the risk of
disruption to our customers
• Similarly, we are using existing technology
for key process improvements and these
are staged so as to contain any
performance shortfall
Focusing on UK retail
Priorities and delivery in 2015
• We aimed to address the impact of the
channel shift on our UK stores, focusing
on ways to drive a better return from
under-potentialised space
• After identifying c.1 million sq ft we asked our
customers what products they would like to
buy from us to make better use of this space,
in order to deliver improved profit densities
• We have filled 35% of the 1 million
sq ft with a number of trials that have
included extending own bought ranges,
introducing new and exclusive brands and
concession partners and extending our
branded food services offer
Outlook in 2016
• We have moved from trial into roll-out with
our space optimisation programme, and
will have filled more than half the
identified space by April 2016
• Evidence from the trial phase has
confirmed that the categories we have
identified bring additional footfall and
encourage higher spend in the stores
• We are applying some of the principles
we have established to higher performing
space too. Our aim is to encourage dwell
time in our stores and improve the in-store
experience with service offers that cannot
be replicated online
Risk awareness
• We intend to maximise profit density
in reallocated space, so we assess the
costs and returns of replacing an existing
offer, especially when replacing own
bought product with a concession
• We are aiming to add in categories where
there is a lower risk of cannibalising our
existing sales – identifying gaps in our
offer or in the local catchment that a new
brand or partner can fill
• We have a long track record of dealing with
concession partners and are managing the
introduction of new partners to ensure
that we are not unduly dependent on
any one partnership
Expanding the brand
internationally
Priorities and delivery in 2015
• Constant currency performance showed
good underlying growth, although
adverse foreign exchange movements
weighed on reported sales and profits
• Magasin du Nord delivered a strong
like-for-like performance and has
outperformed the Danish market.
The Republic of Ireland held up well in a
market that continues to be challenging
• We opened a net two new franchise
stores, taking the total to 70 and
international online sales showed further
good momentum from a low base
Outlook in 2016
• We have a strong pipeline of franchise
openings, with 11 contracted and a further
13 under negotiation
• Within our own-operated store base, we
expect good momentum to continue at
Magasin du Nord helped by market recovery.
We continue to manage the Republic of
Ireland tightly
• We have entered the Australian market
with a new multi-channel model and
expect to make further progress in
developing new channels to market, both
online – where we will open local currency/
local language websites in a number of
markets – and via wholesale opportunities
for certain brands, which offer a potential
new route to growth
Risk awareness
• Geopolitical risks are carefully considered
before entering into any new market, and
we have a long track record of working
with franchise partners
• With careful focus on capital allocation, we
have maintained a capital-light model for
overseas investment and our new routes
to market will maintain that discipline
• An important part of systems and
infrastructure investment is to support
efficient and low cost expansion in
overseas markets
Operational effectiveness
Priorities and delivery in 2015
• Whilst managing costs tightly, we continue
to invest in operational and organisational
effectiveness, with £60m of IT capital
expenditure in FY2015
• This investment is driving efficiency savings
such as the integration of our cosmetics
warehouse into existing infrastructure
• By introducing daily store deliveries using
our own fleet we were able to meet our
next day click & collect service promise and
make this route the lowest cost delivery
channel for online orders
Outlook in 2016
• We will make a significant step forward in
FY2016 as we move to a single warehouse
management system
• This will enable us to improve stock
Risk awareness
• As with any systems programme, there
are execution risks; we are using an
established platform and market-leading
providers
availability, whilst simultaneously reducing
stockholding, driving both cost and
revenue benefits
• We are actively working to minimise risk
to stock flows as we move to a single
warehouse management system
• In FY2016, as a result of our platform
investment, we will launch local currency
websites and localised online content in
a number of international markets
• Across our supply chain we maintain multiple
sourcing routes and constantly monitor our
partners’ activities to identify and act on any
concerns at an early stage
9
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 STRATEGY
IN ACTION
DELIVERING A
COMPELLING
CUSTOMER
PROPOSITION
Refocusing our approach
to promotions
I n 2014/15 we set out a strategic
priority to refocus our approach to
promotions and we have made
further progress. Our customers love
our promotions. It is part of our
business model to hold regular events
such as our Spectaculars and Blue Cross
Sales. It is what we are known for and
they will continue to form an important
part of our strategy.
But our customers told us there were
too many events and they weren’t
always distinctive enough. And running
the business with too much stock meant
we were incurring too much markdown.
As a result, we have focused on the
events we are known for and we have
changed the timing of some events
to align them more closely with our
customers’ mindset.
Over the past year we have reduced
the number of days Debenhams is on
promotion by a further 17 days; total
days on promotion since we started
the process have reduced by 42. As
planned, our stock levels ended the
year down 4.1%.
First price, right price
At the same time we have reviewed
our pricing to ensure our prices were
competitive. We identified some
product categories in childrenswear,
menswear and home where there was
an opportunity to realign our price
architecture. We invested 30 basis
points (“bps”) of gross margin in pricing
in these product areas and have seen a
positive response in terms of full price
sales and market share.
As a result of these actions we have
increased full price sell-through in
2014/15 by 7.1% and we have reduced
markdowns by 90 bps. Our latest
customer surveys tell us that we are
continue to offer great quality and value
for money and we have increased our
market share in all key categories since
we anniversaried our change in
promotional stance, according to
Kantar Worldpanel data.
Black Friday, which is becoming an
integral part of the pre-Christmas
trading calendar for retailers, works well
with our existing promotional calendar,
and we traded it successfully and
profitably in 2014.
Outlook in FY2016
For the next financial year, we believe
most of our work relating to the
promotional calendar is complete.
However, we will aim to reduce the level
of participation in our promotions
further and to optimise promotional
trading. Part of our promotional refocus
involves looking at how we differentiate
more clearly between prime trading and
promotions whilst delivering our new
product launches more effectively.
We are planning more exciting and
exclusive new product, such as our new
Designers at Debenhams launch this
season, Nine by Savannah Miller, and
Giles Deacon’s range for our Edition
concept. Both of these launches
adopted a multi-channel marketing
strategy and have successfully linked
in to our autumn “A match made in
Debenhams” campaign. For Christmas,
we will build on our successful “Found
It” campaign launched last year.
Debenhams has a strong track record
of developing brands and we see
opportunity to exploit the potential of
some of our “power brands”. A number
of our private label brands generate
annual turnover in excess of £100 million
each and we are looking at ways to grow
these both within our own stores and
via other channels. We are already
selling some of our own brands, such
as Faith, and Designer brands Floozie
by FrostFrench and Star by Julien
Macdonald, via third party websites
both in the UK and overseas.
We expect to make further progress in
increasing full price sell-through and
reducing markdowns in 2015/16, while
continuing to deliver a compelling
customer proposition.
Nine by Savannah
Miller launched in
August 2015;
Hammond & Co.
by Patrick Grant has
been extended to
more stores.
Fewer days on promotion
17
Full price sell-through
+7%
Giles Deacon has
designed a capsule
range for our
Edition brand.
11
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
STRATEGY
IN ACTION
LOW RES
INCREASING
CHOICE THROUGH
MULTI-CHANNEL
Building a more
competitive and
more economic
online business
O ur ambition is to grow our
multi-channel business,
so that online sales reach
around 30% of our UK
gross transaction value,
from less than 20% at present. The online
business is already profitable but our
plan is to make it both more competitive
and more efficient. We have invested
in our flagship digital store and in our
customer service systems to support
online ordering, which has resulted in
strong progress in 2014/15 in both sales
and profit.
As a result of the increasing inter-
change between channels, and in line
with other department stores, we have
adjusted online sales and profits in this
and prior years to include those items
ordered online but returned via the
store channel. This has no impact on
statutory reported results. On this
basis, online sales grew 11.4% in
2014/15.
Delivering a flagship
online experience
We migrated onto our IBM Websphere
platform in 2013 and in the last financial
year we have made significant progress
in improving the online customer
journey. Debenhams.com is consistently
in the Top 10 most visited non-food
retail websites, according to Hitwise.
We have improved landing pages and
navigation in key categories, such as
furniture, childrenswear, and most
recently some categories in womens-
wear. This is both to deliver a more
intuitive browsing experience – such as
online furniture displays by roomset, or
stronger brand presentation in clothing
– and to allow cross-category
presentations focused on key calendar
events, such as Christmas, Mother’s
Day, Holiday Shop and Back to School.
Our mobile and tablet first approach
drives everything we do in multi-
channel. More than 40% of online sales
now come from mobile devices. Our
redesigned checkout has also
contributed to improved conversion
rates up 10% year-on-year.
Seamless service via any channel
The service we offer to our online and
multi-channel customers has been
substantially improved in the last 12
months. In October 2014, we introduced
a next day click & collect service from
stores; we extended order cut-off times
both for click & collect and next day
delivery; we introduced nominated day,
weekend and evening deliveries; and we
extended our Endless Aisle fulfilment-
from-store option.
As a result we traded strongly over
peak, with click & collect increasing its
penetration to almost 25% of orders
and next day services accounting for
almost half of our online sales in the
seven days leading up to Christmas.
premium delivery services increasing
32% over the year. This improvement
contributed to 11.5% growth in online
EBITDA in 2014/15.
Outlook in FY2016
We believe that, from being behind
the curve in multi-channel customer
service relative to our competitors, the
investments we have made have taken
us into the top quartile of industry
service. We are rolling out further service
improvements ahead of peak trading to
ensure that we maintain the momentum
we have seen in the past 12 months.
We are launching interest-free credit to
help our customers spread the cost of
their larger purchases. We have already
extended our order cut-off times
further, to 9pm for next day click &
collect, and to midnight for next day
evening delivery.
We have made further progress in
the balance of the year, with more
competitive charges for next day
delivery to home; a further roll-out
of in-store service counters; Endless
Aisle extension to 150 stores; and
penetration of click & collect has
continued to increase.
Click & collect is the lowest cost option
for us to get product to customers.
Our service is free and due to our daily
deliveries to store via our own delivery
fleet, we now have the infrastructure in
place to leverage growth in orders. We
have been trialling ways to encourage
our customers to spend more in store
while they are collecting their parcels, for
example by offering vouchers to spend
in stores. Over the year click & collect
accounted for 26% of online orders and
we expect the penetration to continue
to grow towards industry averages.
Our concession partners are also
working with us to meet our delivery
promises and by the Christmas peak
around half of concession orders will
be eligible for next day click & collect
and next day delivery services.
And our overseas online customers in
a number of European countries will
have the opportunity to order from
local currency-denominated websites
with localised content this autumn,
with local language sites to follow.
Online sales growth
11%
Click & collect penetration
We have also made good progress
in our objective to achieve higher
recovery of fulfilment costs, with
26%
We are taking a “mobile
first” approach to all
website improvements.
Online orders from
mobile devices are
now more than 40% of
the UK total.
Stronger brand
presentation
and improved
landing pages.
13
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
STRATEGY
IN ACTION
FOCUSING
ON UK
RETAIL
Driving a better
return from stores
Our findings from talking to our
customers clearly showed what other
product areas they would like to buy
from us. This led us to establish new
concession partnerships with Sports
Direct, Monsoon Kids, Danish group
Bestseller – for their younger fashion
brands Only and Jack & Jones – and
BHS Lighting, among others. These all
offer product that is complementary
to our existing brands.
We have also added some exciting new
branded food service offers with Costa
Coffee, Patisserie Valerie, Joe & The
Juice, Insomnia, Chi Kitchen and Ed’s
Easy Diner. Customers who use one
of our in-store dining options spend
significantly more time and money in
Debenhams than those who do not.
By the end of the financial year, we had
added new offers into 350,000 sq ft,
35% of the space we identified as part
of this programme. Initial results have
been sufficiently encouraging to move
to roll-out from trial stage with a
number of our new partners.
Outlook in FY2016
We continue to explore new product
categories, in order to offer more
choice to customers through products
and services that are complementary
to our existing offer. With encouraging
progress to date in improving profit
densities, we are identifying
opportunities to apply the lessons
learned to our more productive space
and to our new stores as well.
For example, we had originally planned
to open our Bradford store with just
one dining offer, but as a result of the
feedback from customers and the
findings of our space programme, the
store will launch with three – giving our
customers a choice of casual dining
options in the city centre.
By April 2016, as planned, half of
the 1 million sq ft under the space
optimisation programme will have
been reallocated through our various
initiatives. The changing nature of the
retail marketplace is creating a variety
of opportunities with new potential
partners and we remain extremely
confident of reallocting the balance
of the identified space.
O ur stores remain
central to our customer
proposition. We have
modern stores in prime
locations and one in four
of the UK population visits Debenhams
every year. Our destination departments
including beauty, gift and occasionwear
remain central to our customer
proposition. And this autumn we are
opening five new stores, in Rugby,
Wandsworth, Beverley, Bradford
and Newport, taking our UK chain
to 166 stores. The shift in the UK retail
marketplace towards online shopping
has presented us with both challenges
and opportunities. We have challenged
our store teams to identify inefficient
space in our existing stores and we have
investigated different ways to achieve
a better return on this footage, which
represents just under 10% of our
total UK footage at approximately
1 million sq ft.
We asked our customers what they
would like to buy from Debenhams that
we did not already sell. We looked at
service offers which are complementary
to our existing mix and cannot easily
be replicated online. And we examined
our own brands to see where there was
unsatisfied demand. For example, we
saw opportunity in casualwear for
35-50 year old customers.
The aim of this project is to increase
profit density in the identified footage
and dwell time in our stores and results
so far have been encouraging.
New and extended services,
brands and concession trials
We rolled out in-store service
counters to support our click & collect
proposition. With almost 170 stores in
the UK this is a convenient option for our
customers and our preferred channel
for online deliveries. One in ten click
& collect customers spend more than
£20 while they are in store. We have
both extended and added to our
beauty brands, building on our strength
in make-up in particular, rolling out
more counters and services such as
brow bars.
Some of our newer brand launches,
such as Principles casualwear and
Hammond & Co. by Patrick Grant, have
been particularly successful and rolled
out to more stores. Our customers
are always looking for newness, so we
examined the opportunity for our latest
Designer launches: Giles Deacon for
Edition and Nine by Savannah Miller,
which addresses the casualwear
opportunity, and have been more
confident in store ranging for their
initial season.
New food service
offers include Chi
Kitchen and Patisserie
Valerie. Our new
Rugby store opened
in September.
Space optimisation
programme
350k sq ft
New UK stores by Christmas
5
15
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
STRATEGY
IN ACTION
LOW RES
EXPANDING
THE BRAND
INTERNATIONALLY
Accelerating growth in international channels
websites beyond the Republic of
Ireland and Denmark. As we are
already shipping to more than
60 countries worldwide and selling
certain of our brands via third party
partnerships in overseas markets,
there is clearly untapped potential.
markets. We have a medium-term
target of 150 franchise stores and
despite the unstable geopolitical
environment we continue to see
good growth opportunity across
all our markets. We currently have
24 stores in our franchise pipeline.
D ebenhams operates both its
own and franchised stores
overseas and sells product
online in more than 60
countries. Our 11 stores
in the Republic of Ireland trade under
the Debenhams brand. Our business
in Denmark, Magasin du Nord, was
acquired in 2009 and continues to trade
six stores very successfully under its own
fascia. In the last 12 months, Magasin has
recorded a very strong performance with
constant currency like-for-like sales
growth of 8.1%, outperforming
a recovering Danish market.
Elsewhere overseas our franchise store
network has expanded to 70 stores,
with new stores opening in the UAE
– our largest franchise store to date in
Yas Island Mall – Egypt, Saudi Arabia,
the Philippines, Russia and Romania.
As part of our portfolio management,
we have also closed five under-
performing overseas stores.
As part of our operational effectiveness
programme, we have increased the
proportion of product that is shipped
direct to our international markets,
which now accounts for almost half the
total. By reducing handling costs and
getting product faster to market we
are making a significant improvement
in the efficiency of our international
supply chain.
Outlook in FY2016
With regards to our own-operated
stores, Magasin du Nord is expected to
see continuing momentum in 2015/16 as
the Danish consumer market continues
to recover. We will continue to manage
the Republic of Ireland business tightly.
Online growth opportunity
Whilst our international online revenues
remain relatively small, we have seen
further rapid growth in constant
currency in 2014/15, despite not yet
having local currency or local language
Our franchise representation is still
principally focused in the Middle East,
South East Asia and Eastern Europe,
with good opportunities in existing
regions as well as in untapped
Overseas revenues
£537m
International sales
participation
19%
In tandem with this, the scope
for international online growth is
material and we have a number of
options with regard to the appropriate
route to market. We plan to launch
local language/local currency websites
in a number of overseas markets this
year, including in markets where we do
not have any store representation.
We have entered the Australian market
with a new multi-channel model, and we
are in discussions with further potential
partners, both for a curated Debenhams
offer online in markets where this is
more appropriate than selling via
our own website, and for potential
wholesaling relationships for certain
of our own brands. This will allow us to
expand in markets where Debenhams is
not currently represented. For example,
we have recently agreed terms with
VinGroup for such an arrangement in
Vietnam.
Our new franchise
store in Yas Island,
UAE, is our largest
international franchise
store to date. Magasin
du Nord delivered a
strong performance,
with good online
growth. International
online has untapped
potential for
Debenhams.
17
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
STRATEGY
IN ACTION
O P E R AT I O N A L
E F F E C T I V E N E S S
We a r e b u i l d i n g i n f r a s t r u c t u r e t h a t i s s u s t a i n a b l e a n d f i t f o r f u t u r e g r o w t h , t o e n a b l e
D e b e n h a m s t o e x p l o i t t h e c o n t i n u i n g c h a n n e l s h i f t s i n r e t a i l
IT investment in FY2015
£60m
Product shipped direct
to partners
47%
We are installing a
single warehouse
management system
for our distribution
centres in Sherburn
and Peterborough.
W e are building
infrastructure that is
sustainable and fit for
future growth, to enable
Debenhams to exploit
the continuing channel shifts in UK retail
and drive international growth in a cost
effective way.
Operating costs increased by 0.6% in
2014/15 despite the further shift into
online and the investment in improved
online services. Our focus is on extracting
productivity improvements as a result of
the programme of systems investment,
so as to deliver profitable growth.
Investment in systems
and supply chain
There are two major systems programmes
under way, and systems spend has
increased to £60 million out of our total
capital expenditure of £133 million in
2014/15.
We are introducing new buying and
merchandising systems, processes
and practices in order to allow us more
effectively to plan and merchandise
ranges across the business as we grow
in more geographies and channels.
Equally, we are progressing
opportunities to develop sourcing
capabilities that recognise the need
to maintain brand identity whilst
maximising the efficiency of
sourcing locations and factories.
Our clothing buying teams are structured
by brand. As an illustration of the
opportunity for future sourcing
efficiencies, we have benchmarked our
suppliers and consolidated the buy
across key volume lines in the knitwear
category, which has generated
a significant cost saving. We are mindful
of the need to maintain separate brand
identity but will look at further
opportunities to introduce category
buying across brands where appropriate.
We are also replacing our stock
management systems, moving to a single
provider and with the aim of simplifying
our warehouse operations to flow stock
more efficiently. Currently, like many of
our peers, we have separate pick faces
for stores and online orders.
Whilst we have put processes in place
to allow us to fulfil from store for online
orders, the move to a single stock view
will be a significant support to our
multi-channel growth.
We have also made good progress
in the current year to improve the cost
effectiveness of online order fulfilment,
with daily store deliveries on our own
fleet supporting our click & collect
service, which is our lowest cost delivery
option for customers.
Other initiatives include the successful
relocation and integration of our
cosmetics fulfilment operation to our
distribution centre in Sherburn, enabling
the closure of the separate facility.
Changing the flow of stock to stores
with more frequent distribution and
replenishment is also enabling us to
test the removal of offsite stockrooms.
We continue to restructure our
international supply chain to optimise
stock flows. For example, we have
increased direct shipping to our
international partners, taking stock from
suppliers via our hub in Singapore rather
than via the UK, which now accounts for
47% of the total.
Outlook in FY2016
We will continue to manage costs tightly
across the business. Our new single
warehouse management system will
be operational from spring 2016 and
is expected to deliver benefits from
both reduced picking costs and lower
stockholding. A single stock view is also
likely to improve stock availability and
potentially support our continuing drive
to reduce markdown.
Longer term we see opportunities to
introduce further automation to our
warehouses, which will bring additional
cost savings. Over the period of the
systems investment programme we aim
to reduce the fulfilment cost per unit by
30% to bring us in line with best-in-class.
19
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
RISK
REVIEW
Safeguarding future returns
T he 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.
The annual report compliance
committee ensures that all governance
practices comply with the applicable
provisions of the UK Corporate
Governance Code.
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.
20
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.
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 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 employees can speak to the
Group’s anti-fraud team. If an employee
feels that the matter is so serious that
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.
Figure 1: Debenhams risk management framework
j
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i
g
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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
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e
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j
Debenhams plc Annual Report & Accounts 2015
In addition to this, 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.
All senior managers participate in
the 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.
Management is required to update the
register with any new or emerging risks
as they are identified.
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.
require to enhance financial and
operational performance and to identify
emerging risks or control failures.
Risk treatment
The risk score, derived from the risk
ranking matrix, is compared to the
risk appetite matrix (figure 3), which
provides guidance 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)
• Transfer (via insurance/contract)
• Terminate (eliminate/re-engineer)
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
Performance is also reviewed by the
board, Executive Committee, Audit
Committee, business continuity
management committee and health
and safety committee.
PRINCIPAL RISKS AND
UNCERTAINTIES
The risks detailed on pages 22 to 27 are
the principal risks and uncertainties that
may impact the Group’s ability to achieve
its strategic and operational goals. They
are ranked based on overall risk to the
business.
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
Event will probably occur at least once
every 3 years
Event will probably occur at least once
every 10 years
Event will probably occur less than once
every 10 years
Frequent
Common
Occasional
Unlikely
4
3
2
1
4
3
2
1
16
12
8
4
36
27
18
9
64
48
32
16
1(12)
4(22)
9(32)
16(42)
Low
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
21
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 PRINCIPAL RISKS
AND UNCERTAINTIES
Risk
Impact
Examples of mitigation
Change*
Continuing
adverse
economic
conditions
may have
a material
adverse
effect on
Debenhams’
results
Debenhams’
business could
suffer as a
result of weak
sales during
peak selling
seasons or
extreme or
unseasonal
weather
conditions
Failure in
the stability,
integrity or
availability
of information
systems could
adversely
affect
Debenhams’
business
operations
and results**
Inability to
effectively
invoke a
business
continuity
plan 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.
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.
Risks associated with systems
failure, external attack of
systems or data inaccuracy
may also significantly
damage ability to manage
information technology
systems, such as our website
or warehouse management
systems, or could cause
inappropriate decisions to
be made using wrong,
missing or ambiguous
information.
A robust systems infrastructure is required to support
the delivery of our strategic objectives which are
outlined on pages 8 and 9. As such, information
systems developments are key enablers and critical for
accelerating the pace of change necessary to compete
effectively. 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.
Monitoring processes are in place across a number of
key business systems, alongside specialist teams, and
a disaster recovery site is in place where associated
systems are tested to ensure that the requirements
for invocation are fully understood.
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.
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.
* Change in severity and/or likelihood of risk during course of 2014/15.
** These risks are not new but were previously incorporated within other principal risks.
*** These risks are not new but are now reported as principal risks following the annual review of their ranking.
22
Debenhams plc Annual Report & Accounts 2015 Risk
Impact
Examples of mitigation
Change*
Theft of
customer data
or breach of
payment card
industry
standards
could
adversely
affect
Debenhams’
business
operations,
reputation
and results
Debenhams’
business could
suffer as a
result of failing
to compete
effectively
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.
Place pressure on our pricing
strategy, margins and
profitability.
Divert financial and
management resources
from more beneficial uses.
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 the
Company 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.
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 KPIs which ensures that pricing is
competitive and promotional activity is appropriate.
Debenhams’ customer insight team provides valuable
intelligence to keep us alert to changes in customer
priorities.
Delivering a compelling customer proposition is at the
heart of Debenhams’ strategy. In developing product
and brand strategy, the Group takes into consideration
market, trend and customer research to help it predict
likely demand for its products and services. Debenhams
continues to invest in its product and brand strategy to
ensure that it remains competitive.
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 and a single stockfile are being
introduced.
• Driving a better return on UK store assets through the
introduction of additional products, brands and
services as well as ensuring that stores are fully
configured for multi-channel shopping.
* Change in severity and/or likelihood of risk during course of 2014/15.
** These risks are not new but were previously incorporated within other principal risks.
*** These risks are not new but are now reported as principal risks following the annual review of their ranking.
23
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Risk
Impact
Examples of mitigation
Change*
A failure
to deliver
Debenhams’
key strategic
priorities may
adversely affect
its business***
Any disruption
or other
adverse event
influencing the
sustainability
of the supply
chain
Could significantly delay or
prevent the achievement
of Debenhams’ business
plan and could have a
material adverse effect
on Debenhams’ business,
financial condition or
results of operations.
This is an increasing risk due
to the volume of change
being implemented and
its importance to the
business plan.
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 has developed a business change
roadmap, which includes a number of projects that
support the delivery of the key strategic priorities. This
includes investment in buying and merchandising
systems capability to achieve greater alignment across
all sales channels and geographies.
Debenhams fosters close and collaborative relationships
with its suppliers. Both parties work towards the
objective of optimising sustainable fulfilment and costs,
which is measured regularly by management through
KPIs. You can read more about how the Group builds
relationships with our suppliers on page 34.
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.
* Change in severity and/or likelihood of risk during course of 2014/15.
** These risks are not new but were previously incorporated within other principal risks.
*** These risks are not new but are now reported as principal risks following the annual review of their ranking.
24
Debenhams plc Annual Report & Accounts 2015 Risk
Impact
Examples of mitigation
Change*
Any of the following factors
could impact the flow of
product across our channels
and 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; the loss
of a number of important
concession partners; adverse
events within the supply chain
which 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.
Costs associated with the
transfer of the operations
or the potential of extra
operational cost from a new
provider could impact or
reduce profitability.
The loss of a number of
important franchise partners
could impact or reduce
profitability.
Any disruption
or other adverse
event affecting
Debenhams’
relationship with
any of its major
suppliers,
designers or
concessionaires**
Any disruption
or other
adverse event
affecting
Debenhams’
relationship
with any of
its major
outsourcing
partners**
Any disruption
or other
adverse event
affecting
Debenhams’
relationship
with any of
its major
franchise
partners**
In order to minimise the impact of any major supplier,
designer or concessionaire relationship or performance
issues, Debenhams’ objectives are to: maintain close
and collaborative relationships by ensuring strategies
are aligned; have appropriate, unambiguous contracts
in place; ensure that all major suppliers, designers or
concessionaires are financially robust; and have
contingency plans in place in the event of a failure.
In order to minimise the impact of any major
outsourcing partner relationship or performance
issues, Debenhams’ objectives are to: maintain close
and collaborative relationships by ensuring that
strategies are aligned; have appropriate, unambiguous
contracts in place; ensure that all major outsourcing
partners are financially robust; and have contingency
plans in place in the event of a failure.
In order to minimise the impact of any major franchise
partners relationship or performance issues,
Debenhams’ objectives are to: maintain close and
collaborative relationships by ensuring that strategies
are aligned; have appropriate, unambiguous contracts
in place; ensure that all major franchise partners are
financially robust; ensure that geopolitical risks are
carefully considered for any new market; and have
contingency plans in place in the event of a failure.
Policies, controls and financial support behind
receivables are in place to help mitigate the risk
of franchise partner failure.
* Change in severity and/or likelihood of risk during course of 2014/15.
** These risks are not new but were previously incorporated within other principal risks.
*** These risks are not new but are now reported as principal risks following the annual review of their ranking.
25
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Risk
Impact
Examples of mitigation
Change*
Any events
that
negatively
impact the
reputation
of, or value
associated
with,
Debenhams’
brand could
adversely
affect its
business
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.
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
makes this an ongoing risk which Debenhams and
its suppliers and franchisees have to manage.
A 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.
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
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.
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.
* Change in severity and/or likelihood of risk during course of 2014/15.
** These risks are not new but were previously incorporated within other principal risks.
*** These risks are not new but are now reported as principal risks following the annual review of their ranking.
26
Debenhams plc Annual Report & Accounts 2015 Risk
Impact
Examples of mitigation
Change*
Hinder ability to adjust rapidly to
changing market conditions and
impact earnings and cash flow.
Hedging strategy may not
adequately protect operating
results from the impact of
exchange rate fluctuations or
may limit any benefit caused by
favourable movements in
exchange rates.
Affect available cash and liquidity
and could have material effect on
the business, results of operations
and financial condition.
This is an increasing risk due to the
increasing volatility in this area.
Place pressure on margin and
profitability and will divert
financial and management
resources from more
beneficial uses, reducing
profitability.
Adverse effect on inventory
and profitability and will
divert financial and
management resources from
more beneficial uses,
reducing profitability.
Negative effect on
reputation and will divert
financial and management
resources from more
beneficial uses, reducing
profitability.
Currency
fluctuations
and hedging
risks could
materially
adversely
affect
Debenhams’
earnings and
cash flow***
Factors
outside
Debenhams’
control, such
as increases
in energy or
fuel costs,
may have an
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
Acts of fraud,
theft and
industrial
espionage
could
adversely
affect
Debenhams’
business
operations,
reputation
and results
Debenhams has a treasury policy in place which covers
counterparty limits and hedging for interest rates,
foreign exchange and energy. There is also an internal
treasury function which is mandated by the board.
Debenhams closely monitors all aspects of cash
management to optimise balance sheet metrics.
Effectiveness is measured regularly by management
through a series of KPIs.
Business critical spreadsheets and databases used
by the finance department have been identified and
appropriate control measures are used in line with
Debenhams’ policy to ensure data integrity.
A key objective of the energy committee is to control
energy usage, including the impact of the Carbon
Reduction Commitment (“CRC”) scheme. An energy
hedging policy is in place to provide a high degree
of cost certainty in the short term.
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.
Forums exist to focus on specific areas of legislation,
and specific business policies and procedures are in
place to ensure that roles and responsibilities are
understood across the Group.
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.
* Change in severity and/or likelihood of risk during course of 2014/15.
** These risks are not new but were previously incorporated within other principal risks.
*** These risks are not new but are now reported as principal risks following the annual review of their ranking.
27
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 KEY PERFORMANCE
INDICATORS (KPIs)
Measuring our progress
MEASURING OUR PROGRESS
The board uses a range of KPIs
to assess performance.
This year we have added the financial KPI of
net debt. The business has delivered good
cash flow generation in recent years, and
management has targeted a reduction in
leverage ratio as discussed in the financial
review on page 32. The strategic KPIs
are linked to the pillars of our strategy
and sustainable KPIs ensure that the
management of resources and relationships
remain core to our business model.
DIRECTORS’ REMUNERATION
Certain of the strategic and financial KPIs are
linked to executive remuneration as indicated
below. The annual bonus criterion is
underlying profit before tax (“PBT”). Under the
performance share plan (“PSP”) awards are
granted according to performance against the
following KPI measures: UK gross transaction
value (“GTV”); Group gross margin
movement; and basic earnings per share.
Additionally PSP awards are granted
according to performance against targets
under the following measures: online EBITDA
growth rate and International EBITDA growth
rate. More information can be found in the
directors’ remuneration report starting on
page 56.
All numbers for 2011 on 52 week basis.
Group financial KPIs
Gross transaction value (£m)
Like-for-like sales change (%)
2,640
2,708
2,777
2,824
2,860
-0.3% 1.6% 2.0% 1.0% 0.6%
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Rationale
GTV is a measure of overall sales
in the business, including those
from concession brands.
2015 performance
Group GTV increased by 1.3% with 2.1%
growth in the UK while International GTV
was down 2.2% due to adverse foreign
exchange movements.
Looking forward
As we develop a leading international
multi-channel brand, GTV is expected
to continue to grow.
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
growth, from our UK and international
business.
2015 performance
Group LFL sales increased by 0.6%.
Adjusted for adverse foreign exchange
translation, constant currency LFL
growth was 2.1%, reflecting good
progress online and in our Danish stores.
Looking forward
We expect the measures we are taking
to improve service for our multi-channel
customers and the space productivity of
our UK stores to support LFL sales growth.
Profit before tax* (£m)
Earnings per share*(pence)
Net debt (£m)
152
158
139
110
113.5
8.6
9.8
9.2
7.1
7.6
384
369
372
362
320
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Rationale
Profit before tax (PBT) is our principal
measure of profitability, and excludes
items that are one-off in nature.
2015 performance
PBT rose by 2.9% to £113.5 million
reflecting positive growth in GTV,
maintained gross margins and tight
cost management.
Looking forward
The board expects growth in PBT in future
years from the execution of our strategy and
continuing tight management of costs.
Rationale
Basic earnings per share (“EPS”) divides
earnings attributable to ordinary
shareholders by the weighted average
number of ordinary shares outstanding
during the financial year.
2015 performance
Basic EPS rose by 7.0% reflecting
the growth in profit and a lower tax rate.
Looking forward
The board expects EPS to grow in
future years in line with profit growth.
* Before exceptional items and non-recurring finance
costs (2014: £4.5 million), 2013-15 under IAS19 R,
2011-12 under IAS 19.
* 2013-15 under IAS 19 R, 2011-12 under IAS 19
Rationale
Net debt measures Group borrowings
net of cash held at the balance sheet
date, and reflects the movement in
cash generated by the business after
cash expenses.
2015 performance
After generating £41.7 million of cash,
year end net debt has reduced to
£319.8 million.
Looking forward
The board expects that after meeting the
investment needs of the business and
paying dividends to shareholders, the
Group will continue to generate cash and
reduce net debt levels in future years.
28
Debenhams plc Annual Report & Accounts 2015 Strategic KPIs
Sustainability KPIs
Delivering a compelling
customer proposition – Group
gross margin movement (bps)
Increasing availability and
choice through multi-channel
– Group online GTV* (£m)
Carbon emissions
(CO2e 000 tonnes)
-0.2% -0.3% 0.0% -0.6% 0.0%
150
218
302
348
388
198
179
174
193
191
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
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.
2015 performance
Gross margin was flat across the year, with
strong progress in markdown reduction
offset by price investment and an adverse
sales mix.
Looking forward
We expect gross margin to continue to show
the benefit of further markdown reduction as a
result of higher full price sell-through, reflecting
the refocusing of promotional activity.
Rationale
Online GTV is a good indicator of
the performance of our multi-channel
activities. It includes sales to both UK
and international customers.
2015 performance
Online GTV increased by 11.4% to
£388 million, representing 13.6% of total
GTV, up from 12.3% last year.
Looking forward
Online GTV is expected to continue to grow
both in the UK and overseas, supported by
further improvements in service levels.
* Adjusted to reflect sales net of online returns to store.
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.
2015 performance
Our overall carbon footprint has
decreased by 1.3%, mainly due to a
reduction in electricity consumption.
Looking forward
We are investing in energy efficiency
measures to reduce our carbon emissions
as part of our overall strategy to drive
sustainable growth.
Focus on UK retail
– UK GTV (£m)
Expanding the
brand internationally –
International GTV (£m)
Employee
engagement (%)
2,150
2,205
2,255
2,275
2,324
490
503
522
549
537
N/A
N/A
77
77
79
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Rationale
UK GTV reflects the performance of our
UK stores, including their critical part in
driving multi-channel sales.
2015 performance
UK GTV grew by 2.1% to £2,324 million.
Whilst store performance continues to
be impacted by channel shift, the impact
is moderating.
Looking forward
Our space optimisation programme
is expected to increase sales densities
within UK stores and the growth of click
& collect underscores the continuing
importance of our UK store estate.
Rationale
International GTV includes sales from our
stores in Denmark and Republic of Ireland,
as well as sales to franchise partners and
online orders delivered outside the UK.
2015 performance
International GTV declined by 2.2% reflecting
adverse foreign exchange translation.
Constant currency GTV growth was 5.3%.
Looking forward
Growth in overseas markets will be driven
by sales momentum in Denmark, further
franchise store expansion, online demand
from overseas customers and wholesale
opportunities for our brands.
Rationale
We conduct an annual engagement
survey, inviting all employees in our
UK and Irish stores and head office
to participate.
2015 performance
Our engagement score increased
by 2 points to 79%, with more than
21,000 colleagues participating.
Looking forward
With some important training and
development measures now in place, we
would expect to see continuing progress
in this important stakeholder measure.
29
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 FINANCIAL
REVIEW
Improved profit performance translates into good net cash generation
UK performance
The UK sector includes sales from
UK stores and online sales to UK
addresses. Inter-dependency between
stores and online continues to grow.
GTV increased by 2.1% and revenue
by 1.1%. This was a result of continued
online sales growth to UK customers
and the benefit of new store
openings. Stores continued to
experience a small level of sales
decline from the channel shift into
online. As we have added choice in
concessions, the own bought mix has
decreased from 79.3% to 78.3% with
consequent margin dilution.
Operating profit increased by 5.6% to
£101.7 million reflecting benefits from
lower markdown, strong cost control
within the Group and sales growth.
International performance
The sector comprises our Danish and
Irish stores, the franchise stores and
online sales to non-UK addresses.
In constant currency, GTV improved
by 5.3% reflecting the strong
performance in Denmark. In reported
currency GTV was 2.2% lower than
last year and revenue decreased by
2.5%, primarily impacted by the
effect of the strengthening pound
on conversion of Magasin du Nord
and Republic of Ireland results.
International operating profit increased
by 0.3% despite the adverse foreign
exchange movements.
to £111.1 million, reflecting increased
costs associated with online growth
and store deliveries. Administrative
expenses increased by 3.4% to £54.0
million from additional systems costs.
Depreciation and amortisation,
including losses on disposal of
property, plant and equipment,
increased by 2.3% to £104.5 million,
reflecting higher capital expenditure
in recent years.
As a result of the foregoing, Group
operating profit increased by 4.3%
to £134.1 million from £128.6 million
in the previous year.
OPERATING PROFIT
Good progress was made against the
strategic priorities as set out last year.
The combination of 17 fewer days on
promotion and tight stock control
resulted in reduced markdown and a
90 bps benefit to the gross margin rate.
This was offset by the impact of sales
mix from growing sales in the lower
margin cosmetics and concession
categories (60 bps) and planned
investment in reducing prices in
some categories (30 bps). The net
effect on a full year basis was a flat
margin rate compared with FY2014.
Costs were managed tightly
throughout the year. Total costs
increased by 0.2% over the prior
year to £2,188.6 million, despite
the further shift into online and
the investment in expanded online
services such as next day click & collect
from stores. Cost of sales (defined as
product costs associated with gross
margin, together with related buying,
marketing and store costs) of £2,023.5
million decreased by 0.5% as own
bought mix declined and cost
saving initiatives were implemented.
Distribution costs increased by 12.8%
MATT SMITH
CHIEF FINANCIAL OFFICER
T he Group’s performance for
the 52 weeks to 29 August
2015 is summarised in figure
1. An improved profit
performance in the first
half of the year was reinforced by
further progress in the second half and
underpinned by good cash generation.
SALES AND REVENUE
For the 52 weeks to 29 August 2015
Group GTV increased by 1.3% to
£2,860.1 million and Group revenue
increased by 0.4% to £2,322.7 million.
Group like-for-like sales increased by
2.1% on a constant currency basis and
by 0.6% on a reported basis. There was
strong growth in online sales, which
increased by 11.4% to £388.2 million,
net of online returns to store, and at
Magasin du Nord, which grew 8.1%
like-for-like in constant currency. The
components of the Group gross
transaction growth and like-for-like sales
growth are shown in figure 2 opposite.
Group own bought sales mix
decreased to 75.4% from 76.2%
in FY2015 largely as a result of
the movement in UK sales mix.
30
Debenhams plc Annual Report & Accounts 2015 Figure 1: Financial summary
Gross transaction value
UK
International
Group
52 weeks to
29 August 2015
52 weeks to
30 August 2014
£2,323.5m
£2,275.3m
£536.6m
£548.6m
£2,860.1m
£2,823.9m
Increase in Group like-for-like sales
+0.6%
+1.0%
Revenue
UK
International
Group
Operating profit
UK
International
Group
Underlying net finance costs1
Underlying profit before tax1
Non-recurring finance costs
Reported profit before tax
Basic earnings per share
Diluted earnings per share
Dividend per share
£1,922.3m
£1,902.1m
£400.4m
£410.6m
£2,322.7m
£2,312.7m
£101.7m
£32.4m
£134.1m
£20.6m
£113.5m
£-m
£96.3m
£32.3m
£128.6m
£18.3m
£110.3m
£4.5m
£113.5m
£105.8m
7.6p
7.6p
3.4p
7.1p
7.1p
3.4p
1 Before non-recurring finance costs (2014:£4.5 million).
Figure 2: Sales growth driven by online and international* (%)
Constant currency LFL +2.1%
+1.1%
-1.5%
+1.3%
-0.3%
2
1
0
n
o
i
t
u
b
i
r
t
n
o
c
%
-1
+0.7%
+0.0%
GTV
+1.3%
LFL
+0.6%
UK
stores
UK
online
International Currency
impact
New
UK space
International
franchises
* Represents contribution to LFL and GTV growth.
* Adjusted to reflect sales net of online returns to store.
NET FINANCE COSTS
Net finance costs increased by 12.6%
to £20.6 million as a result of increased
interest following the refinancing of
the borrowing facilities in 2014. This
refinancing resulted in a non-recurring
write-off to the income statement of
£4.5 million of unamortised issue costs
in FY2014. Including the impact of this
write-off, net finance costs decreased
by 9.6%.
PROFIT BEFORE TAX
Increased operating profits resulted
in a 7.3% increase in reported profit
before tax from £105.8 million to £113.5
million. Excluding the non-recurring
finance costs of £4.5 million in FY2014,
the year-on-year increase was 2.9%.
TAXATION
The Group’s tax charge of £20.0 million
equates to an effective tax rate of
17.6%, in line with 2014. The effective
tax rate benefited from the resolution
of prior year tax matters, the utilisation
of historic losses within Magasin du
Nord and the reduction in the UK
corporation tax headline rate.
The tax charge for the year was also
marginally impacted by the timing
benefit resulting from the adoption
of FRS 101 “Reduced disclosure
framework” by Debenhams Retail plc
at the beginning of the financial year,
and by Debenhams Properties Limited
from 1 September 2013.
PROFIT AFTER TAX
Profit after tax increased by 7.2% to
£93.5 million.
EARNINGS PER SHARE
Increased profits resulted in a 7.0%
increase in both basic and diluted
earnings per share (including the non-
recurring finance costs in FY2014) to 7.6
pence. The basic weighted average
number of shares in issue decreased from
1,226.8 million last year to 1,226.4 million
and diluted weighted average number
of shares remained at 1,228.7 million.
31
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
FINANCIAL REVIEW
CONTINUED
CASH FLOW AND USES OF CASH
Debenhams is a 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 set a new
medium-term target for net debt
to earnings before tax, interest,
depreciation and amortisation
(“EBITDA”) of 0.5 times, previously
a target of 1.0 times over the
medium term.
Operating cash flow before financing
and taxation decreased from £112.5
million to £102.9 million as a result of
a working capital outflow of £2.3 million
in 2015 compared with a £9.7 million
inflow in 2014. Whilst benefiting from
the reduction in stocks held, working
capital includes recovery plan
payments for the defined benefit
pension scheme of £9.6 million (2014
£9.4 million). The movement in working
capital from last year is largely
associated with timing of capital
invoices in FY2014.
Cash flow generation, the uses of
cash and the movement in net debt
are summarised in figure 3.
CAPITAL EXPENDITURE
Capital expenditure amounted to
£133.4 million during the year, slightly
higher than last year’s expenditure
of £128.0 million. Capital spend has
shifted from a focus on modernisations
in previous years to operational
effectiveness, including systems
development, particularly to support
the Group’s multi-channel business,
and investment in space optimisation
initiatives as shown in figure 4. Spend in
FY2016 is expected to be c.£130 million
with the shape of spend broadly in line
with FY2015.
DIVIDENDS
An interim dividend of 1.0 pence per
share was paid to shareholders on
3 July 2015 (2014: 1.0 pence). The board
has recommended a final dividend of
2.4 pence per share which will be paid
to shareholders on 22 January 2016
taking the total dividend for the year
to 3.4 pence (2014: 3.4 pence). The
record date is 4 December 2015.
Given the cash generative nature of
the business and confidence in future
performance, the board intends to
adopt a progressive dividend policy in
future, applying earnings growth to
both dividend increases and the
rebuilding of cover towards a medium
term target of 2.5 times.
NET DEBT
The Group’s net debt position on
29 August 2015 was £319.8 million,
£41.7 million lower than at the same
point a year ago (30 August 2014:
£361.5 million), benefiting from improved
operating cash flow and reduced tax
payments from the adoption of FRS 101
“Reduced disclosure framework”. The
ratio of reported net debt to EBITDA
of 1.3 times improved from last year’s
position at 1.6 times, moving towards
the new medium-term target for net
debt to EBITDA of 0.5 times. The
medium-term target has been
reduced from 1.0 times in FY2014.
BALANCE SHEET
Key balance sheet items are
summarised in figure 5.
INVENTORY
Stock levels were managed tightly during
the year in line with our aim of setting more
prudent sales targets and reducing our
level of stock. Total stock decreased by
4.1% to £331.6 million reflecting tight
control and the benefit of flexible
purchasing strategies. Terminal stock
at year end of 3.1% was in line with
historical results.
FINANCIAL POSITION
During the year ended 29 August
2015, the Company repurchased
£25.0 million of the £225.0 million
senior notes for a consideration
of £24.8 million and cancelled
£75.0 million of the £425.0 million
revolving credit facility.
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
to the Group financial statements
starting on page 119.
SUPPLIER INCOME
The Group receives income from
its suppliers, mainly in the form of
settlement discounts, volume-based
rebates and marketing and advertising
income. Supplier income is recognised
as a deduction from cost of sales, based
on the expected entitlement that has
been earned up to the balance sheet
date. Included in prepayments and
accrued income is £4.7 million (FY2014:
£3.9 million) of accrued supplier income
relating to rebates which have been
earned but not yet invoiced.
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 revised “Employee
benefits”, the surplus on the Group’s
pension schemes as at 29 August 2015
was £26.2 million (30 August 2014: net
deficit of £2.4 million). The surplus was
driven by asset returns.
32
Debenhams plc Annual Report & Accounts 2015 Figure 3: Cash flow, uses of cash and movement in net debt
EBITDA
Working capital
Cash generated from operations
Capital expenditure
Operating cash flow before financing and taxation
Taxation
Financing
Dividends paid
Share buyback
Other movements
Change in net debt
Opening net debt
Closing net debt
Figure 4: Capital expenditure
52 weeks to
29 August 2015
52 weeks to
30 August 2014
£238.6m
£230.8m
(£2.3m)
£9.7m
£236.3m
£240.5m
(£133.4m)
(£128.0m)
£102.9m
£1.1m
(£19.3m)
(£41.7m)
–
(£1.3m)
£41.7m
£361.5m
£319.8m
£112.5m
(£20.6m)
(£13.1m)
(£41.7m)
(£15.1m)
(£11.5m)
£10.5m
£372.0m
£361.5m
13%
10%
17%
5%
45%
10%
New UK stores
UK modernisations
UK maintenance
International
Group systems
Other
Figure 5: Key balance sheet items
Intangible assets
Property, plant and equipment
Inventory
Other assets
Trade and other payables
Other liabilities
Retirement benefit surplus/(obligations)
Net deferred tax liabilities
Net debt
Reported net assets
52 weeks to
29 August 2015
52 weeks to
30 August 2014
£931.5m
£675.3m
£331.6m
£124.5m
£892.8m
£689.2m
£345.7m
£98.4m
(£523.6m)
(£529.3m)
(£358.4m)
(£363.1m)
£26.2m
(£34.0m)
(£2.4m)
(£2.4m)
(£319.8m)
(£361.5m)
£853.3m
£767.4m
During June 2015, the triennial actuarial
valuation was completed and a new
agreement was concluded under
which the Group agreed to contribute
£9.5 million per annum to the pension
schemes (previously £8.9 million per
annum) for the period from 1 April 2014
to 31 March 2022 increasing by the
percentage increase in RPI over the
year to the previous December. The
Group agreed to continue to cover 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
defined contribution pension schemes.
Further information can be found
in note 23 to the Group financial
statements starting on page 126.
MATT SMITH
CHIEF FINANCIAL OFFICER
22 OCTOBER 2015
33
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
RESOURCES,
RELATIONSHIPS
AND SUSTAINABILITY
Ensuring our ability to endure
No. of factories
941
Female senior management
47%
Debenhams Foundation
funds raised in 2015
£1.7m
Employee engagement
79%
Top sourcing countries
China
India
Bangladesh
Turkey
Romania
Other
Total
No. of factories
486
159
47
35
27
(UK 28) 187
941
34
MANAGING OUR RESOURCES
AND RELATIONSHIPS
In order to deliver a compelling
customer proposition at great
value, our sustainable ethical sourcing
strategy underpins everything that
we do as a responsible retailer. Our
customers have the right to expect
that we source and select the highest
quality products from suppliers with
best practice due diligence and
regular audits of ethical compliance
and technical capability in line with
our code of conduct, conditions
of trading and company policies.
We source product from 1,246
suppliers, of which 586 are own
brand label suppliers, operating
out of 941 factories in diverse markets
around the world. Further details
can be found on our website: http://
sustainability.debenhamsplc.com/.
Business sustainability
Our sustainability committee
is chaired by Martina King, a non-
executive director. The committee
is made up of senior executives from
key functions across the business. The
committee’s primary goal is to take a
medium to long-term view of the world
in which we trade, ensuring that
all aspects of our business remain
sustainable, enabling us to continue
as a successful international retailer
and to achieve our strategic targets.
Debenhams has been serving our
customers for more than 200 years
and as global trends impact on our
business, we aim to ensure that we
will continue to serve our customers
for another 200 years.
The committee considers key global
trends, the environment and new
technologies in order to identify
business risks, and opportunities to
support our continual development
and growth.
GLOBAL SOURCING
Working together, our ethical
compliance and corporate
responsibility teams, buying
function and our global sourcing
division ensure a consistent
and cost effective flow of goods.
As set out in our policies and
conditions of trading, our suppliers
and factories must ensure that their
employees are paid a fair wage, treated
with dignity, not discriminated against
or exploited in any way and have a safe
working environment. In addition, they
undertake not to sub-contract under
any circumstances.
We have two overseas offices based in
Hong Kong and Bangladesh working
with the London sourcing, ethical
compliance and quality assurance
teams. The Bangladesh office supports
our strategy to increase direct
sourcing, enabling us to have more
direct open working relationships
and more flexibility, control and
transparency, as well as benefiting
from improved margins.
In India, our representative office
supports the management of ethical
compliance and quality assurance
alongside our own sourcing team.
Due to our international and
e-commerce growth a revised
environmental and chemical policy
is due to be published in 2015/16.
Debenhams plc Annual Report & Accounts 2015
Business share by country (%)
China
India
Bangladesh
Vietnam
Cambodia
Turkey
Romania
United Kingdom
Pakistan
Sri Lanka
Other
43%
14%
12%
6%
6%
4%
4%
3%
2%
2%
4%
Top: Dhaka – BBW
factory presentation
Bottom: Dhaka
production
finishing line
Due diligence and monitoring
We operate a comprehensive factory
approval and audit process. During
2014/15, all 941 factories were audited
or re-visited for follow up remediation
as part of our ongoing monitoring
programme. The audit reports and
remediation plans must be approved
before any further business with the
Company can be transacted. Whilst
we recognise the international
independent third party audit
companies, our nominated audit
partner is Intertek (ITS).
HR practices and treatment of
workers. Further details are available
on our own website and at
www.impacttlimited.com.
ILO Better Work Programme
We are part of Better Factories
Cambodia (“BFC”) and Better
Work Vietnam (“BWV”) which
under a partnership between the
International Labour Organisation
(“ILO”) and manufacturers aim to
promote rights at work and enhance
social protection.
We run our own spot check
programme, whereby each month
factories are randomly selected for
unannounced inspections to check
for any subcontracting.
During the course of 2014/15, we visited
more than 700 factories; the majority of
these were unannounced, including
factory visits in the UK made by Martina
King, chair of the sustainability
committee and our Director of Ethical
Trade and Corporate Responsibility. We
also facilitated a visit to a fully vertical
manufacturing site in Bangladesh by a
global investment organisation to see
first-hand the standard of the factories
we partner with and to understand the
extent of what is happening on the
ground since the tragic collapse of
Rana Plaza in 2013.
WORKER WELLBEING
We have a number of projects in
relation to improving the lives of those
within our supply chain. In particular,
female empowerment and worker
wellbeing form two of our key ethical
strategies. The following projects we
have developed or participate in as wider
collaborative retailer initiatives and full
details can be found on our website:
http://sustainability.debenhamsplc.com/
LIFE
Life Skills for Empowering Women
(“LIFE”) is a partnership established
during 2015 with a health resource
NGO in India, Swasti: www.swasti.org.
The purpose is to empower female
workers by strengthening their life
skills, using a peer education approach.
Benefits for Business and Workers
(“BBW”) programme
BBW is currently run in Bangladesh
and India by Impactt, which is a leading
consultancy specialising in ethical trade,
human rights, labour standards, gender
and international development. Impactt
works with retailers, governments and
NGOs to maximise positive impact on
workers and local communities. The
objective of the programme is to train
factory management on productivity,
Bangladesh Accord
We remain a signatory to the Accord
and act as Lead Brand to a group of
factories in Bangladesh. We continue
to support our suppliers and factories
to ensure the remediation from the
Accord inspections is being completed
to ensure worker safety.
Sudokkho skills and
employment programme
Debenhams is the first retailer to be
involved in this programme which aims to
improve skill levels within factories for the
Bangladesh workforce, in coordination
with Bangladesh’s Ministry of Education
and the UK Department for International
Development.
DEBENHAMS FOUNDATION
The Debenhams Foundation was
set up in March 2012 to ensure
Debenhams has a strong, consistent
charitable approach. The aim of the
Debenhams Foundation is primarily to
raise money for its key charity partners
which reflect the causes that
Debenhams’ customers hold dear.
The key charity partners are: Children
in Need, Help for Heroes and Breast
Cancer Now. In FY2015 the Debenhams
Foundation raised £1.7 million. The
total funds raised by the Debenhams
Foundation since its inception now
stands at £3.9 million. Further details
on the work and achievements of the
Debenhams Foundation can be
found at http://Debenhamsplc.com.
OUR EMPLOYEES
Debenhams directly employs around
28,000 people in the UK, Denmark,
the Republic of Ireland, Hong Kong and
Bangladesh. 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 or age.
35
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
RESOURCES, RELATIONSHIPS
AND SUSTAINABILITY
CONTINUED
Through our equal opportunities policy we
aim to create an environment that offers all
employees the chance to use their skills
and talent. Decisions on recruitment,
training, promotion, pay terms and
conditions and leavers are based solely on
objective, job-related criteria, and personal
competence and performance.
Wherever possible the Company
makes reasonable adjustments to
ensure that disabled employees are
able to work effectively including the
provision of equipment, training and
adjustment of the work environment or
working times.
Gender split at financial year end
Directors
Senior management
Male Female
8
79
2
70
All employees
5,603
18,180
Debenhams 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.
HUMAN RIGHTS AND MODERN SLAVERY
Respecting human rights across our global reach is a fundamental part of our
Company ethics and integrity. We have followed the UN Guiding Principles on
Business and Human Rights in order to judge our salient issues and associated
risks to our business as an international retailer. We welcome the UK Government’s
Modern Slavery Act of March 2015 and fully support this legislation, which will help
create a level playing field across industry and supply chains. We have already
incorporated additional clauses into our supplier conditions of trading, business
policies and code of conduct and in due course will publish our Human Rights
policy, providing relevant training to employees and our global supply base.
We promote and respect human rights through policy and stakeholder
dialogues, and participate in various industry forums and working groups.
On 30 March 2015, we held a supplier conference at our head office for all UK
suppliers and factories to introduce the Modern Slavery Act 2015. We required
our UK supply base to attend workshops on a new initiative of which we are
a founding member, alongside other major UK retailers, called Fast Forward.
This is to introduce a new audit model, the methodology and preparatory
requirements, which at present replaces the industry standard SMETA for
the UK supply base. We continue to use the SMETA methodology globally.
As an immediate priority during the remaining part of 2015 we are conducting
these audits at each factory in the UK, and inspections will also be conducted
for outsourced labour providers. We continue to work closely with the ETI and
BRC and remain an active member of the relevant working groups.
INDUSTRY PARTNERSHIPS
We are an active member of the
BRC and involved in several working
groups. Some of the working
groups that we participate in,
include:
• Environment
• Better Retail Climate
• Ethical Labour
• Modern Slavery
• Timber
• Chemical
Debenhams remains a member
of the Ethical Trading Initiative
(“ETI”): the ETI Base Code is an
internationally recognised code of
labour practice. We are involved
with various activities such as the
Leicester working group, Living
Wages, the China working group
and in the past 12 months we
worked in collaboration with the ETI,
other retailers and the Home Office
on the Modern Slavery Act 2015.
36
Debenhams plc Annual Report & Accounts 2015 Engagement survey
The results of the third annual employee
survey “Your Voice 2015” show that our
engagement score has improved to 79%.
In line with last year, more than 21,000
colleagues participated in the survey.
What has been particularly pleasing is to
see some of the gains on both last year
and two years ago in the areas where we
have had specific management focus or
investment. We believe initiatives such
as the Learning@Work events, a new
performance management process and
local “Your Voice” action plans have
driven these improvements.
Building employee performance
We launched our goal setting process
for all employees in 2013/14, supported
by performance-focused goal setting
sessions for all managers. The aim is
for all employees to clearly see and
be rewarded for the part they play
in driving the performance of the
business for future success. We aim
to build on our new performance
review process, defining and
embedding the Debenhams Success
factors as behaviours required from
our employees.
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 senior
management 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.
Building a pipeline of leaders
and managers
We launched a new robust process to
define talent throughout the business
and to support succession planning. In
addition, we launched a new series of
development programmes to support
talented store employees progressing
from sales advisor through to store
manager, which has seen over 1,000
non-management staff working
towards being the store managers
of the future.
For Head Office, our talent
development programmes continue
to evolve, focusing on areas of growth
for the business. Business focused
projects have been integrated into
development programmes to add
continuous learning opportunities
as well as build effective cross-
functional working.
We are currently participating in
the government trailblazer initiative
for industries to design and own
apprenticeship standards. In addition
to our current retail apprenticeships
run in key stores we are trialling a food
apprenticeship in our restaurants in
a sample of stores in the North West.
We have taken business placements
from a broad range of top universities.
Our business placement participants
undergo an intensive training
programme, with 60% returning
to us on completion of their full
time education.
ENVIRONMENT
SCAP – Sustainable Clothing Action
Plan and TRAID
The Sustainable Clothing Action Plan
(“SCAP”) aims to improve garment
sustainability. We are amongst other
leading clothing companies that have
pledged to measure and reduce their
environmental footprint and are a
signatory to the SCAP 2020
Commitment. Further details are
available on our website. As part of
our commitment we have partnered
with TRAID, a charity working to stop
textiles and footwear from being
thrown to landfill, reducing waste and
carbon emissions while raising
funds to fight global poverty.
We have launched a head office
recycling initiative for staff to dispose
of both samples and their own clothing,
footwear and accessories. In 2015/16
we aim to operate a customer facing
option for stores and online.
Energy efficiency
Debenhams has reported its
greenhouse gas (“GHG”) emissions
since 2008 and reported online
to the Carbon Disclosure Project
since 2010. We participate in the UK
Government’s CRC Energy Efficiency
Scheme where we are in the top
quartile of the CRC league table.
Our GHG footprinting, reporting
and assurance services are
provided by Ricardo-AEA.
Top/Middle:
Bangladeshi factory
employees
Bottom: LIFE Team
training Bangalore
37
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39
RESOURCES, RELATIONSHIPS
AND SUSTAINABILITY
CONTINUED
“ OUR CARBON FOOTPRINT
HAS DECREASED BY 1.3%”
We opened our first overseas
distribution hub, in Singapore, in April
2013. We currently process more than
5 million units per year through the
facility and service our Middle East
franchise partner with direct shipments
of more than 65% of their total stock
package. Most of our Asian origin stock
now ships directly from point of
manufacture via Singapore into the
relevant Middle East market.
This has delivered both significant cost
savings and improved lead times,
as well as reduced CO2 emissions and
shorter travel distance. It will also add
to our DC sustainability project by
diverting volume from our prime
UK DCs.
We plan to extend the use of this facility
by adding more franchise partners in
the region.
Waste management
Debenhams is committed to minimising
the amount of waste generated not only
to improve our environmental footprint,
but also to make financial savings. Our
aim was to send zero store waste to
landfill by January 2014. We have
achieved 94% which is a 38% increase
since 2011 and 101 stores are at 100%.
To help drive down the 6% landfill
diversion we have worked with new
partners to assist us to divert our
by-product. For example, our
collaboration with Dulux Paints has
enabled us to reduce costs and take
advantage of their take back scheme,
where the paint is either recycled or
used within community projects.
GREENHOUSE GAS “GHG” REPORT
2014/15
Debenhams has reported its GHG
emissions for its UK, Irish and Danish
operations since 2008. Since then
its footprint boundary has evolved
to include areas such as other
international offices, packaging,
hanger (production and recycling)
waste and production of catalogue,
brochure and direct mail. This section
provides a breakdown of our GHG
emissions for this year. For further
details of our GHG emissions visit
our website: http://sustainability.
debenhamsplc.com/.
Supported by Ricardo-AEA, we have
applied the GHG Protocol Corporate
Accounting and Reporting Standard 2013
and the UK Government Conversion
Factors for Company Reporting to
calculate our carbon emissions. Our GHG
emissions are reported in line with the
Group’s financial year.
This year, based on the data provided, our
overall carbon footprint has decreased by
1.3%, from 193,365 tonnes CO2e in 2014
to 190,930 tonnes CO2e in 2015. A
breakdown of this is shown in figure 1.
The decrease in overall emissions is
mainly due to a reduction in electricity
consumption both in terms of energy
measured in kWh and in emissions
measured in tonnes CO2e. The increase
in Scope 1 emissions this year reflects
newly available refrigeration emissions.
Scope 3 emissions have increased due
to the inclusion of a new emission source,
the production of catalogue, brochure
and direct mail.
Energy efficiency is a key component
of our store expansion and
modernisation programmes. New stores
in Borehamwood and Scunthorpe have
benefited from full LED lighting schemes
on the shop floor and in the back of house
areas, reducing total energy usage by 19%
compared with conventional lighting.
Following a successful trial at Birmingham
Bullring we are investing £2 million in 2016
on initiatives to retrofit LED lighting in a
number of stores to reduce our energy
consumption whilst also improving the
in-store environment for customers
and employees.
Logistics
With the continued growth in click &
collect and recognising the benefits of
an improved service to our stores, we
have combined several parts of our
delivery operation to provide a cost
effective and high frequency delivery
model. This allows delivery of all of our
own bought click & collect parcels on
Debenhams-owned and managed
assets, improving cost effectiveness
and the quality of the service to our
customers. This has additionally
provided a more frequent delivery
service to our stores enabling faster
movement of stock through our supply
chain. We have also invested in
enhancing our transport telematics
tools, providing increased visibility
on all movements and improved
service monitoring.
We have also contracted with rail
freight providers to move as many
containers as possible by rail from
ports of arrival to our Sherburn
Distribution Centre (“DC”). This has
successfully generated cost savings
as well as reducing CO2 emissions.
38
Debenhams plc Annual Report & Accounts 2015 We will continue to capture more emissions sources in the future. In addition, we will
continue to invest in projects that will further support the reduction of our footprint
and environmental impacts. This year we invested £739,628 across energy efficiency
projects such as lighting, heating, cooling and controls, with additional investment
planned in for 2015/16.
Figure 1: Scope 1, 2 and 3 absolute GHG emissions shown in tonnes CO2e
Scope 1
Scope 2
Scope 3
Total
2010/11
2011/12 2012/13 2013/14 2014/15
22,198
14,850
17,786
15,989
19,668
149,732
144,536
139,607
149,068
139,354
28,418
19,071
16,687
28,308
31,908
200,348
178,457
174,080
193,365
190,930
Scope 1: Direct CO2e emissions sources such as gas and oil consumption, business travel and refrigeration.
Scope 2: Indirect CO2e emissions from the consumption of purchased electricity, heat or steam.
Scope 3: Other indirect CO2e emissions from sources such as transport of goods in vehicles not owned
or controlled by Debenhams, water consumption and waste disposal.
Emissions data are made more meaningful when compared to a core business
variable. We have used intensity ratios for both the total footprint using the annual
GTV and premises floor area. Figure 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 of CO2e per million pounds of GTV and tonnes of CO2e per square
metre of floor area, respectively, as shown in figure 3.
These tables show that the GTV and floor area have increased this year; and yet the
intensity metrics have decreased.
Figure 2: Data used for intensity measurements
2010/11
2011/12 2012/13 2013/14 2014/15
GTV (£m)
2,640
2,708
2,777
2,824
2,860
Total floor area* (m2)
1,931,449 1,838,924 1,808,398 1,850,874 1,894,926
* This total floor area included back of store, offices and distribution centres.
Figure 3: Assessment of absolute footprint emissions
Assessment
2010/11
2011/12 2012/13 2013/14 2014/15
Absolute emissions (tCO2e)
200,348
178,457
174,080
193,365
190,930
Absolute tCO2e/£m GTV
76
66
63
68
67
Absolute tCO2e/m2
0.104
0.097
0.096
0.104
0.101
Overall, with stringent monitoring management we expect to continue to show
improvement in these metrics in the next five years, and continue to contribute
positively to the Better Retailing Climate as part of our drive to save energy and
protect the environment.
STRATEGIC REPORT
The strategic report was approved by a duly authorised committee of the
board of directors on 21 October 2015 and signed on its behalf by:
MATT SMITH
CHIEF FINANCIAL OFFICER
22 OCTOBER 2015
39
Debenhams plc Annual Report & Accounts 2015Strategic report 2-39 CORPORATE
GOVERNANCE
Committed to high standards of corporate governance
NIGEL NORTHRIDGE
CHAIRMAN
“THE BOARD RECOGNISES
THE NEED TO LEAD ON
VALUES AND CONDUCT IN
ORDER TO ENCOURAGE
GOOD BEHAVIOURS
THROUGHOUT DEBENHAMS”
40
Debenhams plc Annual Report & Accounts 2015 DEAR SHAREHOLDER
On behalf of the board, I am pleased
to present the corporate governance
report for the financial year ended
29 August 2015 and to confirm that
Debenhams plc complies with the
UK Corporate Governance Code
(September 2012) (“the Code”). The
corporate governance report together
with the Audit Committee report, the
directors’ remuneration report and the
directors’ report sets out our approach
to governance and how the board has
directed and controlled the Group
during the last year.
In addition to seeking to operate high
standards of corporate governance, the
board also recognises the need to lead
on values and conduct in order to
encourage good behaviours throughout
Debenhams. Our standards of expected
conduct and behaviour are set out in our
code of business conduct policy which
we periodically circulate to all employees
across the business. That policy is
available on the Company’s intranet
alongside all our other business policies.
The following are the key corporate
governance issues that the board has
addressed during the last financial year.
SUCCESSION PLANNING
Succession planning is an important
element of good governance. It ensures
that we are fully prepared for planned or
sudden departures from key positions
throughout the Group.
With that in mind the Nomination
Committee undertook a review of the
succession plans for the board, the
Executive Committee and key roles
within the organisation. The review also
provided visibility on the talent pipeline
and “rising stars” within Debenhams.
THE BOARD
Following the external evaluation process
last year, I conducted an internal evaluation
of the board and its committees during
this year. I am pleased to report that the
results were positive, confirming that the
board and its committees are operating
well and effectively.
Michael Sharp has been Chief Executive
of Debenhams since September 2011 and
it has always been his intention to serve a
five year term. Michael is now two months
into his fifth year and has indicated this is
the right time for the board to commence
a succession planning process so that he
can step down some time in 2016.
Michael will remain in post during the
Christmas trading period and into 2016
and will assist the board in the process of
identifying his successor. This process
will evaluate internal and external
As outlined in my letter on page 3,
Dennis Millard is to remain on the
board as a non-independent non-
executive director. It is proposed
that Terry Duddy will succeed him
as Senior Independent Director and
Martina King will take over as chair of
the Remuneration Committee, both
appointments to be effective from
14 January 2016.
Following my evaluation of the
directors and my confirmation that they
all continue to perform effectively and
demonstrate commitment to their
roles, the Nomination Committee is, in
line with the Code, recommending that
all the directors of the Company stand
for re-election at the next Annual
General Meeting along with Matt Smith
and Terry Duddy who will both stand
for election to the board having been
appointed as directors during the year.
CORPORATE GOVERNANCE CODE
We have reviewed the new provisions
included in the Financial Reporting
Council’s UK Corporate Governance
Code published in September 2014
which will be effective for our 2016
financial year. The board will therefore
report on the implementation of those
new responsibilities in next year’s
annual report.
I look forward to meeting shareholders
at our next Annual General Meeting
which will be held on 14 January 2016
at 2.00pm at the Wellcome Collection,
183 Euston Road, London NW1 2BE.
NIGEL NORTHRIDGE
CHAIRMAN
candidates and Michael has agreed
to remain in post to ensure an orderly
and smooth handover to his successor.
On behalf of the board I would like to
thank Michael for continuing to lead
Debenhams through a crucial time of
change in retailing and for the good
progress the Company has made
under his leadership. He has worked
enormously hard to develop the
Company’s strategy and the benefits
of this are really starting to show in the
results. I am pleased Michael will remain
with us until we have appointed a suitable
replacement and will help facilitate an
orderly succession process. The board is
confident we have a clear and effective
strategy and when Michael steps down,
he will leave Debenhams in a strong
position to compete and deliver
long-term sustainable growth.
As indicated last year, we welcomed
Matt Smith to the board as Chief
Financial Officer. Matt was appointed
to the board on 26 January 2015. In
addition, Terry Duddy joined the
board as an independent non-executive
director on 10 April 2015. He is also a
member of the Nomination,
Remuneration and Audit Committees.
Martina King’s appointment as an
independent non-executive director
was extended for a further three years
to 31 July 2018 following the end of her
second three year term on 31 July 2015.
Sophie Turner Laing stepped down
from the board following the expiry
of her second three year term, having
served as an independent non-
executive director since August 2009.
Sophie’s input during her six years of
service has been extremely valuable
to the board. Since year end, Peter
Fitzgerald’s appointment as an
independent non-executive director has
been renewed for a second three year
term effective from 4 October 2015.
Board composition
Length of non-executive
directors’ service
Chairman
Executive directors
Independent non-executive
directors
10%
30%
60%
0-3 years
3-6 years
6-9 years
More than 9 years
3
2
1
1
41
Debenhams plc Annual Report & Accounts 2015Governance 40-85 BOARD OF
DIRECTORS
Governed with experience
Left to right:
Mark Rolfe, Martina King, Terry Duddy, Nigel Northridge,
Michael Sharp, Matt Smith, Peter Fitzgerald, Stephen Ingham,
Suzanne Harlow and Dennis Millard.
Committee membership
Remuneration Nomination
Audit Sustainability
Nigel Northridge
Michael Sharp
Matt Smith
Suzanne Harlow
Dennis Millard
Terry Duddy
Peter Fitzgerald
Stephen Ingham
Martina King
Mark Rolfe
Committee member
Committee chairman
42
Debenhams plc Annual Report & Accounts 2015
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 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, Thomas Cook Group plc
and Aer Lingus Group plc and as Chairman
of Paddy Power plc.
Current external directorships: Senior
Independent Director of Inchcape plc.
MICHAEL SHARP
Role: Chief Executive since
September 2011.
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
MATT SMITH ACA
Role: Chief Financial Officer since
January 2015.
Key strengths: Matt brings extensive
experience of international and multi-
channel retailing to his role as Chief
Financial Officer. He worked for Mothercare
plc as Chief Financial Officer since 2013 and
prior to this, he held a number of senior
finance roles within Home Retail Group plc
including Finance Director of Argos. Matt is
a chartered accountant and has worked for
KPMG in both London and Sydney.
Current external directorships: None.
SUZANNE HARLOW
Role: Group Trading Director since
December 2013.
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.
She has worked for Debenhams since 1994
and her roles have also included Trading
Director of 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 and
a representative of the International
Association of Department Stores.
Current external directorships: Ermes
Department Stores plc
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 and Deputy
Chairman of two other retail public
companies and with past experience as a
Finance Director, Dennis brings relevant
and broad experience to his roles of Senior
Independent Director and chairman of the
Remuneration Committee. Dennis has
previously also served as Chairman of
Connect Group PLC and as a non-
executive director of Premier Farnell plc.
Current external directorships:
Chairman of Halfords Group plc and
Deputy Chairman of Pets at Home
Group plc.
TERRY DUDDY
Role: Independent non-executive director
since April 2015 and a member of the
Remuneration, Audit and Nomination
Committees.
Key strengths: Terry was Chief Executive
of Home Retail Group plc, following its
demerger from GUS in October 2006 until
March 2014, having previously served as
Chief Executive of Argos since its
acquisition by GUS in 1998. He previously
held senior executive roles at Dixons
Stores Group, latterly as Managing
Director at PC World.
Current external directorships: Non-
executive director of Hammerson plc. Terry
is also Chairman of the Retail Trust Group.
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 continue
to grow our multi-channel business. Peter
is Country Manager at Google Japan
where he oversees every aspect of Google
Japan’s business. Before this he was
Country Sales Director for Google UK/Eire,
the biggest market for Google outside the
US. Peter joined Google in 2007. From 1999
to 2007 Peter worked for Amazon both in
Europe and the USA.
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 since 2006 having worked
for that business from 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.
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 plc. 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.
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.
Board gender diversity
Male
Female
80%
20%
43
Debenhams plc Annual Report & Accounts 2015Governance 40-85 CORPORATE
GOVERNANCE REPORT
“ LEADERSHIP AND
EFFECTIVENESS”
In accordance with the Listing Rules
of the UK Listing Authority, the
Company confirms that throughout the
year ended 29 August 2015 and as at the
date of this annual report, it was
compliant with all the relevant provisions
as set out in the September 2012 UK
Corporate Governance Code (“the
Code”), copies of which can be
downloaded from the
Financial Reporting Council
website (www.frc.org.uk).
LEADERSHIP
The board
The board of Debenhams is collectively
responsible for the long-term success of
the Company by directing and supervising
the affairs of the Company and is
accountable to its 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 to 43. The board
currently has ten members: the Chairman,
six independent non-executive directors
and three executive directors. Following
the Annual General Meeting, the board
will consist of the Chairman, three
executive directors, five independent
non-executive directors and one
non-independent non-executive director.
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 directors and their
continuing development, board
evaluations and succession planning.
The Chairman holds regular meetings
with the non-executive directors without
the executive directors being present
and has regular contact with all
board members.
Nigel Northridge has been our
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 in accordance with the
Company’s business policies. The roles
and responsibilities of the members of
the Executive Committee are detailed
opposite. The Chief Executive also
leads an annual strategy event to focus
on the Group’s overall performance and
the development of the
business strategy.
Michael Sharp has been our Chief
Executive 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
property, space planning, legal and
secretariat and investor relations.
Matt Smith has been our Chief
Financial Officer since January 2015.
Chairman
Chief
Executive
Chief
Financial
Officer
Group
Trading
Director
Senior
Independent
Director
Independent
non-executive
directors
Nigel Northridge
Michael Sharp
Matt Smith
Suzanne Harlow
Dennis Millard
Terry Duddy
Peter Fitzgerald
Stephen Ingham
Martina King
Mark Rolfe
44
Debenhams plc Annual Report & Accounts 2015 Executive Committee
Michael Sharp
Chief Executive
Suzanne
Harlow
Group Trading
Director
Ross
Clemmow
E-Commerce
Director
Richard
Cristofoli
Marketing
Director
Mike
Goring
Retail
Director
Design,
buying,
merchandising,
supply chain,
sourcing and
external
business.
UK and
International
online sales and
development
and customer
relations.
Product
marketing,
advertising, PR,
visual and creative,
customer strategy
and insight.
UK and
international
store
operations
and store
development.
Peter
Swann
Operations
Director
Systems,
imports and
exports,
distribution
and logistics.
Nikki
Zamblera
HR Director
HR, pay and
reward,
learning and
development,
recruitment,
pensions
and facilities.
Matt
Smith
Chief
Financial
Officer
Financial
reporting and
management,
tax, treasury,
internal audit,
property, space
planning, legal
and secretariat
and investor
relations.
The Group Trading Director
The Group Trading Director leads the
buying and merchandising activities
and is responsible for the development
of the Debenhams brand and product
strategy and the external business
initiatives with the overriding objective
to deliver a compelling customer
proposition. The role is also
responsible for the sourcing
and supply chain functions.
Suzanne Harlow has been our Group
Trading Director since December 2013.
The 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 will be
dealt with by this director. The Senior
Independent Director also serves as
an intermediary for the other directors
as necessary and acts as a sounding
board for the Chairman. In addition,
the role also has responsibility for
leading the annual appraisal of the
Chairman’s performance.
Dennis Millard has been our Senior
Independent Director since May 2010.
As a result of Dennis Millard’s length
of tenure, he is no longer considered
to be independent and the board
therefore proposes that Terry Duddy
replace him as Senior Independent
Director effective from the date of the
forthcoming Annual General Meeting.
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. As at 29 August
2015, all the non-executive directors
were considered by the board to be
independent and free from any
relationship or circumstances that could
affect their independent judgement.
The independence of non-executive
directors who have served more than
six years is subject to rigorous review.
The table below details the length of service of our Chairman and for each of our non-executive directors:
Director
Dennis Millard
Martina King
Nigel Northridge
Mark Rolfe
Peter Fitzgerald
Stephen Ingham
Terry Duddy
Date of appointment
Length of service as a non-executive
director at 29 August 2015
9 May 2006
1 August 2009
1 January 2010
1 October 2010
4 October 2012
8 January 2013
10 April 2015
9 years 4 months
6 years 1 month
5 years 8 months
4 years 11 months
2 years 11 months
2 years 8 months
4 ½ months
45
Debenhams plc Annual Report & Accounts 2015Governance 40-85 CORPORATE GOVERNANCE
REPORT CONTINUED
The 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 that
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.
The appointment or removal of the
Company Secretary is a matter for
the board as a whole.
Paul Eardley has been our Company
Secretary since October 2007.
Board diversity
The Company’s diversity policy was
adopted by the board in FY2014. It is
the responsibility of the Nomination
Committee to implement and monitor
the objectives set out in the policy and
to review the policy annually (last
reviewed September 2015).
Debenhams believes that diversity,
in all its aspects, is important in order
for a board to operative effectively.
The main objectives of 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. Following Sophie Turner
Laing’s departure the Nomination
Committee will be mindful of the
diversity policy when considering
future appointments. The charts
below and opposite demonstrate
the gender split at board level,
within the Executive Committee,
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 their external
interests and any conflicts on an
ongoing basis. The letters of
appointment for non-executive
directors set out the time commitment
expected to perform their duties
effectively. The time required by
directors will fluctuate depending on
the demands of the business and any
other events but the expected number
of days required for each non-executive
director is ten days per annum.
Board gender diversity
Executive Committee gender diversity
Senior managers gender diversity
Male
Female
80%
20%
Male
Female
75%
25%
Male
Female
53%
47%
46
Debenhams plc Annual Report & Accounts 2015 All employees gender diversity
Male
Female
24%
76%
Induction and ongoing development
On appointment, a director is provided
with an induction programme which is
tailored to his or her experience of
listed company responsibilities 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
Board activity throughout the year
arranged. One to one meetings
are also held with members of the
Executive Committee and other
senior executives in 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 2015. 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 the 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 five meetings during
FY2015 which were fully attended by
all the board members. In addition
to the directors, the board meetings
were attended by the members of
the Executive Committee and the
Company Secretary. Details of the
principal items discussed at each
meeting are shown in the table below.
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 all meetings. All
information is published in advance
via a secure web portal. If directors
are not able to attend meetings due
September 2014
October 2014
December 2014
January 2015
April 2015
June 2015
Visit to Danish
operation Magasin
du Nord
Presentation on
the supply chain
and buying and
merchandising
roadmap
Approved full year
results, report and
accounts and
recommended the
final dividend
Approved the
corporate risk map
Reviewed
the annual
performance
evaluation of the
board and its
committees
Approved the
schedule of
matters reserved
for the board
Met with
shareholders at the
Annual General
Meeting
Approved the
January Trading
Statement
Approved interim
results and
resolved to pay
interim dividend
Approved the June
Trading Statement
Presentation on the
strategic priorities
Reviewed budget
Update
presentation
on the supply chain
Presentation on
health and safety
Annual Strategy
Meeting
47
Debenhams plc Annual Report & Accounts 2015Governance 40-85 CORPORATE GOVERNANCE
REPORT CONTINUED
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 and records
all matters discussed within the minutes
of the meeting. Each board meeting
reviews presentations from the
executive directors and from 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
Investor relations calendar
key Group risks and ensures that the risk
management framework and profile
supports the business strategy. In
accordance with the Code, the formal
schedule of matters reserved for the
board is reviewed annually, usually
at the October board meeting.
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. In
addition there is a sustainability
committee which is a committee of the
board and is chaired by Martina King.
The members together with the role
and activities of each board committee
can be found at:
Audit Committee
Pages 52 to 55
Nomination
Committee
Remuneration
Committee
Pages 50 and 51
Pages 56 to 81
Performance evaluation
In line with best practice, we conduct
external evaluations of the board,
its committees and each individual
director at least once every three years.
As no material concerns were raised
during the FY2014 external evaluation
the board determined that the
Chairman should carry out an internal
evaluation in FY2015. This year’s
evaluation confirmed that all of the
October 2014
November 2014
December 2014
January 2015
April 2015
June 2015
July 2015
August 2015
Full year results
US shareholder roadshow
Annual General Meeting
Trading update
First half results
Investor meetings
CFO Broker introductions
UK investor meetings
UK shareholder roadshow
European shareholder
roadshow
UK investor meetings
UK shareholder roadshow
Trading update
Fixed income investor
roadshow
48
Debenhams plc Annual Report & Accounts 2015 Shareholders by geography
December 2014 AGM – key highlights
• Full director attendance
• Between 708,648,809 and
716,358,151 votes were cast
for each resolution
• All directors retired and were
elected/re-elected to the board,
receiving on average 98.71% of
votes cast in favour
• The resolution to approve the
directors’ remuneration policy
for the year ended 30 August 2014
was passed with 98.65% of votes
cast in favour
• The resolution to approve the
directors’ remuneration report
for the year ended 30 August 2014
was passed with 99.79% of votes
cast in favour
UK
USA
UAE
Luxembourg
Norway
Other
52%
23%
8%
3%
3%
11%
The key elements of the Group’s
investor relations calendar in 2015
are shown in the table below.
The major shareholders of the
Company are listed on page 83
of the directors’ report.
The geographical analysis of
shareholders is shown in the
chart above.
directors, the board and its committees
continue to perform effectively.
However, the Chairman is constantly
evaluating the performance and
effectiveness of the board and its
committees. The performance review
of the Chairman was conducted by the
Senior Independent Director who
consulted with all board members.
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 pages
83 to 84 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. Analysts’
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
in order to explain aspects of the
business performance and strategy.
October 2014
November 2014
December 2014
January 2015
April 2015
June 2015
July 2015
August 2015
Full year results
US shareholder roadshow
Annual General Meeting
Trading update
First half results
Investor meetings
CFO Broker introductions
UK investor meetings
UK shareholder roadshow
European shareholder
UK investor meetings
roadshow
UK shareholder roadshow
Trading update
Fixed income investor
roadshow
49
Debenhams plc Annual Report & Accounts 2015Governance 40-85
NOMINATION
COMMITTEE REPORT
DEAR SHAREHOLDER
On behalf of the Nomination Committee,
I am pleased to present its report for the
year ended 29 August 2015.
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 and in accordance with the
Company’s policy on diversity
• 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 met twice during the
year at which it:
• Evaluated the balance of skills,
experience, independence, diversity
and knowledge on the board and
recommended the appointment of
Terry Duddy as an independent
non-executive director of the Company,
effective from 10 April 2015. The
appointment was facilitated by external
search consultants Lygon Group which
has no connection to the Company.
Lygon worked with the Chairman to
provide a long list of candidates and
then a short list. Candidates met with
various members of the board after
which the Committee was able to
formulate its recommendation
• Reviewed the non-executive directors’
time commitments and lengths of
service and recommended to the
board the re-appointment of Martina
King for a further three year term
NIGEL NORTHRIDGE
CHAIRMAN,
NOMINATION COMMITTEE
“ THE GOAL AT
DEBENHAMS
IS TO ENSURE
THAT THE BOARD
IS WELL BALANCED
AND APPROPRIATE
FOR THE NEEDS
OF THE BUSINESS.”
50
Debenhams plc Annual Report & Accounts 2015 effective from 31 July 2015. Having
completed two three year terms as a
non-executive director, Sophie Turner
Laing stepped down from the board
on 31 July 2015
• Reviewed and considered the
succession plans for the Chief
Executive down to senior executives
holding key roles within the business
• Carried out an annual review of the
directors’ conflicts of interest register,
diversity policy and the Committee’s
terms of reference
DIVERSITY
The goal at Debenhams 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, including
gender. However board appointments
are always made on merit. Following the
board changes which took place this year
the percentage of women on the
Debenhams plc board at the end of
the 2015 financial year is 20%. The
board is mindful of its diversity policy
and will continue to take this into account
when considering future appointments.
ACTIVITIES SINCE YEAR END
Peter Fitzgerald’s appointment as an
independent non-executive director has
been renewed for a further three year
term commencing on 4 October 2015.
Dennis Millard, who has served in excess
of nine years, has agreed, subject to
shareholders approving his re-election
at the forthcoming AGM, to remain on
the board as a non-independent director
for a further year. As a result he will be
succeeded by Terry Duddy as Senior
Independent Director and by Martina King
as chair of the Remuneration Committee.
Both of these appointments are to be
effective from 14 January 2016 subject to
shareholders approving the respective
director’s election/re-election.
COMMITTEE EVALUATION
The annual evaluation of the Committee’s
effectiveness concluded that the
Committee continues to operate effectively.
NIGEL NORTHRIDGE
CHAIRMAN,
NOMINATION COMMITTEE
Composition
The individuals who served on the Committee during the year under review are
set out below:
Member
Nigel Northridge
(Committee Chairman)
Terry Duddy1
Martina King
Dennis Millard
Mark Rolfe
Sophie Turner Laing2
Date appointed
Committee member
Attendance at meetings
during the year
1 April 2010
10 April 2015
1 August 2009
9 May 2006
1 October 2010
1 May 2010
2/2
0/0
2/2
2/2
2/2
2/2
1 Terry Duddy became a member of the Committee on 10 April 2015 and the meetings held during the year
were prior to his appointment date.
2 Sophie Turner Laing stepped down from the board on 31 July 2015 and as a result ceased membership
of the Committee on that date.
51
Debenhams plc Annual Report & Accounts 2015Governance 40-85 AUDIT COMMITTEE
REPORT
DEAR SHAREHOLDER
On behalf of the Audit Committee
(“the Committee”), I am pleased to
present its report for the financial year
ended 29 August 2015. The report sets
out the remit of the Committee, its
areas of focus during the year and the
Company’s relationship with the
external auditors.
The Committee has satisfied itself that
the Debenhams plc 2015 annual report
and accounts is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy. The
Committee therefore supports the
board in making its formal statement
on page 85.
I would like to take this opportunity
to welcome Terry Duddy to the Committee
this year and also to thank Sophie Turner
Laing for her valued contribution to the
work of the Committee.
MARK ROLFE
CHAIRMAN,
AUDIT COMMITTEE
MARK ROLFE
CHAIRMAN,
AUDIT COMMITTEE
“ THE COMMITTEE HAS SATISFIED
ITSELF THAT THE DEBENHAMS
PLC 2015 ANNUAL REPORT AND
ACCOUNTS IS FAIR, BALANCED
AND UNDERSTANDABLE.”
52
Debenhams plc Annual Report & Accounts 2015 MEMBERSHIP OF THE AUDIT COMMITTEE
The individuals who served on the Committee during the year under review
are set out below:
Member
Mark Rolfe
(Committee chairman)
Terry Duddy1
Peter Fitzgerald2
Martina King
Dennis Millard
Sophie Turner Laing3
Date appointed
Committee member
Attendance at meetings
during the year
1 October 2010
(appointed
Committee chairman
2 September 2012)
10 April 2015
18 October 2012
1 August 2009
9 May 2006
1 May 2010
3/3
1/1
2/3
3/3
3/3
3/3
1 Terry Duddy became a member of the Committee on 10 April 2015 and two of the meetings held
during the year were prior to his appointment date.
2 Peter Fitzgerald was unable to attend the meeting held in April 2015 due to a schedule clash.
3 Sophie Turner Laing stepped down from the board on 31 July 2015 and as a result ceased membership
of the Committee on that date.
All of the members of the Committee are
independent non-executive directors.
Both Mark Rolfe and Dennis Millard are
considered by the board to have recent
and relevant financial experience.
good practice. The terms of reference
of the Committee are available on
the Company’s website: http://
debenhamsplc.com.
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’ external
auditors, PwC, attend and receive papers
for each meeting. The Company
Secretary is secretary to the Committee.
After each meeting the chairman reports
to the board on the matters discussed,
on recommendations and on actions
to be taken.
The Committee met with the Company’s
external auditor once 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.
RESPONSIBILITIES OF
THE COMMITTEE
The role and responsibilities of the
Committee are set out in its terms of
reference which are reviewed annually
by the Committee taking into account
relevant legislation and recommended
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 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 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 OF THE COMMITTEE
DURING THE YEAR
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.
Governance
• The Committee assessed the
effectiveness of the external audit
process via an internal questionnaire
completed by the Committee, the
Company Secretary, the Director of
Finance and Support Services and the
Director of Internal Audit and Risk
Management. The questionnaire
circulated focused on the quality of the
audit team, their understanding of the
business and the audit approach. The
Committee considered the results of
the review at its meeting in October
2015 and concluded that the audit
process is effective and that the
external auditors challenge
management when appropriate.
53
Debenhams plc Annual Report & Accounts 2015Governance 40-85 AUDIT COMMITTEE
REPORT CONTINUED
• The Committee considered the new
regulations introduced by the UK
Corporate Governance Code
(published September 2014) and the
EU Audit Reform to ensure that the
Company is ready to incorporate
those regulations into its corporate
governance framework and to report
against them in FY2016.
• The compliance committee, chaired
by Matt Smith the Chief Financial
Officer, supported the Committee
in assessing whether the Company’s
annual report, taken as a whole, is
fair, balanced and understandable
and complies with all legal and
regulatory requirements.
• The members of the Committee and
senior management within the
business were provided with training
by a senior member of the accounting
team. During the year, training was
provided on accounting for share-
based payments which is one of the
Group’s principal accounting policies.
Previously, training has covered some
of our other principal accounting
policies including revenue recognition
and retirement benefit costs.
External audit
• The scope of the audit for FY2015 was
agreed together with the fees and
terms of engagement. Details of the
amounts paid to the external auditors
for the audit services for 2015 are
given in note 6 to the financial
statements on page 107.
Significant issues in relation to the
financial statements
The significant areas of focus
considered by the Committee in
relation to the 2015 accounts continue
to be as disclosed in FY2014.
The significant issues considered in
relation to the Group’s financial
statements for the year ended
29 August 2015 are set out below
together with a summary of the actions
taken. In addition, the Committee and
the external auditors have discussed
the other areas of focus of the audit as
set out in the independent auditors’
report on pages 86 to 92.
Matter considered
Actions
Revenue recognition
As with most companies there
continues to be a risk that, in order to
achieve the planned results, revenue
may be recognised in contravention
of the Group’s policy for revenue
recognition.
Inventory valuation
The Company continues to use 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 page 106.
The Committee reviews revenue
recognition practice and the
underlying assumptions and
estimates. In addition, the internal
audit function reports to the
Committee on the controls and
processes in this area. The Committee
also routinely monitors the views of
the external auditors on revenue
recognition issues.
During FY2015, the Committee
received reports from both the
internal and external auditors setting
out inventory risk metrics and findings
from the examination of controls in
these areas. These reports indicated
that inventory was valued satisfactorily.
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 that auditors and
their staff must have 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.
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
ever arise.
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 Chief
54
Debenhams plc Annual Report & Accounts 2015 EXTERNAL AUDITOR
APPOINTMENT
PwC has served as the Company’s
auditors since flotation in 2006.
John Ellis has been the audit
partner since 1 September 2013.
The Committee considers that based
on current guidance and the timeline,
mandatory auditor rotation would be
required after the August 2020 year
end. However, given that the current
audit partner must rotate off the
Company’s account in 2018 the
Committee has agreed that, subject
to the rules evolving any further, 2018
would be the logical time for PwC to
rotate off the account and for the
audit to be put out to tender.
The Committee is satisfied that PwC
remains independent and is best placed
to conduct the Company’s audit for
FY2016. The Committee therefore
recommends that PwC be re-appointed
as the Company’s auditors.
MARK ROLFE
CHAIRMAN,
AUDIT COMMITTEE
Financial Officer or the Company
Secretary or by 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”
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.
£0.1 million was paid by the Company
to PwC for non-audit services which
represents 15.3% of the total audit fee
paid to PwC.
The audit fees paid by the pension
schemes were £32,300.
55
Debenhams plc Annual Report & Accounts 2015Governance 40-85 DIRECTORS’
REMUNERATION REPORT
DENNIS MILLARD
CHAIRMAN,
REMUNERATION COMMITTEE
“THE COMMITTEE
CONTINUES TO
BELIEVE THAT EXECUTIVE
REMUNERATION
ARRANGEMENTS ARE
STRUCTURED TO SUPPORT
THE DELIVERY OF OUR
STRATEGIC PRIORITIES”
56
Debenhams plc Annual Report & Accounts 2015 DEAR SHAREHOLDER
On behalf of the Remuneration
Committee (“the Committee”), I am
pleased to present our remuneration
report for the 2015 financial year.
Last year we put our policy report to
a shareholder vote for the first time.
We were delighted with the level of
support received, with 99% of votes
being cast in favour. We are not
proposing to make any changes to our
directors’ remuneration policy this year
and we continue to be bound by the
policy approved at last year’s Annual
General Meeting.
In this remuneration report we have
reproduced the policy report in full for
ease of reference. The annual report on
remuneration included in the second
part of this report sets out details of
how this policy was implemented
in FY2015 and how it is intended to
operate in FY2016. This report will
be subject to the usual advisory
shareholder vote at the Annual
General Meeting on 14 January 2016.
Our performance in FY2015
This year we have made further
progress against our strategic priorities
and have delivered results in line with
market expectations.
The retail marketplace is still highly
competitive and the profit before tax
target set for the annual bonus was
not achieved. No bonus was therefore
paid to executive directors in respect
of FY2015.
Performance Share Plan (“PSP”) awards
granted in FY2013 were based 75% on
EPS growth and 25% on average return
on capital employed (“ROCE”) relative
to the cost of capital. The EPS element
of the award has not triggered vesting.
However, ROCE exceeded the cost of
capital by 3.2%. Therefore, 17% of the
awards will vest in November 2015.
Renewal of share plans
The Company’s current share plans
were adopted in FY2006 and are
all due to expire in FY2016. These
include the PSP, the Deferred Bonus
Matching Plan and the Executive
Share Option Plan.
It is proposed that only the PSP be
renewed and shareholders will be asked
to approve the adoption of the new
share plan rules at the Annual General
Meeting on 14 January 2016. The key
terms of the plan remain unchanged,
subject to some minor amendments to
reflect current best practice drafting, and
as such our remuneration policy also
remains unaffected by the renewal of the
plan. A summary of the rules can be
found in our shareholder circular for the
forthcoming Annual General Meeting.
Reward changes for FY2016
In line with the revised UK Corporate
Governance Code, for 2016 we are
introducing clawback provisions for
executive directors and the senior
leadership team across all our
incentives. In addition, the malus
provisions that already apply to our
annual bonus and to the PSP have
been extended to allow for malus
to be applied in a wider range
of circumstances.
In last year’s report we explained that we
had moved the annual salary review date
for the executive directors forward from
September to April. With effect from
1 April 2015, they each received a pay
increase of 1.5% and that increase took
no account of the movement of the
review date. This increase was similar
to increases awarded to other
employees in the Group. The annual
bonus criterion of underlying PBT
remains unchanged for FY2016.
Similarly, the PSP performance
measures introduced last year, namely
underlying EPS growth (70%) and
strategic measures (30%), remain
unchanged with the vesting of the
strategic measures subject to meeting
a ROCE underpin.
The EPS targets remain at 3% per
annum (25% vesting) to 10% per annum
(100% vesting).
The strategic measures remain as:
• Gross margin improvement
• Online EBITDA growth
• UK GTV
• International EBITDA growth
No changes have been made to
the usual annual bonus opportunity.
As regards PSP Michael Sharp will be
awarded a PSP award of 50% of base
salary. Matt Smith and Suzanne Harlow
will each be awarded a PSP award of
125% of base salary as they are both
essential to the continued smooth
operation of the business during the
Chief Executive succession process.
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.
As mentioned within this annual report,
having served more than nine years on
the board of Debenhams plc I will be
standing down as chairman of the
Remuneration Committee effective
from the next Annual General Meeting
and I’d like to take this opportunity to
welcome Martina King as the new chair
of the Remuneration Committee.
Martina’s appointment as chair will
be subject to shareholders approving
her re-election at the Annual
General Meeting.
DENNIS MILLARD
CHAIRMAN,
REMUNERATION COMMITTEE
57
Debenhams plc Annual Report & Accounts 2015Governance 40-85 DIRECTORS’
REMUNERATION REPORT
REMUNERATION POLICY
This remuneration report for the year ended 29 August 2015 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). The Company has adopted the
provisions of the 2014 UK Corporate Governance Code regarding malus and clawback. Further details are provided on page 77.
FY2015 NOTE:
This part of the remuneration report sets out Debenhams’ directors’ remuneration policy which was approved by shareholders at the 2014
Annual General Meeting. To provide consistency with current arrangements and the remainder of the remuneration report, specific
references to 2015 arrangements have been removed, where appropriate. Where relevant, “FY2015 notes” have been provided to give
additional information to shareholders. These do not form part of the shareholder approved policy.
REMUNERATION POLICY TABLE FOR EXECUTIVE DIRECTORS
The table below sets out a summary of our remuneration policy for executive directors. This policy was approved
by shareholders at the AGM on 9 December 2014 and took effect from that date.
Further information regarding the implementation of the policy can be found in the annual report on remuneration
commencing on page 71.
Element
Base salary
Purpose and link to strategy
Key features/operation
• Supports the recruitment and
• Paid in cash
retention of executive directors
of the calibre required to fulfil
the role without paying more
than is considered necessary
to do so
• 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
• Rewards executives for the
performance of their role
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
• The Chief Executive’s annual cash pension allowance is
None
executives to save for retirement
• Provides a market competitive
retirement benefit
• Incentive and retention tool
into account relevant market practice and practice throughout
the Group
• Executive directors are generally provided a cash allowance in lieu
of a pension 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
58
What is the maximum potential value?
Performance metrics
• Whilst there is no defined maximum salary, any base salary
None
increases will normally be in line with the increases awarded
to other employees of the Group
• 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
20% of base salary
• The annual pension contribution for the Chief Financial
Officer is 15% 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 2015 Element
Base salary
Purpose and link to strategy
Key features/operation
• Supports the recruitment and
• Paid in cash
retention of executive directors
of the calibre required to fulfil
the role without paying more
than is considered necessary
to do so
• 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
• Rewards executives for the
performance of their role
and other FTSE 350 retailers
– External market conditions
– Pay and conditions elsewhere in the Group
– The individual’s skills, knowledge and experience
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 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.
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
executives to save for retirement
into account relevant market practice and practice throughout
• The Chief Executive’s annual cash pension allowance is
None
20% of base salary
• Provides a market competitive
the Group
retirement benefit
• Executive directors are generally provided a cash allowance in lieu
of a pension provision or a contribution to a defined contribution
• Incentive and retention tool
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
Pension Plan
• 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
• The annual pension contribution for the Chief Financial
Officer is 15% 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
59
Debenhams plc Annual Report & Accounts 2015Governance 40-85 REMUNERATION
POLICY CONTINUED
Purpose and link to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
• To provide a market competitive
level of benefits for executive
directors
• Executive directors have a benefits allowance which can be used
to fund 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
• 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
• Rewards and incentivises
• Unless otherwise determined by the Committee, bonuses are
• Maximum opportunity of 100% of base salary
• The Committee determines appropriate performance
the achievement of
annual objectives which are
aligned with key financial and
strategic goals and supports
the enhancement of
shareholder value
paid in cash following the year end
• Bonuses are not pensionable
• Malus provisions apply (see page 64 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
• 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
• Further information in relation to the performance
measures is set out in the annual report on remuneration
Element
Benefits
Annual
bonus
60
Debenhams plc Annual Report & Accounts 2015 Element
Benefits
Annual
bonus
• To provide a market competitive
• Executive directors have a benefits allowance which can be used
level of benefits for executive
to fund a range of benefits. The wider management population
directors
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
Purpose and link to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
• 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
• Rewards and incentivises
• Unless otherwise determined by the Committee, bonuses are
• Maximum opportunity of 100% of base salary
• The Committee determines appropriate performance
the achievement of
annual objectives which are
aligned with key financial and
strategic goals and supports
the enhancement of
shareholder value
paid in cash following the year end
• Bonuses are not pensionable
• Malus provisions apply (see page 64 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
• 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
• Further information in relation to the performance
measures is set out in the annual report on remuneration
61
Debenhams plc Annual Report & Accounts 2015Governance 40-85 REMUNERATION
POLICY CONTINUED
Element
Purpose and link to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
Performance
Share Plan (“PSP”)
• Incentivises executives to
• Awards normally vest based on performance assessed
achieve Debenhams’ long-term
strategy and create sustainable
shareholder value
• Aligns with shareholder interests
through the delivery of shares
• Acts as a retention tool
over a period not shorter 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 64 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
Executive directors also have a shareholding guideline. Further details are provided on page 73 of the annual report
on remuneration.
FY2015 NOTE:
The Deferred Bonus Matching Plan and the Executive Share Option Plan both expire during FY2016. The Company is not seeking
shareholder approval to renew these plans. The PSP will therefore be the only executive plan operated by the Company.
Element
Purpose and link to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
Deferred Bonus
Matching Plan
(“DBMP”)
• 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
• The Committee can invite participants to invest up to 100% of their
net annual 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
• Incentivises executives to
• Awards would take the form of market value options over ordinary
achieve Debenhams’ long-term
strategy and create sustainable
shareholder value
shares in 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)
Executive
Share Option
Plan (“ESOP”)
62
• The maximum value of shares over which an individual
• Awards granted in 2015 will vest subject to a combination of
can be granted an award in any one financial year of the
underlying EPS and strategic performance measures (all of
Company is normally 200% of base salary, although this
which are financial in nature). The vesting of the strategic
limit may be increased to 250% of base salary in exceptional
measures will also be subject to meeting a ROCE underpin
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
• 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
market practice
• The Committee sets performance targets each year, taking
into account the business plan, external expectations and
• For further information in relation to the performance
measures, weightings and targets for awards see the
annual report on remuneration
• Maximum matching awards may be made up to the
• If this plan were operated, appropriate performance
equivalent 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
• The maximum award that can be made under the plan is
• If this plan were operated, appropriate performance
100% of base salary (face value of options based on the share
conditions would be determined by the Committee at
price at the date of grant). The Committee will take into
the time of award and disclosed in the annual report on
consideration awards made under the PSP when
remuneration for that year
granting awards under the plan
• 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 2015 Performance
Share Plan (“PSP”)
• Incentivises executives to
• Awards normally vest based on performance assessed
achieve Debenhams’ long-term
over a period not shorter than three years
strategy and create sustainable
shareholder value
• Awards may only vest to the extent the Committee is satisfied
that the underlying financial performance of the Company over
• Aligns with shareholder interests
the relevant performance period justifies vesting. The Committee
through the delivery of shares
may also decrease the final vesting level if it does not consider that
• Acts as a retention tool
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 64 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
Deferred Bonus
Matching Plan
(“DBMP”)
• Incentivises executives to
• The Committee can invite participants to invest up to 100% of their
achieve Debenhams’ long-term
net annual bonus. The net bonus is used to purchase market shares
strategy and create sustainable
which are then designated “invested shares”
shareholder value
• Aligns executives’ interests with
for three years, they may receive a matching award of up to the gross
shareholders through the
amount of the bonus deferred subject to performance conditions being
investment of their cash bonus
met over a period of no less than three years
• If the participant remains in employment and retains the invested shares
into shares
Executive
Share Option
Plan (“ESOP”)
achieve Debenhams’ long-term
shares in the Company
strategy and create sustainable
shareholder value
• 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
• 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
the date of grant
• Awards may be exercised once vested for up to ten years following
• 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)
Element
Purpose and link to strategy
Key features/operation
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
• 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 see 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 FY2015. 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
Purpose and link to strategy
Key features/operation
What is the maximum potential value?
Performance metrics
• Maximum matching awards may be made up to the
equivalent 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
• Incentivises executives to
• Awards would take the form of market value options over ordinary
• The maximum award that can be made under the plan is
• If this plan were operated, appropriate performance
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
• Awards may be made above this level in exceptional
circumstances
• Typically 25% of award vests for target 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
63
Debenhams plc Annual Report & Accounts 2015Governance 40-85 REMUNERATION
POLICY CONTINUED
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.
FY2015 NOTE:
Following shareholder approval of the remuneration policy in 2014, Debenhams is introducing clawback provisions and is extending the
existing malus provisions. These provisions are detailed on page 77 of the annual remuneration report.
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 has been set out in the annual report on remuneration.
• The Committee considers that the annual bonus targets 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 the subsequent 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,
the 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 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.
64
Debenhams plc Annual Report & Accounts 2015 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
Mid-range performance
• Fixed remuneration
• No annual bonus payout
• No vesting under the PSP
Maximum performance
• Fixed remuneration
• 50% annual bonus payout
• 50% vesting under the PSP
• 100% annual bonus payout
• 100% vesting under the PSP
FY2015 NOTE:
1. The figures below are those which were included in the 2014 policy and approved by shareholders in December 2014.
They have not been updated to show the 2015 figures.
2. Base salaries were increased by 1.5% with effect from 1 April 2015.
3. Matt Smith was appointed to the board on 26 January 2015.
4. Suzanne Harlow’s pension increased to 18% of base salary on 1 April 2015 following 20 years pensionable service.
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
£123,000
£60,000
£68,000
Total
£772,999
£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.
65
Debenhams plc Annual Report & Accounts 2015Governance 40-85 REMUNERATION
POLICY CONTINUED
FY2015 NOTE:
The charts below which illustrate remuneration outcomes in different performance scenarios relate to the policy applied for the first year in which
the policy applied (2015) and have not been updated. The scenarios below do not take into account the 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
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)
• 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.
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.
66
Debenhams plc Annual Report & Accounts 2015 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.
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 on 3 May 2006
• Matt Smith entered into a service agreement on 25 July 2014
• Suzanne Harlow entered into her current service agreement 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.
67
Debenhams plc Annual Report & Accounts 2015Governance 40-85
REMUNERATION
POLICY CONTINUED
• 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.
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.
FY2015 NOTE:
The rules of the Deferred Bonus Matching Plan and the Executive Share Option Plan will expire in 2016. The Company is not seeking
shareholder approval to renew these plans.
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 that they do not cause a conflict of interest.
The executive directors do not currently hold any such directorships.
FY2015 NOTE:
Suzanne Harlow was appointed a director of Ermes Department Stores plc on 15 June 2015. Fees in respect of this directorship are paid
to and retained by Debenhams Retail plc.
68
Debenhams plc Annual Report & Accounts 2015 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 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
69
Debenhams plc Annual Report & Accounts 2015Governance 40-85 REMUNERATION
POLICY CONTINUED
FY2015 NOTE:
For board changes since December 2014 please refer to the Chairman’s letter on page 3.
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 1 October 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 did in 2014 when it consulted
with major shareholders on the changes to the PSP performance measures.
70
Debenhams plc Annual Report & Accounts 2015 THE ANNUAL REPORT
ON REMUNERATION
This report sets out details of the implementation of the remuneration policy during the 2015 financial year and provides
details as to how the Committee intends to implement the policy during the 2016 financial year. This part of the report will
be subject to an advisory shareholder vote at the Annual General Meeting in January 2016. This report contains unaudited
information except where stated that it is audited.
WHAT DID EXECUTIVE DIRECTORS EARN IN RESPECT OF FY2015 AND FY2014? (AUDITED)
The table below sets out a single figure of remuneration for each executive director for FY2015 and FY2014.
Executive director
Base
salary
Benefits
Retirement
benefits
Bonus
PSP
awards
Total
Base
salary
Benefits
Retirement
benefits
Bonus
PSP
award
Total
2015
2014
Michael Sharp
– Chief Executive
Suzanne Harlow
– Group Trading
Director
Matt Smith
– Chief Financial
Officer
£618,844
£47,268 £170,529
Nil £149,226 £985,867 £615,000
£34,999 £141,500
Nil £199,4601 £990,959
£402,492
£15,826 £80,003
Nil
£46,709 £545,030
£289,743
£11,687
£54,554
Nil
N/A2
£355,9843
£243,526
£10,916
£36,529
Nil
Nil £290,9714
–
–
–
–
–
–
1 PSP award figure has been updated with the actual share price on the date of vesting (the reported figure in FY2014 (£207,235) was based on an average share price).
The total for 2014 has therefore been adjusted.
2 The value of the 2011 PSP Award held by Suzanne Harlow which vested in November 2014 was not included in the FY2014 single figure calculation as the Award was
granted prior to her becoming an executive director.
3 Appointed to the board on 11 December 2013.
4 Appointed to the board on 26 January 2015.
The following provides details of how the single figure for FY2015 has been calculated:
• Base salary – The executive directors received a salary increase of 1.5% on 1 April 2015.
• 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. Michael Sharp “sold” five days’ holiday during the year and received £11,827. This is included in the benefits amount
above. Suzanne Harlow purchased an additional five days’ holiday during the year (£7,808). 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 £46,760.
Michael Sharp received a cash contribution in lieu of pension of 20% of base salary (£123,769). 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 remuneration reporting regulations, was £9,886. Suzanne Harlow also received a cash contribution
in lieu of pension of 17% of base salary rising to 18% on 1 April 2015 following 20 years’ pensionable service (£70,117). Matt Smith
received a cash contribution in lieu of pension of 15% of base salary (£36,529).
• PSPs due to vest in FY2015 (in respect of the performance period 1 September 2012 to 29 August 2015) – The PSP
value shown in the single figure is for the award expected to vest in November 2015. The share price used to calculate the
single figure is based on the three month average share price to 29 August 2015 (88.28 pence).
2012 PSP awards
Performance
measure
Absolute EPS
growth per
annum
Average ROCE
vs the cost
of capital
Weighting
75%
25%
Threshold
target
(30% vests)
Maximum
target
(100% vests)
6%
12%
Outcome
-8.1%
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 3.2%
Vesting
(percentage
of maximum)
0%
17%
71
Debenhams plc Annual Report & Accounts 2015Governance 40-85
THE ANNUAL REPORT
ON REMUNERATION
CONTINUED
• Annual bonus for FY2015 – The maximum bonus for the year was 100% of base salary; the bonus was based 100% on PBT.
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. Actual PBT of £113.5 million was below the threshold level. As such, no bonus
will be payable in respect of FY2015.
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
29 August
2015 of
accrued
pension as
at 29 August
2015
(£)
Accumulated
total accrued
pension at 29
August 2015
(£)
Michael Sharp
Suzanne Harlow
216,352
39,856
8,011,993
1,147,437
Transfer
value as at
30 August
2014 of
accrued
pension as at
30 August
2014
(£)
6,584,718
916,800
Increase
in accrued
pension during
the year
(£)
Increase in
accrued
pension
during the
year (net
of inflation)
(£)
Increase in
transfer value
during the
period
(£)
4,875
961
2,338
494
1,427,275
230,637
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 18% of base salary (increased
from 17% effective from 1 April 2015 following 20 years’ pensionable service).
Scheme interests awarded during the financial year (audited)
As disclosed in last year’s remuneration report, no changes were made to the usual PSP levels in 2015. However, when Suzanne
Harlow was appointed to the board, she was 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. In addition, as part of Matt Smith’s
recruitment, he was 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.
Individual
Michael Sharp
Suzanne Harlow2
Matt Smith3
Type of
interest
Basis on which
award made
0.01 pence
option
0.01 pence
option
0.01 pence
option
150% of
base salary
150% of
base salary
200% of
base salary
Number
of shares
awarded
Face value
of shares
(£)1
Percentage
vesting
at threshold
1,423,611
£922,500
925,925
£599,999
900,900
£799,999
25%
25%
25%
Performance
period end
2 September
2017
2 September
2017
2 September
2017
1 The face value of shares awarded was calculated using the closing mid-market share price on the date of award (3 November 2014), which was 64.8 pence for the
awards granted to Michael Sharp and Suzanne Harlow and 88.8 pence for the award granted to Matt Smith.
2 For Suzanne Harlow, the award level of 150% of salary for 2015 was in respect of her appointment to the board. See fuller description above.
3 For Matt Smith, the award level of 200% of salary was in respect of his recruitment, taking into consideration awards forfeited on leaving his previous employer.
See fuller description above.
72
Debenhams plc Annual Report & Accounts 2015 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 2015 and includes the net value of shares vested but not exercised under the ESOP.
Ordinary
shares
held at
29 August
2015
Ordinary
shares
held at
30 August
2014
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
Matt Smith –
Chief Financial
Officer
6,622,4261
6,460,0671
2,417,952
589,337
545,366
1,237,161
28,000 2
–
900,900
–
–
–
473,961
624,225
£6,086,477
169,689
406,000
£615,416
–
406,000
£24,718
Yes
Yes
No
1 Shareholding includes 374,392 ordinary shares held by the Sharp Discretionary Settlement of which he is a trustee.
2 Ordinary shareholding acquired in July 2015.
SCHEME INTERESTS (AUDITED)
Performance Share Plan
Director
Date of
award
1 November
2011
Number
of shares
held at
30 August
2014
Shares
awarded
during
the year
Shares
lapsed
during
the year
Shares
exercised
during
the year
Number
of shares
held at
29 August
2015
Market
value on
date of
award
Market
value on
date of
exercise
Earliest
date of
vesting
Expiry
date of
vesting
period
1,396,973
– 1,089,639
307,334
–
64.4p
87.0p
1.11.14
1.5.15
Michael
Sharp
1 November
2012
994,341
–
3 November
2014
1 November
2011
1 November
2012
3 November
2014
1 May 2015
Suzanne
Harlow
Matt
Smith
– 1,423,611
378,346
311,236
–
–
–
–
925,925
900,900
–
–
–
–
994,341
123.7p
1,423,611
64.8p
–
–
1.11.15
1.5.16
3.11.17
3.5.18
295,110
83,236
–
64.4p
87.0p
1.11.14
1.5.15
–
–
–
–
–
–
311,236
123.7p
925,925
64.8p
900,900
88.8p
–
–
–
1.11.15
1.5.16
3.11.17
3.5.18
1.5.18
1.10.18
Update on performance against strategic measures for “in-flight” PSP awards:
For PSP awards granted in FY2015, 30% of the shares vest subject to the satisfaction of the four key strategic measures
of group gross margin improvement, online EBITDA growth rate, UK gross transaction value growth and International
EBITDA growth rate. The Committee set stretching targets for these metrics taking into account our long-term strategic
plan. The exact targets were not disclosed in last year’s report as they were considered to be commercially sensitive.
Notwithstanding that the Group has made further progress against its strategic priorities, due to the very stretching nature
of the targets set for the strategic measures, performance is currently behind target. Vesting will be determined in FY2018
based on performance over the three year performance period.
73
Debenhams plc Annual Report & Accounts 2015Governance 40-85 THE ANNUAL REPORT
ON REMUNERATION
CONTINUED
Executive Share Option Plan
Director
Michael
Sharp
Suzanne
Harlow
Date of
award
Approved
scheme
24 November
2009
Unapproved
scheme
24 November
2009
Approved
scheme
24 November
2009
Unapproved
scheme
24 November
2009
Number
of shares
held at
30 August
2014
Shares
granted
during
the year
Shares
lapsed
during
the year
Shares
vested
during
the year
Number
of shares
held at
29 August
2015
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
85.45p
24.11.12
24.11.19
438,853
85.45p
24.11.12
24.11.19
35,108
85.45p
24.11.12
24.11.19
134,581
85.45p
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)
As disclosed in last year’s report, Simon Herrick continued to receive monthly payments in lieu of notice for the
twelve month period up to 2 January 2015. No payments for loss of office were made in respect of the FY2015 year.
TOTAL SHAREHOLDER RETURN PERFORMANCE GRAPH
The performance graph below shows the Company’s total shareholder return against the FTSE 350 General Retailers Index
over the period from 29 August 2009 to 29 August 2015. 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.
Please note that there was a printing inaccuracy in last year’s total shareholder return performance graph, which has been
corrected in the below chart.
250
200
150
100
50
0
29 Aug 09
28 Aug 10
3 Sep 11
1 Sep 12
1 Sep 13
30 Aug 14
29 Aug 15
Debenhams
FTSE 350 General Retailers
Source: DataStream
74
Debenhams plc Annual Report & Accounts 2015 HISTORICAL CHIEF EXECUTIVE PAY
The table below sets out details of the Chief Executive’s pay for the current year and the previous five 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 71.
Single figure of total remuneration
£1,477,607
£1,044,515
£1,288,857
£754,396
£990,959
£985,867
2010*
2011*
2012
2013
2014
2015
Annual variable element award rates
against maximum opportunity
100%
33.3%
40%
Long-term incentive vesting rates
against maximum opportunity
N/A
N/A
PSP: 32%
ESOP: 100%
0%
N/A
0%
22%
0%
17%
* The Chief Executive for the period 2009-2011 was Rob Templeman. The Chief Executive since FY2012 is 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 FY2014 to FY2015 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
* No bonus was paid to the Chief Executive in respect of FY2014 and FY2015.
** No bonus was paid to staff in respect of FY2014.
Chief
Executive
1.5%
35.0%
0.0%*
UK employees
(Average full
time equivalent)
6.2%
17.4%
100.0%**
75
Debenhams plc Annual Report & Accounts 2015Governance 40-85 THE ANNUAL REPORT
ON REMUNERATION
CONTINUED
RELATIVE IMPORTANCE OF SPEND ON PAY
The chart below sets out the amounts paid in FY2014 and FY2015 in respect of the remuneration of all employees and
dividends to shareholders.
£m
450
400
350
300
250
200
150
100
50
0
Profit Before Tax
Distributions by way of dividends
in respect of the year
Overall expenditure on
remuneration for all employees
3.5%
7.3%
0%
2013/14
2014/15
2013/14
2014/15
2013/14
2014/15
IMPLEMENTATION OF THE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS IN FY2016
Components of remuneration
The following table provides a summary of the different elements of pay that will be operated for FY2016.
Fixed pay
Base salary + benefits + pension
Performance-related pay
Cash bonus one year
PSP three year
Short-term performance
Long-term performance
100% financial
70% EPS growth, 30% strategic measures
Base salary
Executive director salaries with effect from 1 April 2015 are as follows:
Chief Executive, Michael Sharp
Chief Financial Officer, Matt Smith*
Group Trading Director, Suzanne Harlow
* Appointed to the board on 26 January 2015.
£624,225
£406,000
£406,000
The annual salary review date for the executive directors is 1 April, in line with the annual review date of the rest of the
management population.
Annual bonus
The performance measures for the FY2016 annual bonus will be in line with FY2015, being entirely based on underlying PBT,
reflecting the continued focus 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 50% of base salary for FY2016. For the Chief
Financial Officer and Group Trading Director, PSP awards will be 125% of base salary as they are both essential to the
continued smooth operation of the business during the Chief Executive succession process.
76
Debenhams plc Annual Report & Accounts 2015 In line with FY2015, awards will be based 70% on EPS growth targets and 30% on financial measures that underpin our
strategy. The choice of strategic measures remains unchanged from the prior year, and are as follows:
Key strategic pillars
Proposed metric (7.5% of award each)
Delivering a compelling customer proposition
Group gross margin improvement
Increasing availability and choice through multi-channel
Online EBITDA growth rate
Focusing on UK retail
UK GTV growth
Expanding the brand internationally
International EBITDA growth rate
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 was refined in November 2014 and capital
employed will include a capitalised value of future store rental payments and profitability items on a pre-rental basis.
The EPS targets for the PSP remain unchanged 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.
Malus and clawback – For incentives in respect of FY2016 new clawback provisions will operate. Under these provisions
the Committee has the discretion to require clawback in certain circumstances. Annual bonus payments may be subject to
clawback for a period of three years following the payment of the cash bonus and PSP awards may be subject to clawback
for a period of three years following vesting.
Annual bonus and PSP awards may be subject to clawback in the event of:
• Material misstatement of financial or other data
• Gross misconduct (includes inappropriate conduct by a participant and behaviour which fails to reflect the Company’s
governance and business values)
• Fraud effected by or with the knowledge of the participant
Malus provisions have applied to the annual bonus and PSP since FY2015. The circumstances to which malus is to apply have
however been expanded for FY2016. The Committee has the discretion to reduce or withhold an award in circumstances
including (but not limited to):
• Material misstatement of financial or other data
• Gross misconduct (includes inappropriate conduct by a participant and behaviour which fails to reflect the Company’s
governance and business values)
• Fraud effected by or with the knowledge of the participant
77
Debenhams plc Annual Report & Accounts 2015Governance 40-85 THE ANNUAL REPORT
ON REMUNERATION
CONTINUED
THE DEBENHAMS RETAIL EMPLOYEE TRUST 2004
The Debenhams Retail Employee Trust 2004 (“the Trust“) currently holds 273,537 shares in the Company. Any shares
allocated under the Debenhams 2008 Share Incentive Plan (a plan for employees who are not executive directors) are
held by the Trust. 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
Association guidelines on shareholder dilution.
Current levels of shareholder dilution are FY2015: 1.03% (FY2014: 0.70%) of share capital.
WHAT DID NON-EXECUTIVE DIRECTORS EARN IN RESPECT OF FY2015 AND FY2014? (AUDITED)
The table below sets out the fees payable to each director not performing an executive function in respect of FY2015
and FY2014.
2015
2014
Fees
Benefits
Total
Fees
Benefits
Total
Nigel
Northridge
Dennis
Millard
Terry
Duddy1
Peter
Fitzgerald
Stephen
Ingham
Non-executive Chairman,
chairman of Nomination
Committee, member of
Remuneration Committee
Senior Independent Director,
chairman of Remuneration
Committee, member of Audit
and Nomination Committees
£175,000
£65,000
Member of Remuneration, Audit
and Nomination Committees
£18,574
Member of Audit Committee
£42,500
Member of Remuneration
Committee
£42,500
Martina King Chairman of sustainability
£55,000
committee, member of
Remuneration, Audit and
Nomination Committees
Mark Rolfe
Chairman of Audit Committee,
member of Remuneration and
Nomination Committees
£55,000
Sophie
Turner Laing2
Member of Remuneration, Audit
and Nomination Committees
£43,542
1 Terry Duddy was appointed to the board on 10 April 2015.
2 Sophie Turner Laing stepped down from the board on 31 July 2015.
–
–
–
–
–
–
–
–
£175,000
£175,000
£65,000
£65,000
£18,574
–
£42,500
£42,500
£42,500
£42,500
£55,000
£55,000
£55,000
£55,000
£43,542
£47,500
–
–
–
–
–
–
–
–
£175,000
£65,000
–
£42,500
£42,500
£55,000
£55,000
£47,500
Non-executive directors do not participate in the annual bonus plan or any long-term incentive plans.
78
Debenhams plc Annual Report & Accounts 2015 The total interests of the Chairman and non-executive directors in the share capital of the Company as at 29 August 2015
are shown below.
Director
Nigel Northridge
Terry Duddy (appointed to the board on 10 April 2015)
Peter Fitzgerald
Stephen Ingham
Martina King
Dennis Millard
Mark Rolfe
Sophie Turner Laing (stepped down from the board on 31 July 2015)
The information in the table above is audited.
Note:
1 Shareholding as at 31 July 2015.
Ordinary
shares
held at
30 August
2014
100,000
–
–
–
10,000
69,455
30,000
20,000
Ordinary
shares
held at
29 August
2015
100,000
40,000
–
–
10,000
69,455
30,000
20,0001
Ordinary
shares
held at
22 October
2015
100,000
40,000
–
–
10,000
69,455
30,000
20,000
Implementation of non-executive director remuneration policy in FY2016
There were no changes to non-executive directors’ fees with effect from 1 September 2015.
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, Terry Duddy, Stephen Ingham, Martina King and
Mark Rolfe 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
Terry Duddy (appointed 10 April 2015)
Independent non-executive director
Stephen Ingham
Martina King
Nigel Northridge
Mark Rolfe
Independent non-executive director
Independent non-executive director
Independent non-executive Chairman
Independent non-executive director
Sophie Turner Laing (stepped down
as a member on 31 July 2015)
Independent non-executive director
Number of meetings held
and attended during the
year (of those eligible
to attend)
2/2
0/0
2/2
2/2
2/2
2/2
2/2
79
Debenhams plc Annual Report & Accounts 2015Governance 40-85 THE ANNUAL REPORT
ON REMUNERATION
CONTINUED
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.
The Committee’s main activities during the year
• Approved the directors’ remuneration report for 2014
• Reviewed performance against targets for the executive directors’ 2015 bonuses
• Approved the executive directors’ 1.5% pay increase
• Reviewed performance against targets for the executive directors’ 2012 PSP awards
• Reviewed the executive remuneration strategy for 2016
• Approved the executive directors’ bonus plan for 2016
• Evaluated the performance of the Committee and that of the remuneration consultants
Performance evaluation of the Committee
This year’s evaluation of the Committee was conducted by the Company Chairman and it was concluded that the
Committee continues to be effective and has the correct composition.
Advisors to the Committee
In performing its duties, the Committee has received advice from Deloitte LLP (“Deloitte”) which 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 £11,500.
Deloitte is one of the founding members of the Remuneration Consulting Group. The Committee has been fully briefed on
Deloitte’s compliance 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 share schemes, 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.
80
Debenhams plc Annual Report & Accounts 2015 During the year, the Committee undertook an evaluation of its advisors and concluded that the advice received from the
advisors is independent, straightforward, relevant and appropriate. The Committee has an appropriate level of access to
them and has confidence in their advice.
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:
2014 directors’ remuneration policy report
2014 annual remuneration report
For
Against
98.65%
99.79%
1.35%
0.21%
289,364 and 522,227 votes were withheld in relation to the policy report and annual remuneration report
resolutions respectively.
On behalf of the board
DENNIS MILLARD
CHAIRMAN,
REMUNERATION COMMITTEE
22 OCTOBER 2015
81
Debenhams plc Annual Report & Accounts 2015Governance 40-85 DIRECTORS’ REPORT
As required by the Companies Act
2006, the directors’ report of
Debenhams plc for the year ended
29 August 2015 is comprised of these
pages 82 to 84 and the information
found in the sections of the annual
report as detailed in the table
opposite, all of which are incorporated
into this report by reference.
The content of the directors’ report has
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 29 August 2015 was £93.5 million
(2014: £87.2 million). The directors
recommend the payment of a final
dividend of 2.4 pence per ordinary
share, to be paid on 22 January 2016 to
members on the register at the close
of business on 4 December 2015. 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 period ended
29 August 2015 and unless otherwise
stated at the date of this annual report:
Nigel Northridge
Michael Sharp
Matt Smith (appointed 26 January 2015)
Suzanne Harlow
Dennis Millard
Terry Duddy (appointed 10 April 2015)
Peter Fitzgerald
Stephen Ingham
Martina King
Mark Rolfe
Sophie Turner Laing
(resigned 31 July 2015)
The membership of the board and
biographical details of the directors
are given on pages 42 and 43. The
business of the Company is managed
82
Information
Location in annual report
Review of the business, principal
risks and uncertainties and KPIs
Market context, Chief Executive’s report,
KPI’s, risk review
Strategy
Business model and strategy, strategy
in action
Business model
Business model and strategy
Future business developments
Chief Executive’s report, strategy in action
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
Resources, relationships and sustainability
Gender diversity of the board
Resources, relationships and sustainability
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
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 the board
resolves that his/her office be vacated;
or (v) receives a notice signed by not
less than three quarters of the other
directors stating that the 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 themselves either for election,
in the case of Matt Smith and Terry
Duddy, or for re-election, in the case
of all other directors. An internal
evaluation of the performance of each
director, the board and its Committees
has been carried out and the results
were positive, confirming that each of
the directors continues to be effective
and demonstrate commitment to his
or her role and that the board and its
committees are operating well and
effectively. Information on the
evaluation and its outcome is on pages
48 and 49 of the corporate governance
report.
In addition to the indemnity provisions in
their Articles of Association, the Company
and the 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
Debenhams plc Annual Report & Accounts 2015 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.
MAJOR SHAREHOLDERS
In accordance with Listing Rule 9.8.6(2), the
following investor interests have been
disclosed to the Company pursuant to the
Disclosure and Transparency Rules as at
29 August 2015. This information was
correct at the date of notification. It should
be noted that these holdings may have
changed since notified to the Company.
Notification of any changes is not required
until the next applicable threshold is crossed.
Shareholder
Schroders plc
Milestone Resources Group Ltd
LSV Asset Management
Old Mutual
Brandes Investment Partners
JP Morgan Asset Management
BlackRock Inc
Norges Bank
Number
of shares
Percentage
of issued
share capital
159,058,694
12.96%
92,652,075
57,470,249
55,461,954
48,428,810
41,481,558
40,626,206
36,848,505
7.55%
4.68%
4.52%
3.95%
3.38%
3.31%
3.00%
Sports Direct International plc has an interest in 128,927,113 shares, representing
10.51% of the issued share capital, via put option contracts expiring in October/
November 2016
The following notifications have been received since 29 August 2015 and up to
21 October 2015:
Date of notification
Shareholder
Number
of shares
Percentage
of issued
share capital
31 August 2015
14 September 2015
17 September 2015
18 September 2015
22 September 2015
Norges Bank
36,807,390
Below 3%
ING Groep N.V.
67,515,686
BlackRock Inc
61,477,530
ING Groep N.V.
40,515,686
5.50%
5.01%
3.30%
BlackRock Inc
N/A
Below 5%
SHARE CAPITAL
As at 29 August 2015 the issued share
capital of the Company was
1,227,166,813 ordinary shares of 0.01
pence each and 59,685,727 ordinary
shares of 0.01 pence each were held in
Treasury. In addition to the shares
trading on the London Stock Exchange,
the Company operates a level 1
American depositary receipt
programme. Each American depositary
share represents four ordinary shares of
0.01 pence each. 1,022,994 treasury
shares were transferred out of treasury
during the year to satisfy awards
granted under the Company’s
Performance Share Plan.
At the December 2014 Annual General
Meeting, shareholders authorised the
Company to purchase up to 122,613,472
ordinary shares in the market. Although
this authority was not utilised by the
Company during the last financial
year, 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 directors
have no present intention of exercising
the authority to purchase the
Company’s ordinary shares. The
authority will be exercised only if the
directors believe that to do so would
result in an increase in earnings per
share and would be likely to promote
the success of the Company for the
benefit of its shareholders as a whole.
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.
As at 29 August 2015, the Debenhams
Retail Employee Trust 2004 (“the
Trust”) holds 273,537 ordinary shares
in the Company (0.02%). 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.
83
Debenhams plc Annual Report & Accounts 2015Governance 40-85 DIRECTORS’ REPORT
CONTINUED
SIGNIFICANT AGREEMENTS
There are a number of agreements that
take effect, alter or terminate upon a
change of control of the Company
following a takeover bid. Details of the
significant agreements of this kind
are as follows:
• The multi-currency revolving credit
facility dated 18 June 2014 contains a
provision for mandatory prepayment
on no less than 45 days’ prior notice
to the Company.
• The terms and conditions of the 5.25%
senior notes due 2021 contain a
provision that enables holders of the
notes to require the Company to make
an offer to repurchase all of the notes
at a price equal to 101% of the
principal amount thereof, plus any
accrued unpaid interest.
• The Company’s Performance Share
Plan and its Executive Share Option
Plan contain provisions regarding
change of control. Awards under the
plans may vest on a change of control,
subject to the satisfaction of any
relevant performance conditions.
Other than the provisions of the
Company’s share plans, 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 68 of the directors’
remuneration report.
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,
84
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.
DISCLOSURE OF INFORMATION
TO AUDITORS
Each of the directors of the Company
at the time when the directors’ report
was approved confirms that:
FINANCIAL INSTRUMENTS
Debenhams does not enter into
financial instruments for speculative
trade. Details of financial instrument
entered into for underlying risks are
set out in note 22 to the financial
statements on pages 124 to 125.
Information regarding the Group’s
financial risk management policies is
set out in note 21 to the financial
statements on page 121.
EVENTS SINCE YEAR END
Since year end Debenhams has
opened an International franchise
store in Iran and two UK stores in
Rugby and Wandsworth.
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
Conduct 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 55 and risk review on pages 20
and 21 and are therefore incorporated
into this report by reference.
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 the
Wellcome Collection, 183 Euston Road,
London NW1 2BE on 14 January 2016 at
2.00pm. The Notice is given, together
with explanatory notes, in the booklet
which accompanies this report.
This directors’ report was approved
by a duly appointed and authorised
committee of the board of Directors
on 21 October 2015 and signed on
behalf by:
PAUL EARDLEY
COMPANY SECRETARY
22 OCTOBER 2015
Debenhams plc Annual Report & Accounts 2015 STATEMENT
OF DIRECTORS’
RESPONSIBILITIES
The directors are responsible for
preparing the annual report, the
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
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 strategic report contained in
this report includes a fair view 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
22 OCTOBER 2015
MATT SMITH
CHIEF FINANCIAL OFFICER
22 OCTOBER 2015
85
Debenhams plc Annual Report & Accounts 2015Governance 40-85 INDEPENDENT AUDITORS’ REPORT TO THE
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF DEBENHAMS PLC (GROUP)
MEMBERS OF DEBENHAMS PLC (GROUP)
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 29 August 2015 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
The financial statements, included within the Annual Report & Accounts (“the annual report”), comprise:
• The Consolidated Balance Sheet as at 29 August 2015;
• The Consolidated Income Statement and the 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, 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
Materiality
Audit scope
Areas of
focus
Overall Group materiality: £5.6 million which represents 5% of profit before tax.
Debenhams plc consists two operating segments – UK and International. Within these
two operating segments there are eight reporting units (excluding dormant entities),
of which five are considered to be significant to the Group.
We performed full scope audits on the five significant reporting units (Debenhams Retail plc,
Debenhams Properties Limited, Debenhams Retail (Ireland) Limited, Debenhams plc and
Aktieselskabet Th. Wessel & Vett Magasin du Nord (”Magasin du Nord”)).
The entities where we performed full scope audits accounted for 100% of retail revenue
and 100% of profit before tax.
• 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 impairment assessment.
• Defined benefit pension plans.
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86 Debenhams plc Annual Report & Accounts 2015
Debenhams plc Annual Report & Accounts 2015
i
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1
-
3
7
G
o
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3
8
-
5
8
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 was evidence of
bias by the directors that represented 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. We have also set out how we tailored our audit to
address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments
we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified
by our audit.
How our audit addressed the area of focus
For both retail and franchise revenue we agreed material
manual journal entry adjustments made to revenue to
supporting documentation. Our work did not identify any
significant unexpected or unsupported adjustments.
In Magasin du Nord, the system design was such that,
rather than manually trace the journal entries to supporting
documentation, we were able to use data auditing
techniques to trace revenue transactions through the
expected transaction flow and to highlight unexpected
transactions needing further investigation. Our review
of transactions did not highlight any significant
unexpected items.
In addition, for franchise revenue, we tested a sample of
sales transactions back to supporting documentation such
as cash receipts or purchase orders and goods despatched
notes to ascertain the point at which the revenue should
be recorded and to make sure it is in the correct period.
Our testing noted that Debenhams is entitled to recognise
sales on despatch of the goods in line with the franchise
agreements, and all items tested had been despatched
in advance of the year end. We also obtained confirmation
of year end accounts receivable balances with no material
issues noted.
Area 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
See note 2 to the financial statements for the directors’
disclosures of the related revenue recognition accounting
policy and page 54 for the views of the Audit Committee.
The Group’s revenue relates to both retail trading and
trading with franchise partners.
Retail revenue comprises high volume, low value cash or
credit/debit card transactions where the principal risk of
fraud and manual error comes from the ability to
manipulate the results through posting manual journals
outside of the standard automated transaction flow and
therefore not subject to the main controls over revenue.
The Group uses manual journals to post accounting
adjustments including adjusting concessions sales so
as to remove the element of the sale that is due to the
concession partner; for deferral of revenue where sale of
goods online are not yet dispatched at the year end, and
adjustments for staff discounts and refund provisions.This
risk is applicable to Debenhams Retail plc, Debenhams
Retail (Ireland) Limited and Magasin du Nord as these are
the only reporting units which generate retail revenue.
Franchise revenue comprises revenue from the sale of
inventory to franchise partners for sale in overseas
franchise stores and franchise fees for the use of the
Debenhams brand by overseas franchise partners. The
principal risk of fraud and manual error in franchise
revenue comes from manual journals as noted above.
There is also a risk that management could materially
manipulate franchise revenue figures through forcing
sales or invoicing the franchises in the incorrect period
artificially inflating revenue for the current year. Franchise
sales are only recognised in Debenhams Retail plc.
Debenhams plc Annual Report & Accounts 2015 87
87
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
INDEPENDENT AUDITORS’ REPORT TO THE
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF DEBENHAMS PLC (GROUP)
MEMBERS OF DEBENHAMS PLC (GROUP)
CONTINUED
CONTINUED
Area of focus
Inventory valuation using the retail method and
provisioning for out of season inventory
Refer to page 54 (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.
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 relies on a number
of inputs including selling price, assumed margin and
quantity. The methodology is also impacted by the timing
of processing markdowns which could significantly affect
gross margin. Due to differences in the systems used,
inventory in Magasin du Nord is valued using a cost
based method which is less complex and therefore
this risk is not applicable to that reporting unit.
Furthermore, the ongoing pressure on consumer
spending within the retail sector continues to create
competition on the high street, especially in non-essential
categories such as fashion. This could put pressure on the
level of out of season stock identified for markdown within
the Group. As such there is a risk that the realisable value
of inventory will be lower than its recorded cost. This risk
is relevant to Debenhams Retail plc, Debenhams Retail
(Ireland) Limited and Magasin du Nord as these are the
only reporting units that hold inventory.
How our audit addressed the area of focus
Due to the reliance management places on the various
stock systems used within the Group, we evaluated the IT
controls over the relevant systems and tested the internal
controls over the inventory valuation process including the
process of recording inventory on receipt and agreement
of inventory invoices to proof of receipt and purchase
orders. This work gave us assurance over the processing
of the inputs into management’s margin calculations which
are the basis of the inventory valuation.
We also tested interfaces between the Group’s systems
to ensure that sales prices used in the valuation were
consistent with those prices in the store till system.
Our testing did not note any issues between systems.
We obtained evidence over the quantities of inventory
through assessing the Group’s controls by attending a
sample of inventory counts at stores and distribution
centres and reviewing the results of those not attended.
No significant issues were noted regarding existence or
accuracy of inventory.
We reviewed departmental level margins against the
prior year margins for unusual fluctuations, with none
being identified.
We also assessed the level of out of season inventory at
the year end, including testing management’s controls
in relation to classifying inventory 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 check the reasonableness of the
judgement involved in the markdown provisions applied to
the year end inventory valuation. Our testing noted that the
controls in place were operating effectively for the purposes
of our audit and no unusual patterns were noted through
examining post year end markdowns.
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88 Debenhams plc Annual Report & Accounts 2015
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Area of focus
Goodwill and store asset impairment assessment
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 notes 13 & 14 for further details on
the impairment test.
The UK retail market continues to evolve rapidly, with
customers’ purchasing habits adapting to include online
offerings and other convenience options, and there is a
risk that this could impact the recoverable value of assets
used within the store portfolio.
Management considers each store to be a cash-
generating unit (“CGU”) and has performed a discounted
cash flow impairment assessment at CGU level to ensure
that the store assets are supported by its expected future
cash flows.
We focused on this area because of the significant
carrying value of store assets within the Group and the
judgement used in management’s impairment assessment
including assumptions over future growth rates and
discount rate.
The Group balance sheet also includes £818 million
goodwill which relates primarily to the acquisition in
December 2003 of the Debenhams Group by Debenhams
plc. Management’s assessment of the store portfolio as
detailed above is used to form the basis of the goodwill
impairment review and is therefore subject to the same
assumptions as the store impairment review above.
We focused on this area due to the changes noted in the
retail market as detailed above.
Defined benefit pension plans
Refer to note 5 to the financial statements 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 £795.8 million and total
pension liabilities of £769.6 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.
How our audit addressed the area of focus
We tested that the impairment models used by
management for both goodwill and store impairment
were mathematically correct with no issues noted.
We challenged the directors on the inputs into their
impairment assessment calculations, including:
• The directors’ key assumptions for short-term sales
growth rates (from 0.0% to 4.0%), by comparing them to
historical results and the prospects for the stores, business
and industry and noted that the rates used do not appear
to be unreasonable;
• The directors’ key assumptions for long-term sales growth
rates of 2.0%, by comparing this to historical results, and
economic and industry forecasts and note that the rates
used in management’s calculations were in line with this
data; and
• The discount rate (post tax rate 7.5%), by assessing
the cost of capital for the Group and comparable
organisations, forming a view of risk premiums as
appropriate. Having performed this assessment we
believe this is an appropriate discount rate.
Having challenged these assumptions, we focused further
discussions with management on stores where there were
low profit margins or little headroom in the impairment
assessment, and as such we considered the risk of
impairment to be greater. For those stores that were
identified as higher risk, we understood management’s
support for the carrying value of store assets and agreed
that the carrying value was appropriate.
We also performed sensitivity analysis on the key
assumptions including the short-term growth rates and
discount rates as these are the key assumptions in the
impairment model and noted that whilst the calculations are
most sensitive to changes in short-term growth rates, there
is sufficient headroom for this not to result in impairments
being required.
We found, based on our audit work, that the key
assumptions used by management were supportable and
appropriate in light of the current environment.
We evaluated the pension liability assumptions, including
discount rates, salary increases, inflation and mortality,
utilising our internal actuarial specialists. We considered
and challenged the reasonableness of the actuarial
assumptions comparing the discount and inflation rates
used to our internally developed benchmark ranges, finding
them to be within an acceptable range.
Both plans are closed to new entrants; the accuracy of
census data used to calculate the liability at the date of
each triennial valuation was tested by agreeing a sample
of individuals’ details to the Group’s personnel records.
Debenhams plc Annual Report & Accounts 2015 89
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
INDEPENDENT AUDITORS’ REPORT TO THE
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF DEBENHAMS PLC (GROUP)
MEMBERS OF DEBENHAMS PLC (GROUP)
CONTINUED
CONTINUED
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: UK and International. These operating segments consist of eight
reporting units (excluding dormant entities).
Our audit approach was based on the underlying reporting units within the two operating segments. We considered
there to be five financially significant reporting units – Debenhams Retail plc, Debenhams Properties Limited,
Debenhams Retail (Ireland) Limited, Debenhams plc and Magasin du Nord.
The five financially significant reporting units were audited by the UK Group team with the exception of Magasin du
Nord which was audited by PwC Denmark as component auditor operating under our instruction. Audit work was
performed over the consolidation process and tax at a consolidated Group level.
Where the work was performed by the component auditor, we determined the level of involvement we needed to have
in their audit work to be able to conclude whether sufficient audit evidence had been obtained as a basis for our opinion
on the Group financial statements as a whole. As part of our year end procedures, we held detailed discussions with the
Magasin du Nord component audit team including update calls on the progress of their fieldwork and attending the
clearance meeting with management by conference call.
The reporting units where we performed full scope audit work accounted for 100% of retail revenue and 100% of Group
profit before tax.
Materiality
The scope of our audit was 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 on the individual financial statement line items and disclosures and
in evaluating 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
£5.6 million (2014: £5.5 million).
How we determined it
5% of profit before tax.
Rationale for benchmark applied We believe that profit before tax is the primary measure used by the shareholders in
assessing the performance of the Group, and is a generally accepted auditing
benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£500,000 (2014: £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 84, 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.
90
90 Debenhams plc Annual Report & Accounts 2015
Debenhams plc Annual Report & Accounts 2015
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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 risk management systems 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
We have no exceptions
to report arising from
this responsibility.
the Group acquired in the course of performing our audit; or
• otherwise misleading.
• the statement given by the directors on page 85, 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.
We have no exceptions
to report arising from
this responsibility.
• the section of the annual report on pages 52 to 55, 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.
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
10 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 85, 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.
Debenhams plc Annual Report & Accounts 2015 91
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
INDEPENDENT AUDITORS’ REPORT TO THE
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF DEBENHAMS PLC (GROUP)
MEMBERS OF DEBENHAMS PLC (GROUP)
CONTINUED
CONTINUED
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 29 August 2015
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
22 OCTOBER 2015
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92 Debenhams plc Annual Report & Accounts 2015
Debenhams plc Annual Report & Accounts 2015 CONSOLIDATED INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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
Note
3, 4
6
8
9
9
10
Profit for the financial year attributable to owners of the parent
Earnings per share attributable to owners of the parent (expressed in pence per share)
52 weeks
ended
29 August
2015
£m
2,322.7
(2,023.5)
52 weeks
ended
30 August
2014
£m
2,312.7
(2,033.4)
299.2
(111.1)
(54.0)
134.1
0.2
(20.8)
(20.8)
–
113.5
(20.0)
93.5
279.3
(98.5)
(52.2)
128.6
0.6
(23.4)
(18.9)
(4.5)
105.8
(18.6)
87.2
Basic earnings per share attributable to owners of the parent
Diluted earnings per share attributable to owners of the parent
Pence
per share
Pence
per share
12
12
7.6
7.6
7.1
7.1
93 Debenhams plc Annual Report & Accounts 2015
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
CONSOLIDATED STATEMENT OF
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
Profit for the financial year
Other comprehensive income/(expense)
Items that will not be reclassified to the income statement
Remeasurements of pension schemes
Taxation relating to items that 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
Gains/(losses) 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 income/(expense)
Total comprehensive income for the financial year
Note
23
10
15
9
21
10
52 weeks
ended
29 August
2015
£m
93.5
52 weeks
ended
30 August
2014
£m
87.2
17.8
(3.6)
14.2
(5.2)
(1.5)
39.2
1.6
(8.7)
(6.7)
18.7
32.9
126.4
8.8
(1.6)
7.2
(4.2)
2.5
(24.9)
2.7
8.1
3.0
(12.8)
(5.6)
81.6
94 Debenhams plc Annual Report & Accounts 2015
94
Debenhams plc Annual Report & Accounts 2015
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
As at 29 August 2015
As at 29 August 2015
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
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£m
30 August
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£m
Note
13
14
15
22
17
23
24
16
17
22
18
20
22
19
26
20
22
24
25
26
23
27
27
931.5
675.3
2.1
12.1
14.9
26.2
20.8
1,682.9
331.6
78.0
17.4
32.7
459.7
(155.4)
(1.3)
(523.6)
(9.0)
(6.4)
(695.7)
(236.0)
(197.1)
(1.1)
(54.8)
(340.6)
–
–
(593.6)
853.3
0.1
682.9
1,200.9
(1,199.9)
17.9
(16.5)
167.9
853.3
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
The financial statements on pages 93 to 137 were approved by the board on 22 October 2015 and were signed on its
behalf by:
MATT SMITH
CHIEF FINANCIAL OFFICER
Debenhams plc Annual Report & Accounts 2015 95
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
CONSOLIDATED STATEMENT
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
OF CHANGES IN EQUITY
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
Share
capital and
share
premium
account
£m
Note
Merger
reserve
£m
Reverse
acquisition
reserve
£m
683.0
1,200.9
(1,199.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
683.0
1,200.9
(1,199.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28
27
11
28
11
Hedging
reserve
£m
Other
reserves
£m
Retained
earnings
£m
3.2
–
(7.7)
–
64.9
87.2
Total
equity
£m
744.4
87.2
(11.1)
(1.7)
7.2
(5.6)
(11.1)
(1.7)
94.4
81.6
–
–
–
–
–
–
–
–
(7.9)
–
(9.4)
–
(1.8)
(15.1)
(41.7)
(58.6)
100.7
93.5
(1.8)
(15.1)
(41.7)
(58.6)
767.4
93.5
25.8
(7.1)
14.2
32.9
25.8
(7.1)
107.7
126.4
–
–
–
–
–
–
–
–
1.1
0.1
1.1
0.1
(41.7)
(41.7)
(40.5)
(40.5)
683.0 1,200.9 (1,199.9)
17.9
(16.5)
167.9
853.3
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
Total transactions with
owners
Balance at 30 August 2014
Profit for the financial year
Other comprehensive
income/(expense) for the
financial year
Total comprehensive
income/(expense) for the
financial year
Share-based payment charge
Unallocated dividends
Dividends paid
Total transactions
with owners
Balance at
29 August 2015
For a description of other reserves see note 27.
96 Debenhams plc Annual Report & Accounts 2015
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CONSOLIDATED CASH FLOW STATEMENT
CONSOLIDATED CASH FLOW STATEMENT
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
Cash flows from operating activities
Cash generated from operations
Finance income
Finance costs
Tax received/(paid)
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Issue of senior notes
Repurchase of senior notes
(Repayment)/drawdown of revolving credit facility
Repayment of term loan and revolving credit facilities
Settlement of term loan facility
Purchase of treasury shares
Dividends paid
Finance lease payments
Debt issue costs
Net cash used in financing activities
Note
30
20
20
20
20
11
Net (decrease)/increase in cash and cash equivalents
Net cash and cash equivalents at beginning of financial year
Foreign exchange losses on cash and cash equivalents
Net cash and cash equivalents at end of financial year
31
52 weeks
ended
29 August
2015
£m
52 weeks
ended
30 August
2014
£m
236.3
0.1
(19.4)
1.1
218.1
(79.6)
(54.0)
0.2
240.5
1.2
(14.3)
(20.6)
206.8
(102.3)
(25.7)
–
(133.4)
(128.0)
–
(24.8)
(65.0)
–
–
–
(41.7)
(3.3)
0.2
(134.6)
(49.9)
64.4
(0.1)
14.4
225.0
–
200.0
(410.7)
13.3
(15.1)
(41.7)
(2.2)
(7.1)
(38.5)
40.3
24.1
–
64.4
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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”) are the sale of fashion clothing and accessories,
cosmetics and products for use in the home. The Group has a multi-channel offer, trades from department stores
in the UK, the Republic of Ireland and Denmark, trades online 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 29 August 2015 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.
Basis of preparation
The consolidated financial statements have been prepared on the going concern basis and in accordance with
International Financial Reporting Standards (“IFRSs”) 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 29 August 2015 and 30 August 2014 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 IFRSs, requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts 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 control. The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to
the Group. 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 settled 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.
98 Debenhams plc Annual Report & Accounts 2015
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Supplier income recognition
The Group receives income from its suppliers, mainly in the form of settlement discounts, volume-based rebates and
marketing and advertising income. Supplier income is recognised as a deduction from cost of sales, based on the
expected entitlement that has been earned up to the balance sheet date. The Group only recognises supplier income
where there is documented evidence of an agreement with a supplier.
Settlement discounts are recognised on receipt of the invoice, provided that the invoice will be settled in accordance
with the agreed terms. Volume-based rebates are earned based on purchase or sales triggers over specific periods, such
as the number of units sold to customers or purchased from the supplier. Volume-based rebates are recognised once
the Group has a contractual entitlement to the income, income can be estimated reliably and it is probable that it will
be received. Marketing and advertising income includes markdown or marketing support provided by suppliers and is
agreed with suppliers for specified periods and products.
A proportion of the Group’s trading terms state that income due from suppliers will be netted against amounts owing
to that supplier. Any outstanding invoiced supplier income relating to these suppliers at the balance sheet date will
be deducted from trade payables. Where these trading terms do not exist, the Group classifies outstanding supplier
income within trade receivables. Where supplier income is earned and not invoiced to the supplier at the balance sheet
date, this is classified within prepayments and accrued income.
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 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 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.
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
2 Accounting policies continued
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, or 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.
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, with the exception of foreign
exchange gains and losses that relate to intercompany loans classed as permanent equity which are recognised in other
comprehensive income. 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 substantively 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.
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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.
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 “Business combinations” revised.
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%
Debenhams plc Annual Report & Accounts 2015 101
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
2 Accounting policies continued
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.
Property, plant and equipment
Property, plant and equipment are held at historical 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
Not depreciated
1.0%
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
Retail fixtures and fittings
Office equipment
Computer equipment
Vehicles
Life of lease
4.0% to 25.0%
10.0% to 12.5%
10.0% to 33.3%
20.0%
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.
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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.
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.
Debenhams plc Annual Report & Accounts 2015 103
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
2 Accounting policies continued
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.
Derivatives
Derivatives comprise interest rate swaps and forward foreign currency 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 foreign currency 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 cost of sales or 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.
New standards and interpretations
The following standards and 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 IAS 27 (2011) “Separate financial
statements” and IAS 28 (2011) “Investments in associates and joint ventures”.
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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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 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 29 August 2015
Gross transaction value
Concessions, consignments and staff discounts
External revenue
Operating profit
Other segment items
‒ Depreciation
‒ Amortisation
Financial year ended 30 August 2014
Gross transaction value
Concessions, consignments and staff discounts
External revenue
Operating profit
Other segment items
‒ Depreciation
‒ Amortisation
UK
£m
International
£m
Total
£m
2,323.5
(401.2)
1,922.3
101.7
536.6
(136.2)
400.4
32.4
2,860.1
(537.4)
2,322.7
134.1
80.9
14.9
6.8
1.6
87.7
16.5
2,275.3
(373.2)
1,902.1
96.3
78.9
11.7
548.6
(138.0)
410.6
32.3
8.6
1.6
2,823.9
(511.2)
2,312.7
128.6
87.5
13.3
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
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
29 August
2015
£m
30 August
2014
£m
134.1
0.2
(20.8)
–
113.5
29 August
2015
£m
1,922.3
174.7
126.0
99.7
128.6
0.6
(18.9)
(4.5)
105.8
30 August
2014
£m
1,902.1
175.8
135.5
99.3
2,322.7
2,312.7
Debenhams plc Annual Report & Accounts 2015 105
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Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
3 Segmental reporting continued
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
29 August
2015
£m
1,561.2
22.1
23.1
0.4
30 August
2014
£m
1,532.9
23.1
25.6
0.4
1,606.8
1,582.0
Additions to property, plant and equipment and intangible assets analysed by operating segment are set out below:
Financial year ended 29 August 2015
Financial year ended 30 August 2014
UK
£m
International
£m
125.0
109.1
8.0
9.8
Total
£m
133.0
118.9
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 (“GTV”), 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 GTV to external revenue is included in note 3.
29 August
2015
£m
2,860.1
30 August
2014
£m
2,823.9
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.
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.
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Retirement benefits
The Group’s defined benefit schemes’ pension surplus/obligation, 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.
The Group recognises deferred tax assets and liabilities based on the best estimate at the balance sheet date. Where
the final tax outcome 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 may give rise to
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
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
29 August
2015
£m
30 August
2014
£m
10.1
1,164.7
10.4
1,165.0
87.7
16.5
0.3
213.9
(5.7)
0.4
87.5
13.3
1.4
216.3
(1.3)
0.5
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
Other non-audit services
29 August
2015
£m
30 August
2014
£m
0.2
0.1
0.1
0.2
0.1
0.2
Other non-audit services for the financial year ended 30 August 2014 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.
Debenhams plc Annual Report & Accounts 2015 107
107
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
7 Employees
Wages and salaries
Social security costs
Other pension costs (note 23)
Share-based payments (note 28)
Employment costs
Average monthly number of employees (including key management):
‒ Full time
‒ Part time
Total
29 August
2015
£m
30 August
2014
£m
344.7
21.7
15.1
1.1
382.6
334.4
20.5
16.1
(1.8)
369.2
Number
Number
7,895
20,232
28,127
7,802
20,431
28,233
Information concerning directors’ remuneration, shares and share interests is included in the directors’ remuneration
report on pages 56 to 81, which forms part of these financial statements.
Key management compensation
Short-term employee benefits
Post-employment benefits
Share-based payments
29 August
2015
£m
30 August
2014
£m
3.6
0.5
0.6
4.7
3.5
0.5
(1.2)
2.8
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
(2014: 15 members).
8 Finance income
Interest on bank deposits
Net interest on net defined benefit pension schemes liability (note 23)
Other financing income
29 August
2015
£m
30 August
2014
£m
0.1
0.1
–
0.2
0.2
–
0.4
0.6
108 Debenhams plc Annual Report & Accounts 2015
108
Debenhams plc Annual Report & Accounts 2015
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 13,14)
Non-recurring finance costs
Unamortised issue costs written off on repayment of term loan and
revolving credit facilities (note 20)
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 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 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 (note 24)
Taxation charge for the financial year
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8
-
5
8
29 August
2015
£m
30 August
2014
£m
5.3
11.4
1.6
1.6
0.2
–
1.4
(0.7)
20.8
10.9
1.9
2.7
2.0
0.2
0.6
1.2
(0.6)
18.9
–
4.5
29 August
2015
£m
30 August
2014
£m
3.4
(2.5)
0.9
19.4
(0.1)
(0.2)
–
19.1
20.0
7.7
(0.8)
6.9
13.0
(0.4)
0.1
(1.0)
11.7
18.6
Debenhams plc Annual Report & Accounts 2015 109
109
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
10 Taxation continued
The effective tax rate for the financial year is lower at 17.6% (2014: 17.6%) than the rate of corporation tax in the UK of
20.6% (2014: 22.2%). The differences are explained below:
Profit before taxation
Profit on ordinary activities at standard rate of corporation tax in the UK of 20.6%
(2014: 22.2%)
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
29 August
2015
£m
113.5
30 August
2014
£m
105.8
23.4
(0.2)
0.5
(1.8)
1.5
(0.6)
(2.8)
20.0
23.5
(0.7)
1.1
(3.7)
1.7
(2.6)
(0.7)
18.6
The Finance Act 2013 (‘the 2013 Act”) included legislation reducing the main rate of corporation tax from 21.0% to
20.0% from 1 April 2015.
The reduction in the corporation tax rate enacted in the 2013 Act has had no effect on the net deferred tax liability
recognised at 30 August 2014 (31 August 2013: net deferred tax asset decreased by £1.0 million).
One of the Group’s UK subsidiaries, Debenhams Retail plc, 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 the Republic of 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. On 1 September 2013 Debenhams Properties Limited changed its reporting framework from UK
GAAP to FRS 101 which resulted in a temporary reduction in the current taxation charge in the financial year ended
30 August 2014.
In addition to the amount charged to the income statement, taxation movements recognised in 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
Currency translation differences
Gains/(losses) 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 charge/(credit) in other comprehensive income
110 Debenhams plc Annual Report & Accounts 2015
110
29 August
2015
£m
30 August
2014
£m
(2.2)
(2.3)
5.8
3.6
0.4
6.0
–
0.3
6.7
10.3
3.9
1.6
–
(5.1)
0.5
1.6
(3.0)
(1.4)
Debenhams plc Annual Report & Accounts 2015
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-
5
8
Changes to the UK corporation tax rates were announced in the Chancellor’s Budget on 8 July 2015. These include
reductions to the main rate to reduce the rate to 19.0% from 1 April 2017 and to 18.0% from 1 April 2020.
As the changes had not been substantively enacted at the balance sheet date their effects are not included in these
financial statements. The overall effect of these changes, if they had applied to the deferred tax balance at the balance
sheet date, would be to reduce the deferred tax liability by £2.5 million, reduce the deferred taxation expense for
the period by £2.4 million, and reduce the other comprehensive income statement by £0.1 million. In addition the
corporation tax liability would be reduced by £0.6 million and the current taxation expense for the period would
have been reduced by £0.6 million.
11 Dividends
Final paid 2.4 pence (2014: 2.4 pence) per £0.0001 share
‒ Settled in cash
Interim paid 1.0 pence (2014: 1.0 pence) per £0.0001 share
‒ Settled in cash
29 August
2015
£m
30 August
2014
£m
29.4
12.3
41.7
29.4
12.3
41.7
A final dividend of 2.4 pence per share (2014: 2.4 pence per share) was paid during the financial year in respect of the
financial year ended 30 August 2014, together with an interim dividend of 1.0 pence per share (2014: 1.0 pence per
share) in respect of the financial year ended 29 August 2015. The directors are recommending a final dividend in respect
of the financial year ended 29 August 2015 of 2.4 pence per share (2014: 2.4 pence per share), which will absorb an
estimated £29.4 million (2014: £29.4 million) of shareholders’ equity. It will be paid on 22 January 2016 to shareholders
who are on the register of members at close of business on 4 December 2015. 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)
29 August 2015
30 August 2014
Basic
£m
93.5
Diluted
£m
93.5
Number
m
Number
m
1,226.7
1,226.7
(0.3)
–
(0.3)
2.3
Basic
£m
87.2
Number
m
1,227.1
(0.3)
–
Diluted
£m
87.2
Number
m
1,227.1
(0.3)
1.9
Weighted average number of shares used in calculating
earnings per share
1,226.4
1,228.7
1,226.8
1,228.7
Earnings per share
Pence
per share
7.6
Pence
per share
7.6
Pence
per share
7.1
Pence
per share
7.1
Debenhams plc Annual Report & Accounts 2015 111
111
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
13 Intangible assets
Cost
At 31 August 2013
Additions
Exchange rate movement
Disposals and write-offs
At 30 August 2014
Additions
Exchange rate movement
Disposals and write-offs
At 29 August 2015
Accumulated amortisation
At 31 August 2013
Charge for the financial year
Exchange rate movement
Disposals and write-offs
At 30 August 2014
Charge for the financial year
Exchange rate movement
Disposals and write-offs
At 29 August 2015
Net book value
At 29 August 2015
At 30 August 2014
At 31 August 2013
Acquired
licences and
trademarks
£m
Internally
generated
software
£m
Purchased
software
£m
Goodwill
£m
819.0
–
(0.5)
–
818.5
–
(0.5)
–
818.0
–
–
–
–
–
–
–
–
–
818.0
818.5
819.0
7.2
–
–
–
7.2
–
–
–
7.2
3.0
0.7
–
–
3.7
0.7
–
–
4.4
2.8
3.5
4.2
Total
£m
941.2
30.0
(0.7)
(8.9)
961.6
56.0
(1.4)
(5.1)
101.3
23.6
(0.2)
(5.7)
119.0
38.3
(0.9)
(4.8)
13.7
6.4
–
(3.2)
16.9
17.7
–
(0.3)
151.6
34.3
1,011.1
52.4
10.7
(0.3)
(5.7)
57.1
13.2
(0.6)
(4.8)
64.9
86.7
61.9
48.9
9.3
1.9
–
(3.2)
8.0
2.6
–
(0.3)
10.3
24.0
8.9
4.4
64.7
13.3
(0.3)
(8.9)
68.8
16.5
(0.6)
(5.1)
79.6
931.5
892.8
876.5
Expenditure during the financial year on assets in the course of construction, included in software, was as follows:
Assets in the course of construction
29 August
2015
£m
41.4
30 August
2014
£m
15.8
Amortisation of intangible assets
Amortisation of the Group’s intangible assets has been charged to the income statement as follows:
Included within:
‒ Cost of sales
‒ Distribution costs
‒ Administrative expenses
112 Debenhams plc Annual Report & Accounts 2015
112
29 August
2015
£m
30 August
2014
£m
13.3
0.4
2.8
16.5
11.0
0.3
2.0
13.3
Debenhams plc Annual Report & Accounts 2015
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5
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Intangible assets includes within purchased software the following assets held under finance leases:
Cost
Accumulated amortisation
Net book value
29 August
2015
£m
30 August
2014
£m
3.8
(1.1)
2.7
3.8
(0.5)
3.3
Contractual commitments at 29 August 2015 were £5.4 million (2014: £nil).
Capitalised finance costs
Finance costs capitalised on qualifying assets included in additions amounted to £0.4 million (2014: £nil). Accumulated
finance costs capitalised included in the cost of intangible assets (net of disposals) amounted to £0.4 million (2014: £nil).
The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 4.4% (2014: N/A).
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. The CGUs are set out below:
Goodwill
At 29 August 2015
At 30 August 2014
UK
£m
793.5
793.5
Other
£m
24.5
25.0
Total
£m
818.0
818.5
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% (2014: 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 7.5% (2014: 7.2%) and reflects the specific risks in
the retail business. The pre-tax discount rate is 8.6% (2014: 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 29 August 2015 no impairment of goodwill has been required (2014: £nil).
Debenhams plc Annual Report & Accounts 2015 113
113
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
14 Property, plant and equipment
Land and buildings
Freehold
£m
Long
leasehold
£m
Short leasehold
fixtures and
fittings
£m
Vehicles,
fixtures and
equipment
£m
Cost
At 31 August 2013
Additions
Exchange rate movements
Disposals and write-offs
At 30 August 2014
Additions
Exchange rate movements
Disposals and write-offs
At 29 August 2015
Accumulated depreciation
At 31 August 2013
Charge for the financial year
Exchange rate movements
Disposals and write-offs
At 30 August 2014
Charge for the financial year
Exchange rate movements
Disposals and write-offs
At 29 August 2015
Net book value
At 29 August 2015
At 30 August 2014
At 31 August 2013
1.6
–
–
–
1.6
–
–
–
1.6
0.2
–
–
–
0.2
–
–
–
0.2
1.4
1.4
1.4
7.7
–
–
–
7.7
–
–
–
7.7
1.0
0.2
–
–
1.2
0.2
–
–
1.4
6.3
6.5
6.7
365.7
15.0
(1.3)
(0.7)
378.7
3.4
(1.5)
(1.6)
926.1
73.9
(5.8)
(35.0)
959.2
73.6
(6.1)
(22.8)
Total
£m
1,301.1
88.9
(7.1)
(35.7)
1,347.2
77.0
(7.6)
(24.4)
379.0
1,003.9
1,392.2
127.5
15.3
(0.4)
(0.4)
142.0
14.9
(0.4)
(1.6)
480.3
72.0
(3.8)
(33.9)
514.6
72.6
(4.5)
(22.3)
154.9
560.4
224.1
236.7
238.2
443.5
444.6
445.8
609.0
87.5
(4.2)
(34.3)
658.0
87.7
(4.9)
(23.9)
716.9
675.3
689.2
692.1
Expenditure during the financial year on assets in the course of construction included primarily fixtures and fittings
within vehicles, fixtures and equipment above, was as follows:
Assets in the course of construction
29 August
2015
£m
41.1
30 August
2014
£m
33.7
Property, plant and equipment includes the following assets held under finance leases included primarily in vehicles,
fixtures and equipment:
Cost
Accumulated depreciation
Net book value
Contractual commitments at 29 August 2015 were £5.9 million (2014: £1.3 million).
29 August
2015
£m
30 August
2014
£m
8.0
(4.1)
3.9
9.1
(4.0)
5.1
114 Debenhams plc Annual Report & Accounts 2015
114
Debenhams plc Annual Report & Accounts 2015
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a
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3
8
-
5
8
Capitalised finance costs
Finance costs capitalised on qualifying assets included in additions amounted to £0.3 million (2014: £0.6 million).
Accumulated finance costs capitalised included in the cost of property, plant and equipment net of disposals amounted
to £2.3 million (2014: £2.0 million). The capitalisation rate used to determine the amount of borrowing costs eligible for
capitalisation is 4.4% (2014: 3.3%).
15 Financial assets – available-for-sale investments
At 31 August 2013
Increase in the market value credited to the statement of comprehensive income
At 30 August 2014
Decrease in the market value charged to the statement of comprehensive income
At 29 August 2015
£m
1.1
2.5
3.6
(1.5)
2.1
The Group holds 10% (2014: 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 29 August 2015 was
£2.1 million (2014: £3.6 million). Ermes is a company that is registered and trades in Cyprus.
16 Inventories
Items held for resale
17 Trade and other receivables
Non-current
Other receivables
Other receivables include contractual lease deposits of £14.4 million (2014: £15.6 million).
Current
Trade receivables
Allowance for doubtful debts
Other receivables
Prepayments and accrued income
29 August
2015
£m
331.6
30 August
2014
£m
345.7
29 August
2015
£m
30 August
2014
£m
14.9
15.6
29 August
2015
£m
30 August
2014
£m
25.3
(0.4)
24.9
3.3
49.8
78.0
25.8
(0.5)
25.3
2.1
47.3
74.7
At the year end, £22.8 million (2014: £22.9 million) of the trade receivables were denominated in sterling, £0.3 million
(2014: £0.4 million) in Euros and £2.2 million (2014: £2.5 million) in Danish krone.
Debenhams plc Annual Report & Accounts 2015 115
115
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
17 Trade and other receivables continued
The movement in the allowance for doubtful debts may be analysed as follows:
At 31 August 2013
Decrease in provision
At 30 August 2014
Decrease in provision
At 29 August 2015
£m
(0.7)
0.2
(0.5)
0.1
(0.4)
Trade receivables which are past their due date but not impaired amount to £4.0 million (2014: £4.8 million). Trade
receivables which are past their due date are provided based on estimated irrecoverable amounts from the sale of
goods. At 29 August 2015, £0.4 million (2014: £0.5 million) of trade receivables were past their due date and impaired.
Included in prepayments and accrued income is £4.7 million (2014: £3.9 million) of accrued supplier income relating
to rebates which have been earned but not yet invoiced. Supplier income that has been invoiced but not yet paid is
included in trade receivables and supplier income that has been invoiced but not yet settled against future trade
payable balances is included in trade payables.
18 Cash and cash equivalents
Cash at bank and in hand
19 Trade and other payables
Trade payables
Other payables
Taxation and social security
Accruals
Deferred income
29 August
2015
£m
32.7
29 August
2015
£m
326.7
81.9
28.4
83.8
2.8
30 August
2014
£m
64.4
30 August
2014
£m
326.2
67.0
33.6
98.6
3.9
523.6
529.3
116 Debenhams plc Annual Report & Accounts 2015
116
Debenhams plc Annual Report & Accounts 2015
20 Bank overdraft and borrowings
Current
Bank overdraft
Revolving credit facility1
Senior notes2
Lease obligations
Total current borrowings
Non-current
Senior notes2
Lease obligations
Total non-current borrowings
Total current and non-current borrowings
29 August
2015
£m
30 August
2014
£m
18.3
132.9
1.3
2.9
155.4
196.8
0.3
197.1
352.5
–
196.9
1.9
3.3
202.1
220.6
3.2
223.8
425.9
1 Revolving credit facility is stated net of unamortised issue costs of £2.1 million (2014: £3.1 million).
2 Senior notes, due in 2021, were issued during July 2014 at a coupon rate of 5.25%. Senior notes include accrued interest of £1.3 million
(2014: £1.9 million) and are stated net of unamortised issue costs of £3.2 million (2014: £4.4 million). Interest on the senior notes is payable
semi-annually.
During the year ended 29 August 2015, the Company repurchased £25.0 million of the £225.0 million senior notes for
a consideration of £24.8 million. The repurchased senior notes were cancelled during the financial year. Also during
the year ended 29 August 2015, the Company cancelled £75.0 million of the £425.0 million revolving credit facility.
This revolving credit facility was arranged and an existing term loan and revolving credit facility were cancelled during
the year ended 30 August 2014. The revolving credit facility at 29 August 2015 of £350.0 million (2014: £425.0 million)
is due to expire in October 2018 and contains an option to request an extension to October 2019.
At 29 August 2015, the Group’s drawings under credit facilities outstanding comprised revolving credit facility drawings
of £135.0 million (2014: £200.0 million).
During the current and prior financial years, the Group has complied with its covenants relating to its credit facilities.
The amortisation charge relating to the issue costs of the revolving credit facility was £1.0 million for the year ended
29 August 2015 (2014: £1.9 million relating to the issue costs of term loan and revolving credit facility). The amortisation
charge relating to the issue costs of the senior notes was £0.6 million for the year ended 29 August 2015 (2014:
£0.1 million). The write-off of unamortised issue costs in relation to cancelled credit facilities was £0.4 million
(2014: £4.5 million).
Debenhams plc Annual Report & Accounts 2015 117
117
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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:
29 August
2015
£m
30 August
2014
£m
2.9
0.3
3.2
–
3.2
3.5
3.2
6.7
(0.2)
6.5
29 August
2015
£m
30 August
2014
£m
2.9
0.3
3.2
3.3
3.2
6.5
29 August
2015
£m
30 August
2014
£m
155.4
0.3
–
196.8
352.5
202.3
2.9
0.3
220.6
426.1
29 August
2015
%
30 August
2014
%
1.88
2.51
5.25
3.35
N/A
2.50
5.25
3.52
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 maturity of the Group’s undiscounted borrowings is 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
Revolving credit facility
Senior notes
Lease obligations
118 Debenhams plc Annual Report & Accounts 2015
118
Debenhams plc Annual Report & Accounts 2015
Borrowing facilities
The Group has the following undrawn committed facilities available at 29 August 2015, in respect of which all conditions
precedent had been met as at that date:
Expiring between two and five years
29 August
2015
£m
215.0
30 August
2014
£m
225.0
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 that it has a 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.
Debenhams plc Annual Report & Accounts 2015 119
119
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
21 Financial risk management 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.
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
At 29 August 2015
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 currency contracts
‒ Gross settled derivative contracts – receipts
‒ Gross settled derivative contracts – payments
Total
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 currency contracts
‒ Gross settled derivative contracts – receipts
‒ Gross settled derivative contracts – payments
Total
(153.3)
(10.5)
(2.9)
(487.2)
–
(10.5)
(0.3)
–
(0.8)
(0.1)
–
(31.5)
(200.0)
(10.5)
–
–
–
–
–
–
–
–
(210.5)
428.9
(412.0)
(637.8)
232.2
(220.8)
0.5
34.4
(33.6)
(30.7)
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)
–
(1.5)
(1.0)
(0.1)
342.4
(352.0)
(695.5)
198.7
(199.8)
(16.8)
114.9
(114.7)
(35.6)
(225.0)
(23.6)
–
–
–
–
–
(248.6)
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 are made to franchise partners 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 BBB- or Baa3 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 at 29 August 2015 to be £107.4 million (2014: £115.5 million) being the
Group’s total financial assets.
120 Debenhams plc Annual Report & Accounts 2015
120
Debenhams plc Annual Report & Accounts 2015
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 foreign 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 foreign currency contracts with a settlement of up to three (2014: three) 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 financial results, 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 gain of £8.7 million (2014: loss of £8.1 million) was reclassified from equity to the income statement within cost
of inventory during the year in respect of forward foreign currency contracts designated as cash flow hedges.
The notional value of open forward foreign currency contracts at 29 August 2015 was £634.7 million (2014:
£658.2 million).
The net fair value gains on open forward foreign currency contracts held in the hedging reserve at 29 August 2015
were £24.3 million (2014: losses of £6.1 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. At 29 August 2015 Debenhams plc has in issue £200.0 million (2014: £225.0 million) of
senior notes at a coupon rate of 5.25% which reduces 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
91.2% (2014: 100.0%). This is temporarily outside the 60% – 90% policy range but is expected to revert to policy in 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:
Interest rate swaps
Notional
£m
125.0
Rate
%
Maturity
1.050 – 1.715
October 2015 to October 2016
The notional principal amount of interest rate swaps at 29 August 2015 was £125.0 million (2014: £200.0 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 £1.6 million (2014: £2.7 million) was reclassified and reported in
the income statement in respect of interest rate swaps.
Debenhams plc Annual Report & Accounts 2015 121
121
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
21 Financial risk management 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
29 August 2015
30 August 2014
Fixed
£m
Floating
£m
Total
£m
Fixed
£m
Floating
£m
Total
£m
(328.2)
(28.3)
(356.5)
(431.5)
–
(431.5)
1 Unamortised debt issue costs of £5.3 million (2014: £7.5 million) are excluded from the borrowings above.
Fixed sterling borrowings comprise the hedged portion of the debt facility of £125.0 million (2014: £200.0 million), senior
notes of £200.0 million (2014: £225.0 million) and finance lease liabilities of £3.2 million (2014: £6.5 million) at 29 August
2015. The weighted average interest rate on the fixed rate borrowings as at 29 August 2015 was 4.5% (2014: 4.4%),
with the weighted average time for which rates are fixed being 4.0 years (2014: 4.3 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:
29 August 2015
30 August 2014
Financial assets
Sterling
Euro
US dollar
Danish krone
Chinese yuan
Other
Total financial assets
Floating
£m
Non-interest
bearing
£m
–
0.1
–
–
–
1.6
1.7
25.3
3.3
0.9
–
–
1.5
31.0
Total
£m
25.3
3.4
0.9
–
–
3.1
32.7
Floating
£m
Non-interest
bearing
£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
Total
£m
57.9
2.8
1.3
1.2
0.1
1.1
64.4
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 then:
• Net profit would have been unaffected as the equity investments were classified as available-for-sale investments
• Other reserves would decrease/increase by £0.2 million (2014: £0.4 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.
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.
122 Debenhams plc Annual Report & Accounts 2015
122
Debenhams plc Annual Report & Accounts 2015
The Group routinely monitors its capital and liquidity requirements through leverage ratios consistent with industry-wide
borrowing standards, maintaining suitable headroom to the bank facility fixed charge, senior notes and leverage
covenants together with credit market requirements to ensure that 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 the US dollar, Euro, Chinese yuan and
Danish krone, 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
29 August 2015
30 August 2014
Income
statement
loss
£m
(0.3)
Equity
gain
£m
2.9
Income
statement
gain
£m
0.3
Equity
gain
£m
2.3
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 Euro
5% weakening in sterling compared to Chinese yuan
5% weakening in sterling compared to Danish krone
29 August 2015
30 August 2014
Income
statement
gain/(loss)
£m
(0.5)
0.1
(0.1)
0.9
Equity
gain/(loss)
£m
18.2
(3.1)
2.0
–
Income
statement
gain/(loss)
£m
(0.4)
0.5
–
0.5
Equity
gain/(loss)
£m
20.7
(1.0)
2.2
–
A 5% strengthening in sterling compared to the US dollar, Euro, Chinese yuan or Danish krone would result in an equal
and opposite change in the income statement and equity respectively.
Debenhams plc Annual Report & Accounts 2015 123
123
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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
shows the classification of the Group’s financial assets and liabilities that are measured at fair value:
Current
Interest rate swaps – cash flow hedges
Forward foreign currency contracts – cash flow hedges
Forward foreign currency contracts – held for trading
Non-current
Available-for-sale financial assets
Interest rate swaps – cash flow hedges
Forward foreign currency contracts – cash flow hedges
29 August 2015
30 August 2014
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
–
13.5
3.9
17.4
2.1
–
12.1
14.2
(0.2)
(0.7)
(0.4)
(1.3)
–
(0.5)
(0.6)
(1.1)
–
1.4
0.1
1.5
3.6
0.6
2.4
6.6
(0.2)
(8.4)
(2.8)
(11.4)
–
(1.2)
(1.5)
(2.7)
There were no material differences between the carrying value of cash and cash equivalents, trade and other
receivables, trade and other payables, current borrowings and non-current borrowings and their fair values at the
balance sheet date.
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, the Group cancelled £30.0 million (2014: £150.0 million) of interest rate swap contracts with a combined
balance sheet liability value of £0.1 million (2014: £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
124 Debenhams plc Annual Report & Accounts 2015
124
Debenhams plc Annual Report & Accounts 2015
The following table shows the Group’s financial assets and liabilities that are measured at fair value:
Level 1
£m
Level 2
£m
Total
£m
At 29 August 2015
Assets
Available-for-sale financial assets
Derivative financial instruments:
‒ 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 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
–
2.1
2.1
–
–
2.1
–
–
–
–
25.6
3.9
29.5
(0.7)
(1.3)
(0.4)
(2.4)
Level 1
£m
Level 2
£m
3.6
–
–
–
3.6
–
–
–
–
–
0.6
3.8
0.1
4.5
(1.4)
(9.9)
(2.8)
(14.1)
25.6
3.9
31.6
(0.7)
(1.3)
(0.4)
(2.4)
Total
£m
3.6
0.6
3.8
0.1
8.1
(1.4)
(9.9)
(2.8)
(14.1)
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the date of the event or
change in circumstances that caused the transfer. There has been no transfer of assets or liabilities between levels of
the fair value hierarchy during the year. None of the Group’s financial assets and liabilities are classed as level 3 within
the fair value hierarchy.
Debenhams plc Annual Report & Accounts 2015 125
125
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
23 Retirement benefit schemes
Defined contribution pension schemes
The Group operates defined contribution pension schemes for its employees. Group contributions to defined
contribution pension schemes during the financial year were £14.7 million (2014: £14.7 million).
Defined benefit pension schemes
The Group also 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. The Group’s pension schemes were closed to 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.
The Group’s pension 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
• Nominated by scheme members
The chair of both corporate trustees is independent from the schemes and from the Group.
The most recent actuarial valuation of the Group’s pension schemes was carried out at 31 March 2014 and has been
used by KPMG LLP, a qualified independent actuary, when calculating the IAS 19 revised “Employee benefits” valuation
at 29 August 2015.
During June 2015, the Group agreed a recovery plan for the Group’s pension schemes, which was intended to restore
the schemes to a fully funded position on an ongoing basis. Under that agreement, the Group agreed to contribute
£9.5 million per annum to the pension schemes for the period from 1 April 2014 to 31 March 2022 increasing by the
percentage increase in RPI over the year to the previous December. The agreement replaced an agreement made in
2012 under which the Group agreed to contribute £8.9 million per annum to the pension schemes for the period from
1 April 2012 to 31 March 2022 increasing by the percentage increase in RPI over the year to the previous December.
Additionally during 2015, the Group agreed to continue 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. 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 than that assumed, resulting in higher payments from the schemes
• Scheme members may live longer than assumed
• Legislative changes could lead to an increase in the liabilities of the pension schemes
Investment of the schemes’ assets is managed by Hewitt Risk Management Services Limited under a delegated
consulting service agreement. As at 29 August 2015 most of the schemes’ assets were invested in a delegated
liability fund or a delegated growth fund.
The weighted average duration of the defined benefit obligation is 22 years (2014: 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
126 Debenhams plc Annual Report & Accounts 2015
126
29 August 2015
per annum
%
30 August 2014
per annum
%
3.2
3.2
3.2
3.0
3.8
3.1
3.1
3.1
2.9
3.9
Debenhams plc Annual Report & Accounts 2015
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:
29 August 2015
30 August 2014
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
Unquoted
£m
Assets
Delegated liability fund
Delegated growth fund
Cash and other assets
Total market value of assets
Present value of
scheme liabilities
Net surplus/(deficit)
in schemes
Analysed as:
DEPP scheme surplus
DRS scheme surplus/(deficit)
158.4
473.2
8.1
639.7
–
156.1
–
156.1
158.4
629.3
8.1
795.8
(769.6)
26.2
13.1
13.1
144.5
450.8
3.1
598.4
–
150.0
–
150.0
Total
£m
144.5
600.8
3.1
748.4
(750.8)
(2.4)
6.9
(9.3)
At 29 August 2015, 80.4% (2014: 80.0%) 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
29 August 2015
30 August 2014
Years
Female
24.3
25.7
Years
Male
22.5
23.5
Years
Female
24.4
25.6
29 August 2015
30 August 2014
Years
Female
26.2
27.6
Years
Male
24.6
25.5
Years
Female
25.9
27.0
Years
Male
22.0
23.4
Years
Male
24.1
25.4
Debenhams plc Annual Report & Accounts 2015 127
127
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
23 Retirement benefit schemes 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 (including expenses)
Interest cost on the defined benefit liability
Benefit payments from plan assets
Settlements
Remeasurements:
‒ Losses from changes in financial assumptions
‒ Losses/(gains) from changes in demographic assumptions
‒ Experience gains
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
Settlements
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 surplus/(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
‒ Settlements
‒ Current service cost (including expenses)
‒ Net interest on net defined benefit liability
‒ Remeasurements of pension schemes
Net surplus/(deficit) in the schemes at end of the financial year
29 August
2015
£m
30 August
2014
£m
750.8
1.5
28.6
(27.1)
(10.0)
34.8
2.8
(11.8)
769.6
693.6
1.4
31.4
(20.4)
–
64.2
(13.0)
(6.4)
750.8
29 August
2015
£m
30 August
2014
£m
748.4
28.7
(27.1)
11.1
(8.9)
43.6
795.8
673.6
30.8
(20.4)
10.8
–
53.6
748.4
29 August
2015
£m
30 August
2014
£m
(2.4)
(20.0)
11.1
1.1
(1.5)
0.1
17.8
26.2
10.8
–
(1.4)
(0.6)
8.8
(2.4)
During the financial year ended 29 August 2015, DRS members were given the opportunity to take a trivial commutation
payment. The result of this exercise was the recognition of a settlement credit of £1.1 million.
128 Debenhams plc Annual Report & Accounts 2015
128
Debenhams plc Annual Report & Accounts 2015
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 0.5% reduction in the discount rate
Increase in schemes’ liabilities arising from a one year increase in life expectancy
29 August
2015
£m
30 August
2014
£m
85.4
93.1
20.6
58.5
70.7
23.1
A 0.5% reduction in the inflation assumption, a 0.5% 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 surplus/obligations recognised within the balance sheet.
The contributions expected to be paid during the financial year ending 3 September 2016 amount to £11.2 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 (2014: 20.0%). 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
29 August
2015
£m
30 August
2014
£m
20.8
(54.8)
(34.0)
51.0
(53.4)
(2.4)
29 August
2015
£m
30 August
2014
£m
3.3
(4.9)
(1.6)
2.8
(1.9)
0.9
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.
Debenhams plc Annual Report & Accounts 2015 129
129
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
24 Deferred tax assets and liabilities continued
The movement on the deferred tax account is as shown below:
Assets
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
Charged to the income statement
Transfer from deferred tax liabilities
Prior year adjustment to the income
statement
Exchange differences charged to the
statement of comprehensive income
At 29 August 2015
Developers’
contributions
received
£m
29.9
(11.7)
–
–
–
18.2
(3.6)
–
(0.4)
–
14.2
Fair value
losses
£m
Other
provisions
£m
Retirement
benefit
obligation
£m
1.0
–
(2.0)
–
3.0
2.0
–
(2.0)
–
–
–
33.5
(3.1)
–
(0.1)
–
30.3
(23.3)
–
–
(0.4)
6.6
4.9
0.4
(0.9)
–
(3.9)
0.5
–
(0.5)
–
–
–
Liabilities
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
Credited/(charged) to the income statement
Transfer to deferred tax assets
Prior year adjustment to the income statement
Charged to the statement of comprehensive income
At 29 August 2015
Accelerated
tax
depreciation
£m
Fair value
gains
£m
Retirement
benefit
surplus
£m
(56.3)
1.9
–
1.0
(53.4)
7.6
–
0.6
–
(45.2)
(1.9)
(0.1)
2.0
–
–
(0.1)
2.0
–
(6.3)
(4.4)
(0.9)
–
0.9
–
–
0.1
0.5
–
(5.8)
(5.2)
Total
£m
69.3
(14.4)
(2.9)
(0.1)
(0.9)
51.0
(26.9)
(2.5)
(0.4)
(0.4)
20.8
Total
£m
(59.1)
1.8
2.9
1.0
(53.4)
7.6
2.5
0.6
(12.1)
(54.8)
Within other provisions is a deferred tax asset of £4.2 million (2014: £5.2 million) in relation to overseas operations which
has been recognised. In addition to this there is an unrecognised deferred tax asset of £1.0 million (2014: £2.6 million)
relating to operations in the Republic of Ireland.
130 Debenhams plc Annual Report & Accounts 2015
130
Debenhams plc Annual Report & Accounts 2015
25 Other non-current liabilities
Property lease incentives received
Other non-current liabilities
Total other non-current liabilities
29 August
2015
£m
30 August
2014
£m
340.6
–
340.6
331.7
1.0
332.7
Property lease incentives received from landlords either through developers’ 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 30 August 2014
Charged to the income statement
Unused amounts reversed in the financial year
Utilised during the financial year
At 29 August 2015
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Promotional
activities
£m
Other
provisions
£m
6.0
19.2
–
(18.8)
6.4
1.1
–
(1.1)
–
–
Total
£m
7.1
19.2
(1.1)
(18.8)
6.4
29 August
2015
£m
30 August
2014
£m
6.4
–
6.4
6.0
1.1
7.1
Promotional activities provision
Provisions for promotional activities represent deferred income relating to 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 related to dilapidations on a property which are no longer required.
27 Share capital and reserves
29 August 2015
£
Number
30 August 2014
£
Number
Issued and fully paid – ordinary shares of £0.0001 each
At start of year
128,684 1,286,843,441
128,684 1,286,843,441
Allotted under share option schemes
1
9,099
–
–
At end of year
128,685 1,286,852,540
128,684 1,286,843,441
No shares were purchased by the Company and transferred to treasury during the financial year ended 29 August 2015
(2014: 14,351,525 shares).
Debenhams plc Annual Report & Accounts 2015 131
131
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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 2004 (“DRET”) was
as follows:
Debenhams Retail Employee Trust 2004
29 August
2015
Ordinary
shares
Number
273,537
30 August
2014
Ordinary
shares
Number
473,537
The market value of the shares on 29 August 2015 was £0.2 million for the DRET (2014: £0.3 million). The cost of the
shares held at the year end is £0.2 million (2014: £0.4 million).
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.
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 31 August 2013
Currency translation differences
Change in the fair value of available-for-sale investments
At 30 August 2014
Currency translation differences
Currency translation differences - taxation
Change in the fair value of available-for-sale investments
Change in
fair value
of available-
for-sale
investments
£m
Translation
reserve
£m
(4.6)
(4.2)
–
(8.8)
(5.2)
(0.4)
–
(3.1)
–
2.5
(0.6)
–
–
(1.5)
Total
£m
(7.7)
(4.2)
2.5
(9.4)
(5.2)
(0.4)
(1.5)
At 29 August 2015
(14.4)
(2.1)
(16.5)
132 Debenhams plc Annual Report & Accounts 2015
132
Debenhams plc Annual Report & Accounts 2015
28 Share-based payments
The total charge/(credit) to operating profit relates to the following equity settled schemes:
Performance Share Plan (“PSP”)
Share Incentive Plan (“SIP”)
Deferred Bonus Matching Plan (“DBMP”)
Charge/(credit) for the financial year
29 August
2015
£m
30 August
2014
£m
1.1
–
–
1.1
(1.8)
0.1
(0.1)
(1.8)
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 31 August 2013
Exercised
Lapsed
Forfeited
Outstanding at 30 August 2014
Granted
Exercised
Lapsed
Forfeited
Outstanding at 29 August 2015
Exercisable
At 29 August 2015
At 30 August 2014
Weighted average remaining
contractual life (years)
At 29 August 2015
At 30 August 2014
DBMP
Number
569,679
(384,492)
(185,187)
–
–
–
–
–
–
–
–
–
–
–
SIP
Number
PSP
Number
200,000
9,734,625
–
–
–
200,000
–
–
–
(1,081,969)
8,652,656
9,125,758
(200,000)
(1,032,093)
(3,641,713)
(269,478)
ESOP
Number
688,266
(44,616)
–
–
643,650
–
–
–
–
WAEP
Pence
85.5
85.5
N/A
N/A
85.5
N/A
N/A
N/A
N/A
12,835,130
643,650
85.5
–
–
–
–
643,650
643,650
85.5
85.5
4.25
5.25
–
–
–
–
–
–
–
a) 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.
i) Awards granted on 1 November 2011 and 1 May 2012
The vesting of the shares granted under these awards was dependent upon the growth of both EPS and Return on
Capital Employed (“ROCE”).
75% of the awards were based upon EPS growth. Where growth was less than 6% per annum over the three year period,
this element of the awards would lapse. Where growth was 6% per annum, 30% of the shares awarded would vest; where
growth was 12% per annum, the EPS element of the awards would vest in full. Between these two points, awards would
vest on a straight line basis between 30% and 100%.
The EPS element of the awards granted on 1 November 2011 and 1 May 2012 lapsed during the current year as the
performance conditions associated with these awards were not met.
Debenhams plc Annual Report & Accounts 2015 133
133
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
28 Share-based payments continued
The remaining 25% of the awards were dependent upon ROCE. If average ROCE was below the cost of capital over the
three year period, this element of the awards would lapse. If average ROCE was equal to the cost of capital over the
three year period, then 30% of the shares awarded would vest. If average ROCE was equal to the cost of capital plus 5%
then the ROCE element of the awards would vest in full. Between these two points, awards would vest on a straight line
basis between 30% and 100%.
During the year ended 29 August 2015, 22% of the awards granted on 1 November 2011 and 1 May 2012 vested as the
performance conditions associated with the ROCE element were met in part. The weighted average share price at the
date of exercises for PSP awards exercised during the year was 66.7 pence.
ii) 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 vest; 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%.
iii) Awards granted on 1 November 2014 and 1 May 2015
The vesting of the shares granted under these awards is dependent upon a combination of EPS growth and strategic
measures with the strategic measures being subject to meeting a ROCE underpin.
70% of the awards is based upon EPS growth. Where growth is less than 3% per annum over the performance period,
this element of the awards lapses. Where growth is 3% per annum, 25% of the shares awarded vest. Where growth is
10% per annum, the EPS element of the awards vests in full. Between these two points, awards vest on a straight line
basis between 25% and 100%.
The remaining 30% of the awards is dependent upon the performance of the four strategic measures (each with a
maximum vesting of 7.5%). The strategic measures are: gross margin improvement, online EBITDA growth, UK GTV
and International EBITDA growth. Each strategic measure is subject to a single performance test at the end of the
performance period which will result in either vesting at 0% or in full (7.5%) of the award. If the Group’s ROCE at the
end of the applicable performance period is not greater than ROCE at the start of the applicable performance period
the 30% of the awards subject to the strategic measures will not vest.
In accordance with IFRS 2 “Share-based payments”, the vesting conditions attached to the PSP are classified as non-
market conditions and therefore the shares have been fair valued at face value with a discount to take into account the
non-entitlement to dividends in the vesting period where relevant. The fair value of these PSP awards is calculated
based on the Black-Scholes model assuming the inputs in the table below:
Grant date
Number of shares under award
Expected term (years)
Share price at grant (pence)
Exercise price (pence)
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of award (pence)
1 May
2015
1 November
2014
1,017,556
8,108,202
3.0
88.8
–
0.0%
3.0
64.8
–
0.0%
100.0%
100.0%
3.8%
79.2
5.2%
55.4
Volatility is a measure of the amount by which the Company’s share price is expected to fluctuate in the period. Where
volatility has been used in the calculation of the fair value of the award, it has been estimated by using the most recent
historical share price volatility which is commensurate with the expected term of the option taking into account its
contractual life.
134 Debenhams plc Annual Report & Accounts 2015
134
Debenhams plc Annual Report & Accounts 2015
b) 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 ended 30 August 2014 was 103.1 pence. The rules of this
plan will expire in 2016. The Company is not seeking shareholder approval to renew the plan.
c) 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. There are no unvested options under this plan.
Options granted on 6 December 2012
The options granted on 6 December 2012 over 200,000 shares vested on 6 December 2014. The weighted average share
price at the date of exercise for SIP share options exercised during the year was 72.1 pence.
d) 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 are
released to the employee within one month of the vesting date. There are no unvested options under this plan. The
rules of this plan will expire in 2016. The Company is not seeking shareholder approval to renew the plan.
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 ten years
Later than ten years and not later than 20 years
Later than 20 years
29 August 2015
30 August 2014
Land and
buildings
£m
Other
£m
Land and
buildings
£m
Other
£m
206.5
850.9
1,023.7
1,579.5
1,052.7
4,713.3
1.7
2.0
–
–
–
3.7
200.2
843.6
1,038.8
1,699.3
1,143.9
4,925.8
1.8
3.0
–
–
–
4.8
The Group leases department stores, warehouses and offices 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.
Debenhams plc Annual Report & Accounts 2015 135
135
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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 charge/(credit) (note 28)
Fair value gains 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 in inventories
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Cash generated from operations
29 August
2015
£m
30 August
2014
£m
113.5
87.7
16.5
0.3
1.1
(4.4)
(0.7)
(0.2)
20.8
0.4
(11.1)
(0.5)
7.9
14.3
(3.9)
(5.4)
236.3
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
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
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
Foreign exchange losses
Non-cash transactions
29 August
2015
£m
30 August
2014
£m
0.5
(0.3)
0.2
1.4
(1.4)
–
29 August
2015
£m
30 August
2014
£m
1.0
0.6
0.4
(0.6)
–
(0.1)
1.3
1.9
0.1
4.5
1.2
3.8
–
11.5
136 Debenhams plc Annual Report & Accounts 2015
136
Debenhams plc Annual Report & Accounts 2015
31 Analysis of changes in net debt
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
30 August
2014
£m
Cash flow
£m
Non-cash
movements
£m
29 August
2015
£m
64.4
–
64.4
(198.8)
(220.6)
(3.3)
(3.2)
(361.5)
(31.6)
(18.3)
(49.9)
65.0
24.6
3.3
–
43.0
(0.1)
–
(0.1)
(0.4)
(0.8)
(2.9)
2.9
(1.3)
32.7
(18.3)
14.4
(134.2)
(196.8)
(2.9)
(0.3)
(319.8)
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 29 August 2015 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
100%
100%
100%
100%
100%
Country of
incorporation
UK
UK
Republic of
Ireland
Country of
registration
England
England
Republic of
Ireland
Activity
Multi-channel retailing
Holding company
Multi-channel retailing
Denmark
UK
Denmark
England
Multi-channel retailing
Property investment
100% Hong Kong
Hong Kong
Sourcing of goods
* Denotes investments held by the Company. All other investments are held by subsidiary undertakings.
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 29 August 2015 is shown in note 4 to the Debenhams plc
Company financial statements.
Debenhams plc Annual Report & Accounts 2015 137
137
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
FIVE YEAR RECORD INCOME STATEMENTS
FIVE YEAR RECORD INCOME STATEMENTS
Gross transaction value
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Net recurring finance costs
Non-recurring finance costs
Profit before taxation
Taxation
52 weeks
2015
£m
2,860.1
2,322.7
52 weeks
2014
£m
2,823.9
2,312.7
52 weeks
2013
£m
2,776.8
2,282.2
52 weeks
2012*
£m
2,708.0
2,229.8
53 weeks
2011*
£m
2,679.3
2,209.8
(2,023.5)
(2,033.4)
(1,982.6)
(1,927.5)
(1,913.1)
299.2
(111.1)
(54.0)
134.1
(20.6)
–
113.5
(20.0)
279.3
(98.5)
(52.2)
128.6
(18.3)
(4.5)
105.8
(18.6)
299.6
(97.5)
(46.7)
155.4
(16.4)
–
139.0
(23.1)
302.3
(81.0)
(46.3)
175.0
(16.7)
–
158.3
(33.0)
296.7
(70.2)
(42.8)
183.7
(23.4)
–
160.3
(43.1)
Profit for the financial year attributable to
owners of the parent
* Prior to the application of IAS 19 revised “Employee benefits”.
93.5
87.2
115.9
125.3
117.2
138 Debenhams plc Annual Report & Accounts 2015
138
Debenhams plc Annual Report & Accounts 2015
FIVE YEAR RECORD BALANCE SHEETS
FIVE YEAR RECORD BALANCE SHEETS
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
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
931.5
675.3
14.2
14.9
26.2
20.8
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
1,682.9
1,662.1
1,662.3
1,631.7
1,594.6
(236.0)
(593.6)
853.3
0.1
682.9
2.4
167.9
853.3
(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
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
1
-
3
7
G
o
v
e
r
n
a
n
c
e
3
8
-
5
8
Debenhams plc Annual Report & Accounts 2015 139
139
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
INDEPENDENT AUDITORS’ REPORT TO THE
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF DEBENHAMS PLC (COMPANY)
MEMBERS OF DEBENHAMS PLC (COMPANY)
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 29 August 2015;
• 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
The financial statements, included within the annual report and accounts (the “annual report”) comprise:
• The Company balance sheet as at 29 August 2015; 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, 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 International Standards on Auditing (UK & Ireland) (“IASs (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.
140 Debenhams plc Annual Report & Accounts 2015
140
Debenhams plc Annual Report & Accounts 2015
S
t
r
a
t
e
g
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 85, 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
We conducted our audit in accordance with ISAs (UK & Ireland). 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 29 August 2015.
JOHN ELLIS (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITORS
LONDON
22 OCTOBER 2015
Debenhams plc Annual Report & Accounts 2015 141
141
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
COMPANY BALANCE SHEET
COMPANY BALANCE SHEET
Company number 5448421
Company number 5448421
As at 29 August 2015
As at 29 August 2015
Fixed assets
Investments
Derivative financial instruments
Current assets
Debtors
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Derivative financial instruments
Net current liabilities
Total assets less current liabilities
Non-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
29 August
2015
£m
30 August
2014
£m
Note
4
5
6
7
8
5
9
5
2,248.0
2,248.0
–
0.6
2,248.0
2,248.6
98.3
0.1
98.4
(917.9)
(0.2)
(918.1)
(819.7)
83.1
1.2
84.3
(815.4)
(0.2)
(815.6)
(731.3)
1,428.3
1,517.3
(196.8)
(0.5)
(197.3)
(220.6)
(1.2)
(221.8)
1,231.0
1,295.5
12
13
13
13
14
0.1
682.9
(0.6)
548.6
0.1
682.9
(0.5)
613.0
1,231.0
1,295.5
The financial statements on pages 142 to 150 were approved by the Board on 22 October 2015 and were signed on its
behalf by:
MATT SMITH
CHIEF FINANCIAL OFFICER
142 Debenhams plc Annual Report & Accounts 2015
142
Debenhams plc Annual Report & Accounts 2015
NOTES TO THE COMPANY FINANCIAL
NOTES TO THE COMPANY FINANCIAL
STATEMENTS
STATEMENTS
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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.
143 Debenhams plc Annual Report & Accounts 2015
143
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE COMPANY FINANCIAL
NOTES TO THE COMPANY FINANCIAL
STATEMENTS CONTINUED
STATEMENTS CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
1 Accounting policies continued
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.
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 2004. 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.
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 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.
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 profit and loss account.
144 Debenhams plc Annual Report & Accounts 2015
144
Debenhams plc Annual Report & Accounts 2015
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.
2 Profit and loss account
A loss of £23.8 million is attributable to shareholders for the financial year ended 29 August 2015 (2014: £21.5 million).
The contracts of employment for all the executive directors are held by Debenhams plc and Debenhams Retail plc.
Information concerning directors’ remuneration, shares and share interests is included in the directors’ remuneration
report on pages 56 to 81, which forms part of these financial statements.
Auditors’ remuneration relating to the audit of the Company financial statements of £0.1 million (2014: £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 29 August 2015 were £nil (2014: £73,000, related to the senior notes issue).
3 Dividends
Final paid 2.4 pence (2014: 2.4 pence) per £0.0001 share
‒ Settled in cash
Interim paid 1.0 pence (2014: 1.0 pence) per £0.0001 share
‒ Settled in cash
29 August
2015
£m
30 August
2014
£m
29.4
12.3
41.7
29.4
12.3
41.7
A final dividend of 2.4 pence per share (2014: 2.4 pence per share) was paid during the year in respect of the financial
year ended 30 August 2014, together with an interim dividend of 1.0 pence per share (2014: 1.0 pence per share) in
respect of the financial year ended 29 August 2015. The directors are recommending a final dividend in respect of the
financial year ended 29 August 2015 of 2.4 pence per share (2014: 2.4 pence per share), which will absorb an estimated
£29.4 million (2014: £29.4 million) of shareholders’ funds. It will be paid on 22 January 2016 to shareholders who are on
the register of members at close of business on 4 December 2015. 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 30 August 2014 and 29 August 2015
Provision for impairment
At 30 August 2014 and 29 August 2015
Net book value
At 30 August 2014 and 29 August 2015
Investments in subsidiary
undertakings
£m
3,375.9
1,127.9
2,248.0
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 (2014: £nil). The discount rate used in the calculation to arrive at the
valuation was 7.5% (2014: 7.2%) 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 8.6% (2014: 7.6%).
Debenhams plc Annual Report & Accounts 2015 145
145
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE COMPANY FINANCIAL
NOTES TO THE COMPANY FINANCIAL
STATEMENTS CONTINUED
STATEMENTS CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
4 Investments continued
At 29 August 2015 the Company held, either directly or indirectly, 20% or more of the allotted share capital of the
following companies:
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
Baroness Group Holdings Limited*
BF III Limited*
BF Properties (No. 2) Ltd
BF Properties (No. 3) Ltd
Debenhams Finance Holdings Limited*
Baroness Retail Limited
Jerimain Investments Limited*
Debenhams Pension Trust Limited
Debenhams (No. 2) Pension Trust
Limited
Debenhams Card Handling Services
Limited
Debenhams Direct Limited
Debenhams Principles Limited
Debenhams Retail Holdings (Ireland)
Limited
debenhams.com ltd
A&D Pension Services Limited
Share of issued
ordinary share capital
and voting rights
Country of
incorporation
Country of
registration
Activity
100%
100%
100%
100%
100%
UK
England
Multi-channel retailing
UK
Republic of
Ireland
England
Republic of
Ireland
Holding company
Multi-channel retailing
Denmark
UK
Denmark
England
Multi-channel retailing
Property investment
100% Hong Kong
Hong Kong
Sourcing of goods
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
Jersey
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Jersey
England
England
England
England
England
England
England
England
England
England
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Group finance
Dormant
Dormant
Dormant
Dormant
UK
Republic of
Ireland
England
Republic of
Ireland
UK
UK
England
England
Intellectual property rights
Holding company
Dormant
Dormant
* Denotes investments held by the Company. All other investments are held by subsidiary undertakings.
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
29 August
2015
£m
30 August
2014
£m
–
(0.2)
(0.5)
(0.7)
0.6
(0.2)
(1.2)
(0.8)
Information relating to the derivatives held by the Company is shown in note 22 to the Debenhams Group
financial statements.
146 Debenhams plc Annual Report & Accounts 2015
146
Debenhams plc Annual Report & Accounts 2015
6 Debtors
Deferred tax asset (note 11)
Amounts owed by Group undertakings
Prepayments and accrued income
29 August
2015
£m
30 August
2014
£m
0.1
98.1
0.1
98.3
0.1
82.9
0.1
83.1
Amounts owed by Group undertakings are unsecured, repayable on demand and carry an average rate of interest of
2.4% (2014: 2.5%).
7 Cash at bank and in hand
Cash at bank and in hand
8 Creditors: amounts falling due within one year
Bank loans and overdrafts (note 10)
Amounts owed to Group undertakings
Accruals and deferred income
29 August
2015
£m
0.1
30 August
2014
£m
1.2
29 August
2015
£m
30 August
2014
£m
134.2
783.4
0.3
917.9
198.8
615.5
1.1
815.4
Amounts owed to Group undertakings are unsecured, have no fixed date of redemption and either carry an average
interest rate of 2.4% (2014: 2.5%) or are interest free.
9 Creditors: amounts falling due after more than one year
Bank and other borrowings (note 10)
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
Senior notes
Less: senior notes issue costs
29 August
2015
£m
196.8
30 August
2014
£m
220.6
29 August
2015
£m
30 August
2014
£m
135.0
(2.1)
1.3
134.2
200.0
(3.2)
196.8
200.0
(3.1)
1.9
198.8
225.0
(4.4)
220.6
Debenhams plc Annual Report & Accounts 2015 147
147
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE COMPANY FINANCIAL
NOTES TO THE COMPANY FINANCIAL
STATEMENTS CONTINUED
STATEMENTS CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
Maturity of debt
Amounts falling due:
In one year or less or on demand
In more than five years
29 August
2015
£m
30 August
2014
£m
135.0
200.0
335.0
200.0
225.0
425.0
Information relating to the borrowings of the Company is shown in note 20 to the Debenhams Group financial
statements.
During the year ended 29 August 2015, the Company repurchased £25.0 million of the £225.0 million senior notes for
a consideration of £24.8 million. The repurchased senior notes were cancelled during the year ended 29 August 2015.
Also during the year ended 29 August 2015, the Company cancelled £75.0 million of the £425.0 million revolving credit
facility. This revolving credit facility was arranged and an existing term loan and revolving credit facility were cancelled
during the year ended 30 August 2014. The revolving credit facility at 29 August 2015 of £350.0 million (2014: £425.0
million) is due to expire in October 2018 and contains an option to request an extension to October 2019.
At 29 August 2015, the Company’s drawings under credit facilities outstanding comprised revolving credit facility
drawings of £135.0 million (2014: £200.0 million). During the current and prior financial years, the Company has complied
with its covenants relating to its credit facilities.
The amortisation charge relating to the issue costs of the revolving credit facility was £1.0 million for the year ended
29 August 2015 (2014: £1.9 million relating to the issue costs of term loan and revolving credit facility). The amortisation
charge relating to the issue costs of the senior notes was £0.6 million for the year ended 29 August 2015 (2014:
£0.1 million). The write-off of unamortised issue costs in relation to cancelled credit facilities was £0.4 million
(2014: £4.5 million).
11 Deferred taxation
Asset
At 30 August 2014 and 29 August 2015
Fair value
gains
£m
0.1
Deferred tax is calculated in full on all temporary differences under the liability method using a tax rate of 20.0%
(2014: 20.0%) for temporary differences expected to reverse within 12 months of the balance sheet date and 20.0%
(2014: 20.0%) for temporary differences expected to reverse more than one year after the balance sheet date for
the UK differences.
Changes to the UK corporation tax rates were announced in the Chancellor’s Budget on 8 July 2015. These include
reductions to the main rate to reduce the rate to 19.0% from 1 April 2017 and to 18.0% from 1 April 2020. As these changes
had not been substantively enacted at the balance sheet date their effects are not included in these financial statements.
If they had applied, there would have been an effect of £nil on the net deferred tax asset recognised at 29 August 2015.
Deferred tax provided on the fair value gains represents the deferred tax on the derivatives that qualify for cash
flow hedges.
148 Debenhams plc Annual Report & Accounts 2015
148
Debenhams plc Annual Report & Accounts 2015
12 Called up share capital
29 August 2015
£
Number
30 August 2014
£
Number
Issued and fully paid – ordinary shares of £0.0001 each
At start of year
128,684 1,286,843,441
128,684 1,286,843,441
Allotted under share option schemes
1
9,099
–
–
At end of year
128,685 1,286,852,540
128,684 1,286,843,441
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
29 August 2015
Ordinary shares
Number
273,537
30 August 2014
Ordinary shares
Number
473,537
The market value of the shares at 29 August 2015 was £0.2 million for the DRET (2014: £0.3 million). The cost of the
shares held at the year end was £0.2 million (2014: £0.4 million).
Share option schemes
At 29 August 2015 the Group had three (2014: three) schemes in operation: the Performance Share Plan (“PSP”), the
Executive Share Option Plan (“ESOP”) and the Share Incentive Plan (“SIP”) (2014: the PSP, the ESOP and the SIP).
For further information on these schemes please see note 28 to the Debenhams Group financial statements.
13 Reserves
At 30 August 2014
Loss for the financial year
Cash flow hedges – net fair value losses (net of tax)
Employee share ownership plans
Dividends to shareholders (note 3)
At 29 August 2015
Share premium
account
£m
Hedging
reserve
£m
Profit and loss
account
£m
682.9
–
–
–
–
682.9
(0.5)
–
(0.1)
–
–
(0.6)
613.0
(23.8)
–
1.1
(41.7)
548.6
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 (2014: £41.7 million) was paid by the Company during the financial year ended
29 August 2015.
Debenhams plc Annual Report & Accounts 2015 149
149
Debenhams plc Annual Report & Accounts 2015Financial Statements 86-153
NOTES TO THE COMPANY FINANCIAL
NOTES TO THE COMPANY FINANCIAL
STATEMENTS CONTINUED
STATEMENTS CONTINUED
For the financial year ended 29 August 2015
For the financial year ended 29 August 2015
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 (losses)/gains, net of tax
Purchase of treasury shares
Employee share ownership plans
Net decrease to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
29 August
2015
£m
30 August
2014
£m
(23.8)
(41.7)
(65.5)
(0.1)
–
1.1
(64.5)
1,295.5
1,231.0
(21.5)
(41.7)
(63.2)
2.0
(15.1)
(1.8)
(78.1)
1,373.6
1,295.5
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.
150 Debenhams plc Annual Report & Accounts 2015
150
Debenhams plc Annual Report & Accounts 2015
STORE LIST
UK
Aberdeen
Altrincham
Ashford
Ayr
Ballymena
Banbury
Bangor
Barrow
Basildon
Basingstoke
Bath
Bedford
Belfast
Birmingham
Birmingham Fort
Blackburn
Blackpool
Bolton
Borehamwood
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
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 – Parkway
Newcastle-upon-Tyne
Newry
Northampton
Norwich
Nottingham
Nuneaton
Oldham
Orpington
Oxford
Perth
Plymouth
Portsmouth
Preston
Reading
Redditch
Romford
Rushmere
Salisbury
Scarborough
Scunthorpe
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
Bahrain
Manama
Bulgaria
Sofia – Bulgaria Mall
Cyprus
Apollon
Central
Engomi
Kinyras
Korivos
Ledra
Nicosia
Olympia
Zenon
Czech Republic
Prague
Egypt
Alexandria
Cairo, Festival City
Estonia
Tallinn
Iceland
Reykjavik
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
Pakistan
Karachi
Philippines
Davao Abreeza Mall
Fairview Terraces
Manila – ECC
Manila – Glorieta
Manila – Shangri La
Manila – Trinoma
Paeso Santa Rosa
Qatar
Doha
Romania
Vitan
Russia
Moscow – Avia Park
Moscow – Mega
Belaya Dacha
Saudi Arabia
Dammam Othiam
Herra
Jeddah – Bin Homran
Jeddah – Mall of Arabia
Madinah Al Noor
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
Yas Island
151
Debenhams plc Annual Report & Accounts 2015
GLOSSARY AND REFERENCES
Gross margin
Gross transaction value less the cost of
goods sold, as a percentage of gross
transaction value.
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.
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 &
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 bought brands
Brands for which Debenhams owns the
stock. They include core brands,
Designers at Debenhams and
international brands.
Concessions
Brands which are sold through our
stores where the stock belongs to
a third party concessionaire. They
are found chiefly in clothing
(eg Wallis, Oasis, Warehouse),
accessories (eg Tripp luggage) and
food (eg Costa Coffee).
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.
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.
Full price sell-through
The number of units sold in store or
online at the original selling price, as a
percentage of total units sold.
152
Debenhams plc Annual Report & Accounts 2015 ADDITIONAL INFORMATION
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.
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
Stifel Nicolaus Europe 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: 0371 384 2766
www.shareview.co.uk
Designed and produced by Luminous
www.luminous.co.uk
Debenhams plc Annual Report & Accounts 2015
153
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2
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1
5
10 BROCK STREET
REGENT’S PLACE
LONDON
NW1 3FG
WWW.DEBENHAMS.COM