ANNUAL REPORT & ACCOUNTS 2017
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Redesigned
DESTINATION | DIGITAL | DIFFERENT
DELIVERING SHAREHOLDER VALUE
THROUGH GROWTH AND EFFICIENCY
We have built a plan that is good for our customers,
good for our colleagues and, therefore, good for
our shareholders. Our plan will deliver growth and
efficiency over the next three years and beyond and
create value for our shareholders and stakeholders.
We will deliver growth by becoming a Destination
for Social Shopping and offering exciting new
products and services; being driven by Digital,
with mobile unifying our channels and our
interaction with customers, as well as broadening
our reach; and being Different in how we create
and manage our brands and product, supported
by a more innovative culture.
This will be combined with a focus on driving
efficiency by removing barriers to shopping both
online and instore; Simplifying and Focusing our
store estate and operating model; and making
more effective use of our resources.
Strategic report
Business model and strategy
Market context
CEO’s strategic perspective
Strategy in action
Resources, relationships
and sustainability
Key performance indicators
Risk management
Principal risks and uncertainties
Financial review
Viability statement
2
4
6
10
20
24
26
28
31
37
Corporate Governance
Chairman’s Introduction to Governance 38
39
Leadership
40
Board of Directors
42
Corporate governance report
48
Nomination Committee report
50
Audit Committee report
Chairman’s introduction
54
to Remuneration
Remuneration policy
The annual report on remuneration
Directors’ report
Statement of directors’
responsibilities
56
64
77
80
Financial Statements
Independent auditors’
report to the members of
Debenhams plc (Group)
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement
of changes in equity
Consolidated cash flow statement
Notes to the financial statements
Five year record income statements
Five year record balance sheets
Independent auditors’ report
to the members of Debenhams plc
Company balance sheet
Company statement of
changes in equity
Notes to the Company
financial statements
Additional Information
Store list
Glossary and references
Additional information
81
89
90
91
92
93
94
136
137
138
143
144
145
151
152
156
Financial highlights
Gross transaction value*
£3.0bn
Profit before tax1, *
£95.2m
Net debt
£275.9m
Strategic highlights
Full price sell-through*
+1.7%
Digital sales growth
(52 weeks)*
12.7%
Mobile mix of digital orders*
55%
Shareholder returns
Underlying EPS1, *
6.4p
Dividend per share
3.425p
ROCE (lease-adjusted)*
11.1%
1 Pre exceptional items.
*
Alternative performance measures are
defined in the Glossary section of the
Annual Report on pages 152 to 154.
6
CEO’s strategic
perspective
10-18
Strategy in action
Destination
Creating a social experience
to share
Digital
Creating inspiring channels
for customers to enjoy
Different
Creating brand experiences
that stand out
Simplify
& Focus
Making better use
of our resources
9
Getting the basics
right – timeline
20-23
Resources, relationships
and sustainability
1
www.debenhams.com Business model and strategy
CREATING VALUE FOR OUR STAKEHOLDERS
OUR RESOURCES
AND RELATIONSHIPS
HOW WE CREATE
VALUE TODAY
THE VALUE
WE CREATE
People
We employ around 27,000 colleagues in the UK,
the Republic of Ireland, Denmark and in our sourcing
offices in Hong Kong, Shanghai, Bangladesh and
Sri Lanka. They support our own-operated
stores in the UK and Europe and our digital
operations, and serve 19 million customers
Read more on page 20
Expertise and insight
We recruit and train experts in design, buying and
merchandising, supported by excellent creative, marketing,
logistics, financial and administrative functions. Our customer
insight unit provides us with valuable feedback on our
customers’ spending habits and their view of our offer
Read more on page 5
Channels
We have 183 stores across major retail locations in the UK, the
Republic of Ireland and Denmark. We have a flagship digital store
in the UK and a localised online service in a number of overseas
markets. With over 280 million online visits each year to our UK
website, it is one of the top online UK retail destinations
Read more on page 6-7
Suppliers and partners
We have a well-established network of more than 1,000
suppliers, as well as concession, logistics and franchise
partners, who provide us with high quality product,
logistical support and local market expertise.
in locations where we trade with a partner
Read more on page 21
Finance
We have a strong balance sheet, with flexible financing
provision through a £320 million financing facility and a
£200 million bond, both of which are available until 2021.
These resources are more than adequate to provide
working capital, support our capital spending
programme and pay a dividend to shareholders
Read more on page 35
Innovation and culture
We are developing a culture
that puts our customers first,
enabling product creation and
development in an inspiring
environment, supported by
data-informed decision-making
Developing and
managing brands
Approximately half our sales
come from our own or exclusive
brands. We use the insight from
19 million customers to inform
brand development, and to
edit and curate the choice of
products and brands we sell
Serving our customers
We have worked hard to make
shopping easier and more fun
for our customers: reducing
colleague tasks; equipping them
with technology and data; and
giving them more time in front
of customers
Creating inspiring
places to shop
We are reducing clutter in our
stores, reducing stock options and
improving visual merchandising.
We have continued to upgrade
our digital presentation for mobile
display, to improve conversion
Leveraging partnerships
We continue to strengthen our
relationships with third parties to
broaden our reach. This includes
accessing new customers both
in the UK and overseas through
partners for our own brands, and
working with service providers to
exploit growth categories such
as food and beauty services in
our stores
We create value for our
stakeholders and our business
by carefully managing the use
of, and the return on, our
resources and relationships
Gross transaction value
£3.0bn
EBITDA*
£217.0m
Underlying EPS*
6.4p
Digital sales
growth (52 weeks)
12.7%
Return on capital**
11.1%
Direct employment
c27,000
* Before exceptional charges.
** Lease-adjusted.
OUR VALUE CREATION
IS UNDERPINNED BY
Risk management
A systematic approach to managing
risk to ensure strategic goals are met
Governance
Governance framework designed to
safeguard long-term shareholder value
Read more on page 26
Read more on page 42
2
Strategic reportDebenhams plc Annual Report & Accounts 2017 We create value for our
stakeholders and our business
by carefully managing the use
of, and the return on, our
resources and relationships
Gross transaction value
£3.0bn
EBITDA*
£217.0m
Underlying EPS*
6.4p
Digital sales
growth (52 weeks)
12.7%
Return on capital**
11.1%
Direct employment
c27,000
* Before exceptional charges.
** Lease-adjusted.
WHAT WE DO
We aim to make shopping confidence-boosting, sociable and fun
for our customers, through our 246 department store destinations
and 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.
THE VALUE
WE SHARE
HOW WE MAXIMISE VALUE
THROUGH OUR NEW STRATEGY
By running a profitable, sustainable, responsible
business, we create value which is used to strengthen
our financial position, invested to enable growth,
and shared with all of our stakeholders
Shareholders
We pay a dividend (2017: £42.0 million) which is
approximately twice covered by earnings per share
Social Shopping
Read more on page 35
Destination
Digital
Different
Suppliers
We source globally from more than 1,000 suppliers adopting
ethical trading principles. We have increased our business
through direct sourcing operations in Hong Kong, Shanghai,
Bangladesh and Sri Lanka
Read more on page 21
Colleagues
We invest in training and support for our colleagues in order
to enable them to create and manage brands and to serve
our customers well
Read more on page 20
Customers
We invest in our stores and integrated digital offer (2017
capex of £125 million) in order to provide our customers with
an inspiring environment and a convenient customer journey
Read more on page 34
Communities
We raised over £1.7 million through the Debenhams
Foundation in 2017 to support charitable giving and
community involvement
Read more on page 21
Environment
We seek to operate our stores, logistics and sourcing
operations in a way that minimises the use of energy
and resources
Read more on page 22
Simplify & Focus
Destination
By making Debenhams more of a Destination, especially
for Beauty and beauty services; Fashion and accessories;
and Food and events, we will grow “Social Shopping”
and increase frequency of visits
Digital
By using mobile to integrate our channels and become
the primary means of interacting with our customers,
we will increase loyalty and personalisation and broaden
our reach
Different
By being different in how we create and manage
our brands and product, we will increase innovation
and differentiation, building the desirability and
value of our brands
Underpinned by Simplify & Focus
By simplifying our operations and processes and
focusing on doing fewer things better, we will increase
the efficiency of our business
See our strategy in action on page 10
Sustainability
Respecting human rights is fundamental
to our company ethics and integrity
Culture
Taking a customer first approach, fostering
innovative thinking underpinned by data
Read more on page 20
Read more on page 14
3
www.debenhams.comStrategic report Market context
GROWTH IN LEISURE SPEND
Changing consumer trends are driving spend in leisure
categories faster than traditional retailing. Debenhams
customers have a high propensity towards leisure
spending and our research shows an opportunity
to become a leader in “Social Shopping”.
4%
2.6%
vs
Faster growth in
leisure than retail
A CHANGING RETAIL MARKET
Expectations for consumer outlook have
continued to weaken through 2017. A recent
research report from Deutsche Bank
(“Deutsche”) suggested that “many…
economic indicators today are trending
similarly to the austerity years of 2011/12”.1 The
UK consumer faces a squeeze on disposable
income but the savings ratio is at a 20 year
low, which was not the case five years ago.
Changing spending priorities
Food and fuel price rises have risen and with real
wage growth now flat, discretionary spending
power has therefore declined. Deutsche Bank
points to evidence of trading down both in the
clothing sector and in food retail, to the benefit
of value retailers. However, the bank also notes
the relatively robust nature of leisure spend –
traditionally a more discretionary category than
clothing, for example.
Spending in restaurants continues
to outpace spending on clothing
Year on year % growth in spend (3MMA)
25
20
15
10
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Clothing
Restaurants
Source: Barclaycard, Deutsche Bank
Despite a backdrop characterised by
geo-political uncertainties, this has not yet
led to a material slowdown in consumption.
Consumer confidence is in line with its
historical average and unemployment remains
at record lows. Whilst overall UK retail sales
growth has remained relatively robust,
non-food sales have weakened through 2017.
BRC non-food LFL vs UK consumer confidence
4%
3%
2%
1%
0%
-1%
-2%
10
0
-10
-20
-30
5
1
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A
BRC non-food sales growth 3MMA% (LHS)
UK consumer confidence index (RHS)
Source: Factset (British Retail Consortium, GFK)
4
Strategic reportDebenhams plc Annual Report & Accounts 2017 Growth of leisure and experience spending
In the period 2010-2016, the annual rate of
growth in leisure spending, such as eating out,
recreation, culture and hotels, was 50% higher
than the growth in non-food retail sales.2
A number of commentators now suggest that
this represents a structural shift in consumer
spending priorities, away from “stuff”
towards “experience”.
In 2016, Debenhams commissioned strategy
consultants OC&C to carry out research on
these trends as part of the Group’s strategy
review. The survey of 16,000 consumers found
that the leisure experience is as, or more,
important than convenience for department
store customers, and Debenhams’ customers
over-index in favour of leisure, with 65% of
women and 53% of men citing the importance
of leisure over convenience.
How smartphones are influencing behaviour
Another key trend in consumer spending has
been the growth of online shopping, which in
the past year has shifted decisively towards
mobile. Mobile now accounts for over half of
Debenhams’ annual digital sales of £478 million.
As part of its research, OC&C identified the
following consumer characteristics:
• 87% of people have their smartphone by
their side day and night
• On average, they check it 150 times per day
• 67% use their phone to browse
• 64% use their phone to research products
• 75% use their phone to check logistics
• 82% will consult their phone whilst in store
The research shows that 18% of mobile
shoppers make an immediate transaction,
and a further 18% go on to purchase later.
71% of smartphone customers use social
media. This is particularly prevalent in the
categories of fashion and beauty, which
represent over three-quarters of Debenhams’
Growth from SOCIAL SHOPPING
revenue. This data has informed Debenhams’
identification of a category of shopping
• High value customers visit us more frequently
defined as “Social Shopping”:
• Customers recognise us for leisure shopping
• A broader, mobile-connected shopping experience can unlock growth by driving
frequency…
+
+
Mobile
Food & Drink
Product PLUS experience
Social Shopping
1
Shopping as a fun, leisure activity enjoyed with
friends and family and shared via social media.
40% of customers shop with family or friends,
and those who shop with friends spend over
80% more per transaction than those who
shop alone.
Debenhams has identified Social Shopping
as a category that we can become a leader
in, with the space, brand reach and services
opportunity to create attractive and sociable
destinations that will encourage our 19 million
customers to visit us more frequently.
+80%
increase in spend
when with friends
Read more on
pages 10-11
1 UK Non-Food Retail “Value not value traps”, 7th Sept 2017.
2 Source: Mintel, Euromonitor, OC&C estimates.
5
www.debenhams.comStrategic report CEO’s strategic perspective
Redesigned
DEAR SHAREHOLDER
It has been an eventful first year for me at
Debenhams, and an eventful year for all our
27,000 colleagues too, and I would like to
thank them for their help and support in
delivering these results and helping me and
my team devise and develop our new strategy.
A year of activity and change
This year’s results were achieved against
a background of activity and change at
Debenhams. After a strong first half, we
saw a more volatile trading environment
in the second half with some tough cost
headwinds to manage. We have focused
on getting the basics right and controlling
what we can control. Against that background
these results demonstrate that we have a
resilient business model.
I joined Debenhams in October 2016 bringing
with me experience that spans brands,
international and online retailing, so I spent
my first few months getting under the skin
of this business. I commissioned some
customer research to understand how
and why our customers are changing,
and we have analysed the profitability
of every store, category and brand to
inform the development of our strategy.
I have some core beliefs which have been
reinforced by the research we have done: that
retailers need to create compelling reasons for
customers to shop with them; that shopping is
a leisure activity, but convenience and excellent
execution is non-negotiable; that brands must
be meaningful and differentiated; that
decision-making must be data-driven; that
offline needs online, but that online also needs
offline; and that mobile phones will unite the
online and offline channels, becoming the way
we build a relationship with our customers.
Great strengths to build on
After the work we have done, my confidence in
the future of department stores is as strong as
ever. As one of the most powerful brands in UK
retail, I see great strengths we can build on at
Debenhams; and we have identified a number
of ways to improve the way we operate.
The Debenhams brand has 97% awareness in
the UK and 19 million customers shop with us
every year in stores that are often at the heart of
their local community. We have market-leading
positions in key categories such as beauty and
occasionwear, and half of what we sell is either
our own brands or exclusive to us. We are one
of the most visited online retailers in the UK,
with over 280 million visits to our website last
year. And we have profitable international
6
Strategic reportDebenhams plc Annual Report & Accounts 2017 operations, with a successful separately-
branded business in Magasin du Nord, the
leading department store business in Denmark.
an experience that many of them will want to
share. This is our mission: to make shopping
confidence-boosting, sociable and fun.
Changing shopping habits
As part of our research, we spent time talking
to our customers, and shopping with them.
We asked them about their shopping habits in
the categories that are important to us and it
is clear that, for the majority of our customers,
the leisure experience is as, or more, important
than convenience. At the same time, we
looked at how customers are using the device
that is part of everyone’s life today, their
mobile phone, in the context of shopping
and leisure. In Market context on page 4,
we explain how that has given rise to the
ambition that Debenhams should become
the destination for “Social Shopping”.
Debenhams is a destination for fashion and
beauty. Our customers tell us that shopping for
these key categories is about buying a product
that will help them look good and feel great,
providing a confidence boost; and that the
customer journey should be easy and fun –
Strategy that starts with what
customers want
Our starting point is what our customers
want. We need to create products, brands
and services that excite them and we need
to make it easy for them to buy from us. Our
plan is to transform the shopping experience
at Debenhams, creating great reasons for
our customers to come to us whether they
are sitting at home, commuting to work or
enjoying leisure time browsing in stores. We
want to build stronger, more personalised
relationships with them, centred around
mobile interaction.
Our objective is to build a successful
future for Debenhams against a fast-
changing background. To help us deliver
this, we have built a plan that is good for
our customers, good for our colleagues
and, therefore, good for our shareholders.
We call it Debenhams Redesigned.
See our strategy
in action spreads
on pages 9-19
A NEW STRATEGY: DEBENHAMS REDESIGNED
We have identified a category we define as Social Shopping, and in which Debenhams aims to be a leader in,
as we explain in the Market context on page 4, through the following strategic framework:
Destination
We aim to make Debenhams a destination for Social
Shopping by focusing on three key areas to grow:
beauty & beauty services; fashion via accessories; and
food & events – which we call Meet me @ Debenhams.
If we can be higher in our customers’ consideration for
these categories, this will increase frequency of visits. Our
customers visit us less frequently than some of our peers
and by exploiting our market-leading position in premium
beauty, encouraging cross-shopping between fashion
and accessories and creating exciting places to eat and
drink, we can increase traffic and spend per customer.
Different
We are redesigning the culture at Debenhams, from
being process-driven, to customer-led. We aim to foster
creativity and innovation, underpinned by data-driven
decision-making. We will reinvent Designers@Debenhams,
making the proposition more relevant and managing
our brand portfolio more robustly. We will build ranges
for our online customers first. By being different in how
we create and manage our brands and product, we will
build their desirability and value.
Digital
Growth in mobile demand is driving growth in UK
non-food retail sales and is a significant opportunity
overseas. Our growth in mobile demand in 2017 was
57%, and mobile now accounts for 55% of Group digital
sales. By using mobile to integrate our channels and
become the primary means of interacting with our
customers, we will increase loyalty and personalisation
and broaden our reach. We intend to increase our
digital distribution both through our own infrastructure
and via strategic partnerships.
Underpinned by
Simplify & Focus
We have embarked on a review of our processes and
the way we do business in all areas to simplify them
and improve our flexibility. We will aim to free up
time for our people to serve customers and make
better use of our inventory and our infrastructure. Our
simplification of processes and operations will free up
time for our colleagues to serve our customers better
and encourage creativity and innovation at the centre.
As we manage our stock more efficiently, this will help
to improve full price sales and stock turn.
This strategy will deliver growth and efficiency over the next three years and beyond, delivering an enhanced experience
for our customers, helping our colleagues to serve our customers better and creating value for our shareholders.
7
www.debenhams.comStrategic report
CEO’s strategic perspective continued
Read more on
pages 16-17
Fixing the basics
We did not wait until we unveiled our new
strategy to start work. In January, I tasked
our teams to get on with fixing some of the
practices in the business that we needed to
improve, and since our new director of HR
joined in May, she has been hard at work
on the most important part of how we will
transform the business, our organisation
and culture. We have established three new
business units: Fashion & Home, Beauty &
Beauty Services; and Food & Events, in line
with the Destination categories we identified.
My report card to date shows that we have
delivered the following important initiatives
since the beginning of the year:
• Reduced task-based focus in store,
and introduced training programmes
to support 2,000 more colleagues
in customer-facing roles
• Repurposed our head office as a “support
centre” for the business, rather than a
head-office “process-driven” approach
• Added customer-service metrics to our
internal KPIs, and seen a positive
improvement in our net promoter score
• Reduced the average number of stock options
by approximately 10% and reduced the fixture
density in stores to make shopping easier
• Reduced the time to replenish stock
from eight days to two days through
our direct-to-floor distribution initiative
• Closed ten regional warehouses and
begun consultation for the closure of
our Northampton distribution centre
• Announced the closure of two stores,
at Farnborough and Eltham
• Opened two new stores, at Stevenage
and Wolverhampton, that are providing
a “test lab” for new ideas on layout and
merchandise presentation
• Developed our own progressive web app
with expert partners to make our mobile
site much faster and more responsive
• Announced a partnership with blow LTD,
the UK’s largest and fastest-growing
“on-demand” beauty services provider
• Announced a partnership with Sweat!
to trial three gyms in stores
A strengthened management team
We have said “Hello” and “Goodbye” to some
members of the senior team, so I would like to
take a moment to thank Suzanne Harlow, Nikki
Zamblera and Peter Swann, who have left us in
2017. Thank you for your dedication, enthusiasm
and expertise, and your contribution to
Debenhams over many years. And we have
welcomed two new members of the Executive
Committee: Sally Hyndman, who has joined
from Dixons Carphone as Director of HR, and
Angela Morrison, Director of Technology and
Supply Chain, who has joined from Direct Line.
With a number of other senior appointments,
we have strengthened our management team
and put in place an organisational structure
to support the delivery of our strategy.
Sergio Bucher
Chief Executive Officer
26 October 2017
DEBENHAMS’ MANAGEMENT TEAM
The right team to take the business forward
Executive Committee (left to right):
Matt Smith
CFO
Sally Hyndman
Director of HR
David Smith
Managing Director, International
Sergio Bucher
CEO
Angela Morrison
Director of Technology and Supply Chain
Richard Cristofoli
Managing Director, Beauty & Marketing
Ross Clemmow
Managing Director, Retail, Digital, Food & Events
Read more on page 43
8
Strategic reportDebenhams plc Annual Report & Accounts 2017 Getting the basics right
A year of significant action
OCT
2016
DEC
— Sergio Bucher joins
Debenhams as CEO
Initiates customer research and fully
loaded P&Ls by store, category and brand
— Digital sales growth
accelerates over peak
Driven by mobile demand
up 68%
—
Support centre
launches Simplify Week
— Customer service
metrics added to KPIs
— Remerchandising
trials for lingerie
commence
— Plans for Stevenage
opening revised
FEB
MAR
JAN
2017
— Debenhams reports record
Christmas trading, with 5%
LFL growth over peak
— “Fix the basics” plan gets under way
Redesigned
— Q3 trading update
— Direct-to-floor
deliveries commence
APR
MAY
JUNE
— Debenhams Redesigned
strategy unveiled
alongside interims
— Consultation begins on
warehouse closures
— New Executive
Committee members join
— Single warehouse management
system transition completed
JULY
AUG
— Colleague training
programme begins
— Regional warehouses
start to close
New Stevenage
store opens
9
www.debenhams.comStrategic report Strategy in Action
Destination
We will make shopping easy and fun for our customers,
giving them more reasons to visit us whether at home,
travelling to and from work, or on the high street.
BEAUTY PRODUCTS
AND SERVICES
What we have done
Debenhams has a leading market position in
premium beauty and is the clear number one in
make-up. We are becoming the go-to partner
for key brands entering the UK market.
What we are going to do
We are targeting a £1 billion business in beauty,
being our customers’ preferred destination in all
channels. We are relaunching Beauty Club, our
loyalty scheme with 1.2 million cardholders, with
Alesha Dixon as the face of “Let’s Talk Beauty”,
and rolling out new features. We have partnered
with blow LTD. as the first step in our plans to
accelerate growth in the £4 billion beauty
services market.
10
Strategic reportDebenhams plc Annual Report & Accounts 2017 MEET ME @ DEBENHAMS
What we have done
We have opened around 65 new food and
drink offers with a variety of brand partners
over the past two years, and at the same time
upgraded our own menus and service in
instore restaurants.
What we are going to do
We plan exciting store environments, with a
further 50 new food and drink offers over the
next three years, alongside a new in-house
developed brand with a distinctive healthy
eating position, Loaf & Bloom. We aim to
be the nationwide destination for shopping
events, with privileged access for our
VIP customers.
FASHION VIA
ACCESSORIES
What we have done
Debenhams has a 5% share in the
UK clothing market, with a number
one market position in important
accessories categories (eg bags,
swimwear, costume jewellery).
What we are going to do
We plan to reproduce the success
of our beauty halls in accessories.
We see a major opportunity to
grow share in the large categories of
footwear and lingerie via a distinctive
branded offer, more newness and
an enhanced service proposition.
11
www.debenhams.comStrategic report Strategy in Action
Digital
Mobile will become the primary means of interacting
with our customers; we aim to increase loyalty and
personalisation and broaden our reach.
MOBILE @
EVERYWHERE
What we have done
We delivered strong growth in sales via
mobile devices which now account for
more than half of online orders, and
as a result of a continuing programme
of upgrades, we have improved
smartphone conversion rate by 15%.
What we are going to do
We aim to move towards fully
integrated channels supported by
a new progressive web app that has
significantly improved our mobile site.
Mobile will become the primary means
of customer interaction, enabling us
to build loyalty and personalisation.
12
Strategic reportDebenhams plc Annual Report & Accounts 2017 CLICK & PLAY
What we have done
Next day click & collect accounts for
over 30% of online orders and drives
store footfall. We have been testing
a partnership with Doddle in a
number of stores providing pick-up
points for other online retailers.
What we are going to do
Alongside providing a convenient
and reliable service for customers,
we aim to transform the
experience to be engaging and
sociable. We see the opportunity
for enhanced service, linked with
personal shopping and other
activities to make click & collect a
leisure experience in its own right.
BROADEN OUR REACH
What we have done
We have used digital growth to reach geographies
that would not support a store, and we have begun
to reach new demographics through selling some
of our brands via online partners.
What we are going to do
We are developing a new income stream through
third party partnerships with selected digital
partners such as Amazon, ASOS and Zalando.
By exploiting opportunities to market our brands
outside Debenhams, we will build value for these
brands in their own right.
13
www.debenhams.comStrategic report Strategy in Action
Different
We aim to foster creativity and innovation,
underpinned by data-driven decision-making.
INNOVATION
AND CULTURE
What we have done
We have begun the transformation of
the organisation from a process-based
focus towards a customer-first approach.
What we are going to do
We are launching a new service model,
with more colleagues in customer-facing
roles. We aim to create an agile-minded
environment to encourage innovation,
where decision-making will be driven by
data rather than opinion. We will be open to
using partnerships to progress more quickly
where appropriate.
BRAND CREATION
AND DISTRIBUTION
What we have done
We have a strong track record of brand
creation, with a number of our brands
generating annual turnover of over £100m,
making them sizeable businesses in their
own right.
What we are going to do
We intend to take a different approach to
ranging our stores, by building brands for
online first and editing local store ranges
based on online catchment data. For our
best brands, we see the opportunity to
build global distribution.
14
Strategic reportDebenhams plc Annual Report & Accounts 2017 DESIGNERS
@ DEBENHAMS
What we have done
Our long-standing collaboration with
designers remains a core attraction
for customers and an important point
of differentiation for Debenhams.
What we are going to do
We plan to refresh and revitalise the
brands, taking a more robust portfolio
approach to managing them with the
aim of staying fresh and contemporary.
We are testing different merchandising
approaches to support a more
premium presentation.
GET TO KNOW OUR FABULOUS
DESIGNERS EXCLUSIVE TO DEBENHAMS:
www.debenhams.com/
designers-at-debenhams
15
www.debenhams.comStrategic report
Strategy in Action
Simplify
& Focus
We will simplify our business, eliminating
unnecessary tasks and processes and making
better use of our resources to improve
efficiency and flexibility.
STORE ESTATE
What we have done
We have a good portfolio of 177 stores
in the UK and Republic of Ireland. We
have analysed the potential for each
store’s profitability as online sales take
a higher proportion of retail sales.
What we are going to do
We have identified up to ten stores for
potential closure, and have confirmed
that two of these will close in early 2018.
We have also tested some new ideas on
layout and fixturing in our new stores at
Stevenage and Wolverhampton. Where
appropriate, we will look to right-size
stores for their location; our refitted
store at Uxbridge is an example of
this approach.
16
Strategic reportDebenhams plc Annual Report & Accounts 2017 OPERATING MODEL
What we have done
In May 2017 we completed the
transition to a single warehouse
management system, which gives us
a single view of stock across channels.
We have continued the replacement
of our legacy systems and are now over
half way to completion of this project.
What we are going to do
Business units will be aligned to the
Destination categories, each overseen
by a member of the Executive
Committee. Our aim is to shift our
model from a process-driven to a
customer-led operation, supported
by a more flexible supply chain. We
plan to accelerate the automation of
warehouse processes and in Stevenage
have tested a store operating model
that will be more flexible and cheaper
than a traditional store.
BETTER USE
OF RESOURCES
What we have done
We have reduced unnecessary tasks
for our store-based colleagues and
started a training programme to
support enhanced customer service,
aligning this with incentives.
What we are going to do
The introduction of direct-to-floor
stock deliveries and more frequent
replenishment means we can operate
with lower stock densities and still
improve availability. With fewer tasks to
complete, we will switch approximately
2,000 store colleagues to customer-
facing roles.
17
www.debenhams.comStrategic report Strategy in Action
International
Debenhams’ International accounts for around a third
of Group profits, with own-operated businesses in the
Republic of Ireland and Denmark, 63 franchise stores
and a growing digital presence.
LEVERAGE AND
GROW SUCCESSFUL
PARTNERSHIPS
What we have done
We have strong existing partnerships
in markets such as the Middle East,
accounting for half our franchise
operations. We have grown international
digital sales by more than 40% in FY2017.
What we are going to do
We will open flagship international stores
in Australia and Kuwait in FY2018. We
plan to build on new digital partnerships
with Amazon and other digital
marketplaces and we will extend into
new markets in Europe and Asia this year.
18
SIMPLIFY
What we have done
We have reviewed our international
market presence, closing nine
franchise stores, mainly in
Eastern Europe.
What we are going to do
We are developing a future franchise
service model for existing and
new partners.
What we have done
We have invested in our Copenhagen
flagship. Digital growth has continued
strongly, with the launch of 100 new
brands online.
What we are going to do
A new store in Aalborg will open in
2018. We will add a further 150 brands
online and plan to develop a digital
presence in other Scandinavian
markets, leveraging our existing
infrastructure.
Strategic reportDebenhams plc Annual Report & Accounts 2017 CEO’s strategic perspective continued
Q&A WITH CEO SERGIO BUCHER
Q: What is Social Shopping?
A: It is a fun leisure activity, enjoyed with
friends or family and shared directly or via
social media. The mobile phone is front
and centre of how our customers interact
with each other, it is driving growth in retail
sales and it is the enabler for Social
Shopping. Through this, we want to build
stronger, more personalised relationships
with our customers.
Q: What’s the timeframe for delivering
the strategy?
A: We started back in January 2017, fixing
some of the basics, before we had finalised
the strategy. Our self-help programme is
already delivering change. We are well
under way with testing and trialling key
elements of the strategy, and performance
through peak will determine the speed
and scale of roll-out. We are also using
partnerships to accelerate the pace of
change, – for example, our partnership
with blow LTD. will allow us to step-change
our growth in beauty services. Within
three years, you will see real change
at Debenhams.
Q: Is this strategy about growing
sales or margins?
A: This strategy is about growth, increasing
the frequency of customer visits through
becoming a Destination, Digital and
Different. If we simplify the way we operate,
we will become more efficient and by
driving operational leverage, this will
deliver improved returns for the business.
Q: Will you change course if there
is a consumer downturn?
A: We are operating in uncertain markets
and we will react to material changes in the
market in order not to threaten the stability
of the business. However, our direction of
travel is clear and we are confident that
the changes we are making will enable
this business to have a successful and
profitable future.
19
“ Our new strategy is about creating great
reasons for our customers to come to
Debenhams so they visit us more frequently.”
Q: How will Debenhams’ new strategy
help to mitigate headwinds?
A: Our diversified business model together
with good cash generation means that
Debenhams is in good shape to withstand
a market background that remains
uncertain. We have 19 million customers
who are changing their shopping habits,
so we are changing too. Our new strategy
is about creating great reasons for our
customers to come to Debenhams so
that they visit us more frequently.
Q: Are department stores
becoming obsolete?
A: If I believed that I wouldn’t have joined
Debenhams. This business has faced
many different threats in its 200 years of
existence but has adapted and survived.
For many customers, our stores have been
part of their families’ lives for years, and
many of our 177 UK and Irish stores are
in great locations at the heart of their
communities. The same is true for our
Magasin stores in Denmark. By defining
what we want to stand for, and simplifying
the way we operate, integrating the digital
and physical experience, we can refocus
our attention on what makes a difference
to our customers today.
www.debenhams.comStrategic report Resources, relationships and sustainability
HOW WE MANAGE OUR RESOURCES & RELATIONSHIPS
78%
Employee
engagement
>£1.7m
raised by the
Debenhams
Foundation
COLLEAGUE ENGAGEMENT
& CULTURE
Debenhams directly employs around 27,000
people globally. Our annual engagement
survey demonstrates we have a loyal and
engaged workforce and that our colleagues
particularly value the teams that they work with.
Our colleagues have told us that our culture
is warm and friendly. To build on this and align
our culture to our ambition to be customer-led,
we are embarking on a comprehensive review of
our Colleague Proposition. We are working with
over 200 colleagues to build our new Proposition
which will harness the best of our culture today
together with the cultural shifts needed to
achieve our mission to make shopping
confidence-boosting, sociable and fun.
We again held our Learning@Work Week
programme, where 2,000 support centre
colleagues can choose to attend sessions
on a wide variety of topics that range from
those aiding understanding of aspects of
the business, to those aimed at encouraging
health and wellbeing.
We will continue to measure our culture and
how engaged our colleagues are through our
annual survey and this will be enhanced by
the introduction of a pulse survey in FY2018.
We encourage two-way communication
throughout the business. Business information
and key messages regarding Company
performance and the strategy are shared
through weekly debrief emails, personal video
messages from the CEO and a monthly cascade
from members of the executive committee.
20
EQUAL OPPORTUNITIES
We are committed to ensuring that colleagues
are treated equally, regardless of gender,
sexual orientation, religion or belief, age,
mental status, social class, colour, race,
ethnic origin, creed, disability, political or
philosophical beliefs,or marital or civil
partnership status.
Through our equal opportunities policy, we
aim to create an environment that offers all
colleagues the chance to use their skills and
talent. Decisions on recruitment, training,
promotion and employment conditions are
based solely on objective, job-related criteria,
and personal competence and performance.
The Company seeks wherever possible to
make reasonable adjustments to ensure that
a colleague who becomes disabled during
the course of his or her employment is able
to continue working effectively. This includes
providing equipment or altering working
arrangements; providing additional training;
reallocating on a temporary or permanent
basis some of the colleagues’s duties to other
members of staff; transferring the colleague
to a suitable alternative role; and adjusting
working times. Any such adjustment will be
monitored and reviewed on a regular basis
to ensure it continues to be effective.
Debenhams is also supportive of the UK
government’s commitment to address the
gender pay gap, refer to page 49 for more
information on our gender diversity policy. In
line with new regulations, we will be publishing
our data on our corporate website in FY2018.
BUILDING A PIPELINE OF
LEADERS FOR THE FUTURE
We adopt a consistent approach to identifying
and developing talent across the stores and
the support centres.
We have an aligned talent development
approach across our stores and our support
centre and use a consistent framework to
develop our leaders of the future. Our six-step
development programme allows for easy
transferability of talent across retail and
support centre functions.
Strategic reportDebenhams plc Annual Report & Accounts 2017
“ Respecting human rights is a fundamental
part of our company ethics and integrity.”
In addition, we run a business placement
programme which brings new talent into the
business and have extended this programme’s
reach in focus and growth areas such as
e-commerce.
APPRENTICESHIPS
With the arrival of the apprenticeship levy,
we have developed a three-year plan for
apprenticeships to support key areas of
the business in order to build our skill set
and pipeline of talent. Year one focuses on
the first step into retail management with
140 retail apprentices having commenced
their 16 month programme in May 2017.
We have been one of the first retailers to use
the new retail trailblazer apprenticeships and
will continue to build on this in years two and
three of our plan. Additionally, in years two
and three, we will introduce apprenticeship
programmes into our support centre and
build further routes to recruit externally for
apprenticeship programmes.
DEBENHAMS FOUNDATION
Since 2012, we have raised over £7 million
for charitable causes under the Debenhams
Foundation. In FY2017, over £1.7 million was
raised via activities such as in-store fundraising,
dedicated product donation and donated
carrier bag income. These funds help to
support a range of charities including Look
Good Feel Better, Help for Heroes, BBC
Children in Need and Breast Cancer Now.
For more information, visit our webpage at
http://sustainability.debenhamsplc.com/
debenhams-foundation.
ANTI BRIBERY & CORRUPTION
Debenhams is committed to conducting its
business affairs so as to ensure that it does
not engage in or facilitate any form of bribery
or corruption. It is Debenhams’ policy to
prohibit all forms of corruption involving our
employees, contractors, agents, and any
associated parties acting on our behalf. Our
Anti Bribery Policy outlines the expected
standards of behaviour and provides guidance
to our colleagues on the giving and receiving
of gifts and hospitality. This policy has been
supported by a training programme for
selected roles.
GLOBAL SOURCING
We source our product from a diverse supply
chain. Respecting human rights across our
global reach is a fundamental part of our
Company ethics and integrity. Our sourcing
ethical trade programme covers the entire
product supply chain.
939
factories
939 factories impacting over
525,000 workers in 34 countries.
Supplier
Compliance
• Supplier on
boarding
• Risk management
• Processes
• Capacity building
& Supplier
ownership
Worker Welfare
• Female
empowerment
• Health & Safety
• Worker
wellbeing
• Worker inclusion
Top 6
countries
China
India
Bangladesh
Turkey
Romania
UK
Number of
factories
April 2017
465
148
65
40
23
24
>800
compliance audits
Our extensive due diligence processes and
assessment of suppliers and factories ensure
that our Supplier Code of Conduct is adhered
to. Our Code is based on the ETI (Ethical
Trade Initiative) and ILO (International Labour
Organisation) core conventions. We have been
a member of the ETI since 2001.
Intertek, our global audit partner, together
with our own ethical compliance teams based
in the UK, Hong Kong, Shanghai, Bangladesh
and Sri Lanka, conducted over 800 factory
visits in FY2017 to assess their compliance,
the majority of which were unannounced.
New supplier factory on boarding
DRIVEN BY
Audit programme on factories
Governance policy and process
Collaborative industry partnerships
O
D
E
W
T
A
H
W
Factory visits
Programmes & projects
Modern Slavery
Act 2015
Human Rights and
United Nations
guiding principles
Sustainable
development goals
For more information, visit our webpage at
www.sustainability.debenhamsplc.com/debenhams-foundation.
21
www.debenhams.comStrategic report
ENVIRONMENT AND
ENERGY EFFICIENCY
Annual report Greenhouse Gas (“GHG”)
emissions reporting
We have reported our greenhouse gas (GHG)
emissions for our UK, Irish and Danish
operations since 2008. Since then, our
footprint boundary has evolved to include
areas such as other international offices,
packaging, production of hangers, and
manufacture of catalogues, brochures and
direct mail. This section provides a breakdown
of our GHG emissions for this year. Further
details of our GHG emissions can be found on
our website http://sustainability.
debenhamsplc.com/.
With the support of Ricardo Energy &
Environment, we have applied the GHG
Protocol Corporate Accounting and Reporting
Standard (revised edition), and the UK
Government Conversion Factors for Company
Reporting, 2017, to calculate our carbon
emissions. Our annual reporting year is 4
September 2016 to 2 September 2017 and we
report GHG emissions in line with this period.
Last year we followed the GHG Protocol’s new,
Scope 2 emissions reporting guidance and
used two different quantification methods:
location-based and market-based. We
followed this methodology again this year.
Scope 2 emissions using the market-based
method are lower than those derived from the
location-based approach, mainly because of
our decision to purchase 100% renewable
electricity in the Republic of Ireland and
Northern Ireland.
This year, our overall carbon footprint has
decreased by 13%, from 204,136 tonnes CO2e
in 2016 to 177,611 tonnes CO2e this year (using
the location-based approach). Table 1 opposite
provides a breakdown of these figures.
1 The location-based method reflects the average
emissions intensity of grids on which energy
consumption occurs, whereas the market-based
method reflects emissions from the electricity
that companies have chosen in the market
(or their lack of choice).
Resources, relationships and sustainability continued
HUMAN RIGHTS &
MODERN SL AVERY
The Company has a number of policies in
place to protect and promote employee
welfare and is committed to supporting
all human rights in our business
operations as well as in our relationships
with our suppliers and other stakeholders.
Our commitment to prohibiting modern
slavery is defined in our Human Rights
and Modern Slavery policy.
The following outlines some of the
actions Debenhams has carried out
to support the Act:
• Training extended to our suppliers
and factories in Delhi, Bangalore
and Bangladesh.
• Further sessions have been held
internally to raise awareness of
modern slavery across UK, Denmark,
Hong Kong, Shanghai and
Bangladesh. Training will be
conducted for our Sri Lankan office,
which has recently opened.
• All of our 21 UK manufacturers have
had a Fast Forward audit and now
have action plans if required.
• We have collaborated with the
Gangmasters & Labour Abuse
Authority to understand practices
of labour providers.
• We have gained further
understanding of our goods not for
re-sale service providers and they
have attended mandatory training on
modern slavery which was provided
by Fast Forward during FY2017.
A full version of Debenhams’ statement
on Modern Slavery is on our website at
www.sustainability.debenhamsplc.com
Debenhams previously operated
a Sustainability Committee which,
amongst other activities, oversaw and
monitored actions taken to prevent
modern slavery. This role is now the
responsibility of the Risk Committee.
The Director of Ethical Trade and
Corporate Responsibility, who is
responsible for driving initiatives
internally and externally to support
the Act, provides quarterly updates
to the Risk committee on all risks and
mitigating actions covering corporate
social responsibility work.
-13%
CO2 emissions
Read more on
page 29
22
Strategic reportDebenhams plc Annual Report & Accounts 2017 Table 1: Absolute GHG emissions from Scopes 1, 2 and 3 shown in tonnes CO2e (tCO2e)
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
FY2012
14,850
144,536
FY2013
17,786
139,607
FY2014
15,989
149,068
FY2015
19,668
139,354
Not calculated; market-based method was
introduced in FY2016
Scope 3
Total
19,071
178,457
16,687
174,080
28,308
193,365
31,908
190,930
FY2016**
14,241
125,453
113,134
64,442
204,136*
FY2017
13,721
103,754
81,914
60,136
177,611*
* Total emissions calculated using the location-based Scope 2 emissions figure.
** FY2016 is a 53 week year.
The emissions data is made more meaningful when compared to a core business variable. We have used intensity ratios, alongside
the absolute figures provided above, to report our GHG emissions in the context of our annual turnover and premises floor area.
Table 2 shows the total annual turnover 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 turnover and tonnes of CO2e per m2 of floor area,
respectively, as shown in Table 3.
These tables show that the tonnes CO2e for both intensity metrics have also decreased.
Table 2: Data used for intensity measurements
Turnover (£m)
FY2012
2,700
FY2013
2,777
FY2014
2,824
FY2015
FY2016**
2,860
2,939
FY2017
2,954
Total floor area* (m2)
1,838,924
1,808,398
1,850,874
1,867,291
1,876,533
1,873,568
* Total floor area includes stores, offices and distribution centres.
** FY2016 is a 53 week year.
Table 3: Assessment of absolute footprint emissions
Absolute
Emissions (tCO2e)
Absolute tCO2e/£m Turnover
Absolute tCO2e/m2
FY2012
178,457
66
0.097
FY2013
174,080
63
0.096
FY2014
193,365
68
0.104
FY2015
190,930
67
0.102
FY2016**
FY2017
204,136*
177,611*
69
0.109
60
0.095
* Total emissions calculated using the location-based Scope 2 emissions figure.
** FY2016 is a 53 week year.
The carbon footprint has decreased across all three scopes this year compared to 2016. The main reasons for the decrease
in the overall emissions is due to a reduction in: electricity consumption, including the associated grid losses (18%
reduction); company vehicles mileage (27% reduction); staff travel (21% reduction); and outsourced- freight (4% reduction).
We will continue to invest in projects that will reduce our footprint and environmental impacts. We are committed to
continuously improving the energy efficiency of our buildings and operations as seen by a reduction in this year’s carbon
footprint. In FY2017; we invested over £3 million and retrofitted LED lighting in 16 stores. These projects have not only
delivered excellent results in reducing energy use, but have also led to a more comfortable customer environment. We
will be investing £3 million in 2018 on energy efficiency projects, with LED lighting continuing to feature heavily since
lighting typically accounts for 35% of energy use in a store.
We have a carbon reduction target to reduce group-wide Scope 1 and 2 absolute operational CO2e emissions by 10% by
2020 against our 2007/08 baseline. The FY2017 Scope 1 and Scope 2 total emissions have reduced by 32% compared to
the Scope 1 and 2 CO2e emissions in FY2008. This suggests that if the reduction continues, or remains stable, we will
meet our target by 2020.
Overall, the progress on improvement and monitoring management remains stringent and during the next few years
towards 2020, we aim to continue to positively contribute to the Better Retail Climate as part of our drive to save energy
and protect the environment.
23
www.debenhams.comStrategic report
Key performance indicators
In light of our new strategy, Debenhams
Redesigned, strategic KPIs linked to the
Destination categories where Debenhams
is targeting growth have been established.
These, along with some of the financial
KPIs, are linked to management
remuneration and more information can
be found in the directors’ remuneration
report starting on page 64. We have also
maintained sustainable KPIs that ensure
that the management of resources and
relationships remains core to our
business model.
All income statement numbers for
FY2016 are given on a 52-week basis.
GROUP FINANCIAL KPIs
Like-for-like sales change (%)
Underlying profit before tax* (£m)
0.6
2015
0.6
2016
2.1
2017
113.5
114.1
2015
2016
95.2
2017
Rationale
Like-for-like (LFL) is a measure of the
annual performance of stores that have
been open for at least one year, plus
digital sales growth, from our UK and
international business.
2017 performance
Group LFL sales increased by 2.1%. When
adjusted for foreign exchange translation,
constant currency LFL growth was (0.2%),
with UK LFL of 0.0% and international (0.2%).
Rationale
PBT is our principal measure of profitability,
and excludes items that are one-off in nature.
2017 performance
Underlying PBT* declined by 16.6% to
£95.2 million on a 52-week comparative,
after a weaker H2 performance mitigated
by tight cost management.
* Before exceptional items (2017: £36.2
million; 2016: £12.4 million; 2015: £nil).
Underlying earnings per share*
(pence)
Return on capital employed* (%)
Net debt (£m)
7.6p
2015
7.5p
2016
6.4p
2017
12.2%
11.8%
11.1%
2015
2016
2017
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.
2017 performance
Underlying EPS* declined by 14.7% to
6.4p, after a reduction in profit after tax.
Rationale
Return on capital employed (ROCE)
measures the profitability of the company
relative to the size of assets used to
generate returns.
2017 performance
Underlying ROCE declined from 11.8%
to 11.1% reflecting the fall in profitability
in the year.
* Before exceptional items (2017: £36.2
million; 2016: £12.4 million; 2015: £nil).
*
Lease-adjusted before exceptional items.
319.8
2015
279.0
2016
275.9
2017
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.
2017 performance
Including cash outflow relating to the
exceptional restructuring charges,
year end net debt has reduced to
£275.9 million.
24
Strategic reportDebenhams plc Annual Report & Accounts 2017
STRATEGIC KPIs
SUSTAINABILIT Y KPIs
Growth in Beauty & beauty
services – gross transaction
value growth (%)
Growth in Food, drink & events
– gross transaction value growth
(%)
Carbon emissions
(CO2e 000 tonnes)
4.4%
2015
6.0%
2016
4.8%
2017
Rationale
Core destination category in which
Debenhams will build market leadership.
2017 performance
The Beauty category delivered sales
growth of 4.8% supported by strong
performance in new and exclusive
cosmetics brands underpinned by
good market growth.
1.9%
2015
8.2%
2016
8.0%
2017
Rationale
“Meet me @ Debenhams” is a core
destination category that drives
frequency of visits.
2017 performance
Food and drink GTV grew by 8.0%
driven by further new third party
brand introductions.
191
2015
204
2016
178
2017
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.
2017 performance
Applying the same emissions criteria
as last year, emissions declined by 13%.
This reflects a reduction in electricity
consumption, reduced company vehicle
mileage and outsourced freight.
Growth in mobile penetration
– Mix of demand (%)
Accelerating warehouse automation
– online cost improvement
(bps improvement to GTV)
Employee engagement (%)
43.1%
48.2%
55.0%
2015
2016
2017
160
2015
40
2016
70
2017
79
2015
79
2016
78
2017
Rationale
Mobile@everywhere will be the primary
form of customer interaction unifying
channels and building loyalty.
2017 performance
Mobile demand grew by 57%, outpacing
desktop demand and accounting for 55%
of digital orders.
Rationale
Driving efficiency through investment
in warehouse automation to improve
digital profitability.
2017 performance
Cost ratios improved by 70 bps as a
result of efficiencies made.
Rationale
We conduct an annual engagement
survey, inviting all employees in our
UK and Irish stores and support centres
to participate.
2017 performance
In a year of rapid change in the
organisation, our engagement score
was slightly down at 78%, with more
than 20,000 colleagues participating.
25
www.debenhams.comStrategic report
Risk management
OPTIMISING OUR RISK
MANAGEMENT PROCESSES
Figure 1: Debenhams’ risk management framework
THE BOARD
Set strategic objectives
Agree risk framework and risk appetite
Identify principal risks and ensure appropriate management
Set delegation of authority
Approve Group policies & procedures
EXECUTIVE
COMMITTEE
Monitor performance and changes
in key risks facing the business
and provide regular
reports to the board
Agree key actions to
manage risks
RISK
MANAGEMENT
Guidance and advice to heads of
function and specialist teams to help
them with the following:
AUDIT
COMMITTEE
Monitor assurance and risk
management arrangements
Risk
reporting
Risk
treatment
Set risk
appetite
RISK
FRAMEWORK
Risk
evaluation
Risk
identification
HEADS OF
FUNCTION
Management and employees
are responsible for the
identification, evaluation,
treatment and reporting
of local risks
Maintenance of individual
department risk registers
Implementation of key
risk mitigation plans
26
EFFECTIVENESS OF
RISK AND CONTROL
PROCESSES
Reviews of the effectiveness
of key risk management and
control processes through:
– Internal audit
– External audit
– Whistleblowing
– Risk Committee
Strategic reportDebenhams plc Annual Report & Accounts 2017 Figure 2: Principal risks
The board of Debenhams considers it important that
there should be a regular and systematic approach to the
management of risks 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.
An overview of the risk management process including
clearly defined roles and responsibilities is outlined in
the risk management framework (figure 1).
Key
personnel
Economic
environment
Property
Currency
& hedging
Systems
availability &
cyber security
PRINCIPAL
RISKS
RISK MANAGEMENT ACTIVITIES
Risk appetite
The Group’s risk appetite is defined by the board, and
provides guidance on any requirement for additional
controls, implementation timeframes and authority levels.
Risk identification
Risks are identified through a number of routes, including
a regular organisation-wide review facilitated by the risk
management team across each operating division on an
ongoing cyclical basis. All senior managers participate
in the exercise, including the Executive Committee.
Risk evaluation
In order to understand the impact specific risks would have
on the Group, risks are evaluated based on the likelihood
of occurrence and severity using a standardised scoring
model. The model which considers the degree of change
across one or more performance indicators.
Risk treatment
The organisation-wide review captures the controls used
by management to mitigate identified risks, with the risk
score determining if additional treatment is required
based on the Group’s risk appetite.
Risk reporting
The outputs from these processes are collated into the
Group’s risk register and linked together to define the
principal risks faced by the Group. Performance is
monitored by the board, Executive Committee, Audit
Committee, Risk Committee, and other key governance
groups. The overall risk profile is taken into consideration
when setting the annual internal audit plan.
Viability assessment
The principal risks and uncertainties identified through
these risk management activities are taken into
consideration as part of the directors’ assessment of
ongoing viability, described in more detail on page 37.
WHISTLEBLOWING
Two main routes are available to colleagues to raise
concerns over malpractice. The first encourages
colleagues to talk to their line manager, their manager’s
manager or the human resources team. The second
route is a confidential telephone reporting line via which
colleagues can speak to the Group’s anti-fraud team.
Legal &
regulatory
Competition
for customers
Supply
chain & key
suppliers
Business
strategy &
transformation
If a colleague feels that the matter is so serious that it
cannot be discussed in any of these ways, they 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 reviewed annually
by the Audit Committee and any serious matters identified
are raised with the chairman of the Audit Committee.
PRINCIPAL RISKS AND UNCERTAINTIES
The risks detailed on pages 28 to 30 are the principal risks
and uncertainties that may impact the Group’s ability to
achieve its strategic and operational goals. They are
reviewed on, at least, an annual basis as part of the risk
management process, and have been ranked based on
overall risk to the business.
Whilst the impact of the UK’s decision to exit the
European Union cannot yet be fully quantified, a number
of existing risks have already been identified as sensitive
to this decision and which continue to be monitored
carefully, with appropriate levels of mitigating action
being considered as details emerge.
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.
27
www.debenhams.comStrategic report Principal risks and uncertainties
PRINCIPAL RISKS AND UNCERTAINTIES
1
ECONOMIC
ENVIRONMENT
Risk
• Continuing adverse
economic conditions
2
CURRENCY
AND HEDGING
Risk
• Currency fluctuations or
insufficient hedging
3
SYSTEMS AVAIL ABILIT Y
AND CYBER SECURIT Y
Risk
• Systems failure, external attack
•
of systems, or data inaccuracy.
Inability to continue smooth
operations following a
major incident
Potential impact
• A decline in sales on discretionary
purchases leading to a reduction
in profit and cashflow alongside
a material adverse effect on
Debenhams’ results
Potential impact
• Hinder ability to adjust rapidly to
changing market conditions and
impact earnings and cash flow
• Affect available cash and liquidity
and could have material effect on
the business, results of operations
and financial condition
Potential impact
• Failure in the stability, integrity or
availability of information systems
could adversely affect Debenhams’
business operations and results or
could cause inappropriate decisions
to be made using wrong, missing or
ambiguous information
Examples of mitigation
• The board conducts strategic
business reviews which ensure
that management is focused on
key priorities and cost control.
These reviews also focus on
the Group’s strategy to make
shopping confidence-boosting,
sociable and fun
• The continued volatility of the
consumer environment and the
ongoing economic uncertainty that
has followed the UK vote to leave
the European Union make this a
risk that is monitored carefully
Examples of mitigation
• 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
• The ongoing economic uncertainty
that has followed the UK vote to
leave the European Union makes
this a risk that is monitored
carefully
Please refer to note 22 to the financial
statements for more information on
this risk.
Examples of mitigation
• A robust systems infrastructure is
required to support the delivery
of our strategic objectives which
are outlined on pages 6 and 7
Information systems developments
are key enablers and critical to
ensuring we can compete effectively,
and these are monitored through
a business change roadmap
•
• The overall governance framework
has been further enhanced, and
includes committees that focus
on areas such as general data
protection regulation and payment
card industry compliance
• A business continuity policy and
processes, describing roles and
responsibilities across the Group,
ensure 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
• This is an increasing risk given the
rising levels of cybercrime globally
and the increasing reliance on
information assets
4
Risk
5
Risk
COMPETITION
FOR CUSTOMERS
BUSINESS STRATEGY
AND TRANSFORMATION
SUPPLY CHAIN
AND KEY SUPPLIERS
6
Risk
•
Inability to predict accurately or
• Failure to deliver Debenhams’
• Adverse events influencing either
key strategic priorities
the sustainability of the supply chain
fulfil customer preferences or
demand through competitive,
economic and profitable channels
Potential impact
Potential impact
Potential impact
• Sales will be lower, market share
• Could significantly delay or prevent
• Place pressure on margins and
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
the achievement of Debenhams’
business plan and could have
a material adverse effect on
Debenhams’ business, financial
condition or results of operations
Examples of mitigation
Examples of mitigation
Examples of mitigation
• Making shopping confidence-
• Debenhams is reviewing and
• Debenhams fosters close and
boosting, sociable and fun is at
the heart of Debenhams’ strategy,
which is outlined on pages 6 to 19
•
In developing its strategy, the
updating its business change
roadmap to ensure the project
portfolio supports the delivery
of the key strategic priorities
Group takes into consideration
• Management supplies detailed
or Debenhams’ relationship with
any of its major suppliers, service
providers, international partners,
designers or concessionaires
profitability or require the Group to
divert financial and management
resources from more beneficial uses
• Additional unplanned costs required
to transfer operations between
providers or additional operational
costs from a new provider
• Changes in exclusivity
arrangements with designers or
any decline in their popularity
• The loss of a number of key
concession partners
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 pages 21 and 22
• 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
• This is an increasing risk given the
uncertainty around future trade
agreements and duty rates
following the UK decision to exit
the European Union and is an
area of high management focus.
market, trend and customer
research, with the customer
insight team providing valuable
intelligence on any changes
in customer priorities
• 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
• The UK exiting the European
Union (EU) may generate foreign
exchange rate volatility, or changes
to trade agreements and duty
rates, which could impede the
organisations ability to compete
effectively, meaning this is a risk
that is carefully monitored
updates on progress within the
transformation programme, which
are closely reviewed by the board
to ensure that management is
focused on key priorities, cost
control and benefit realisation
• The UK exiting the European Union
may lead to loss of access to the
free movement of goods, services,
people and capital, making this a
risk that is closely monitored
• The volume and complexity of
change being implemented, its
importance to the business plan,
and our reliance on third-party
specialist resource to support
delivery make this a risk that is
monitored carefully
Strategic focus
Strategic focus
Strategic focus
Strategic focus
Strategic focus
Strategic focus
28
Strategic reportDebenhams plc Annual Report & Accounts 2017
1
ECONOMIC
ENVIRONMENT
Risk
• Continuing adverse
economic conditions
2
Risk
CURRENCY
AND HEDGING
• Currency fluctuations or
insufficient hedging
3
Risk
SYSTEMS AVAIL ABILIT Y
AND CYBER SECURIT Y
• Systems failure, external attack
of systems, or data inaccuracy.
•
Inability to continue smooth
operations following a
major incident
Potential impact
Potential impact
Potential impact
• A decline in sales on discretionary
• Hinder ability to adjust rapidly to
• Failure in the stability, integrity or
purchases leading to a reduction
in profit and cashflow alongside
a material adverse effect on
Debenhams’ results
changing market conditions and
impact earnings and cash flow
• Affect available cash and liquidity
and could have material effect on
the business, results of operations
and financial condition
availability of information systems
could adversely affect Debenhams’
business operations and results or
could cause inappropriate decisions
to be made using wrong, missing or
ambiguous information
Examples of mitigation
Examples of mitigation
Examples of mitigation
• The board conducts strategic
• Debenhams has a treasury policy
• A robust systems infrastructure is
business reviews which ensure
that management is focused on
key priorities and cost control.
These reviews also focus on
the Group’s strategy to make
shopping confidence-boosting,
sociable and fun
• The continued volatility of the
consumer environment and the
has followed the UK vote to leave
the European Union make this a
risk that is monitored carefully
ongoing economic uncertainty that
Effectiveness is measured regularly
• The ongoing economic uncertainty
protection regulation and payment
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.
by management through a series
of KPIs
that has followed the UK vote to
leave the European Union makes
this a risk that is monitored
carefully
Please refer to note 22 to the financial
statements for more information on
this risk.
required to support the delivery
of our strategic objectives which
are outlined on pages 6 and 7
•
Information systems developments
are key enablers and critical to
ensuring we can compete effectively,
and these are monitored through
a business change roadmap
• The overall governance framework
has been further enhanced, and
includes committees that focus
on areas such as general data
card industry compliance
• A business continuity policy and
processes, describing roles and
responsibilities across the Group,
ensure 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
• This is an increasing risk given the
rising levels of cybercrime globally
and the increasing reliance on
information assets
Key
Destination
Digital
Different
Simplify & Focus
4
COMPETITION
FOR CUSTOMERS
Risk
•
Inability to predict accurately or
fulfil customer preferences or
demand through competitive,
economic and profitable channels
Potential impact
• 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
Examples of mitigation
• Making shopping confidence-
•
boosting, sociable and fun is at
the heart of Debenhams’ strategy,
which is outlined on pages 6 to 19
In developing its strategy, the
Group takes into consideration
market, trend and customer
research, with the customer
insight team providing valuable
intelligence on any changes
in customer priorities
• 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
• The UK exiting the European
Union (EU) may generate foreign
exchange rate volatility, or changes
to trade agreements and duty
rates, which could impede the
organisations ability to compete
effectively, meaning this is a risk
that is carefully monitored
5
BUSINESS STRATEGY
AND TRANSFORMATION
6
SUPPLY CHAIN
AND KEY SUPPLIERS
Risk
• Failure to deliver Debenhams’
key strategic priorities
Potential impact
• 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
Examples of mitigation
• Debenhams is reviewing and
updating its business change
roadmap to ensure the project
portfolio supports the delivery
of the key strategic priorities
• Management supplies detailed
updates on progress within the
transformation programme, which
are closely reviewed by the board
to ensure that management is
focused on key priorities, cost
control and benefit realisation
• The UK exiting the European Union
may lead to loss of access to the
free movement of goods, services,
people and capital, making this a
risk that is closely monitored
• The volume and complexity of
change being implemented, its
importance to the business plan,
and our reliance on third-party
specialist resource to support
delivery make this a risk that is
monitored carefully
Risk
• Adverse events influencing either
the sustainability of the supply chain
or Debenhams’ relationship with
any of its major suppliers, service
providers, international partners,
designers or concessionaires
Potential impact
• Place pressure on margins and
profitability or require the Group to
divert financial and management
resources from more beneficial uses
• Additional unplanned costs required
to transfer operations between
providers or additional operational
costs from a new provider
• Changes in exclusivity
arrangements with designers or
any decline in their popularity
• The loss of a number of key
concession partners
Examples of mitigation
• 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 pages 21 and 22
• 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
• This is an increasing risk given the
uncertainty around future trade
agreements and duty rates
following the UK decision to exit
the European Union and is an
area of high management focus.
Strategic focus
Strategic focus
Strategic focus
Strategic focus
Strategic focus
Strategic focus
29
www.debenhams.comStrategic report
Principal risks and uncertainties continued
8
PROPERT Y*
Risk
• An adverse impact on performance
from property-related events, such
as store closures and business rate
or rental increases
Potential impact
• Significant alterations in rental
terms could have a material
adverse effect on the business
• Disputes over store modernisations
may lead to reinstatement costs
and termination of leases may
lead to dilapidation costs being
incurred that are in addition to
those provided for
Examples of mitigation
• Debenhams has a specialist
property team which manages
all aspects of leasehold property,
including cost renegotiations,
communication of the store
modernisation programme, lease
renewals and adherence to all legal
obligations under the lease
• This is an increasing risk given
the potential ten store closures
identified over the next five years
and the risk of impairment
9
KEY PERSONNEL
Risk
• Loss of key management
or other personnel whom
Debenhams depends upon
Potential impact
• Significantly delay or prevent
the achievement of Debenhams’
business plan
• Material adverse effect on
Debenhams’ business, financial
condition or results of operations
Examples of mitigation
•
In order to attract and retain talent,
both succession and personal
development plans are in place
throughout the Group. In addition,
target-led, performance-related
incentive schemes exist
• The UK decision to exit the
European Union could impact on the
availability of talent in the job market
and the eligibility for individuals to
work in certain jurisdictions, making
this a risk that is monitored carefully
7
LEGAL AND
REGUL ATORY
Risk
• Events that negatively impact the
reputation of, or value associated
with, Debenhams’ brand
Potential impact
• Loss of stakeholder trust and
confidence, including an adverse
effect on Debenhams’ ability to
attract and retain third-party
brands, suppliers, designers,
concessions and franchisees
• Material adverse effect on
Debenhams’ business, financial
condition or profitability
Examples of mitigation
• Forums exist to focus on specific
areas of legislation, with business
policies and procedures in place to
ensure roles and responsibilities
are understood across the Group
• Debenhams has specialist teams
in place to monitor changes to
legislation and standards, further
supported by membership of key
industry bodies to enhance
awareness
• All suppliers are expected to
adhere to Debenhams’ own
supplier code of conduct, which
is underpinned by Debenhams’
robust policy on compliance that
includes a focus on social and
ethical standards
• This is an increasing risk given
the uncertainty around the likely
changes to UK legislation
following the UK decision to exit
the European Union so it is being
monitored carefully
Strategic focus
Strategic focus
Strategic focus
* Risk is not new but now classed as a principal risk following annual review.
30
Strategic reportDebenhams plc Annual Report & Accounts 2017
Financial review
RESULTS UNDERPINNED
BY TIGHT COST MANAGEMENT
SEGMENTAL PERFORMANCE
The financial statements for the period ended
3 September 2016 included 53 weeks. In the
notes that follow, all comparative income
statement numbers for the 2016 financial year
use the results for the 52 weeks of trading to
27 August 2016. Management believes that
comparing like-for-like 52 week periods
demonstrates the underlying performance of
the business. Comparative cash flow numbers
reflect the full 53 weeks to 3 September 2016
and the comparative balance sheet is also at
that date.
UK
Gross transaction value for the UK segment
was broadly level with last year at £2,350.0
million and reported revenue decreased by
0.7% to £1,892.9 million. Sales benefited from
growth in digital performance and strong
trading prior to Christmas, supported by the
strategy to drive non-clothing sales such as
beauty, gifting and casual dining categories.
Performance after the Christmas period
slowed as the mix of sales moved away from
beauty and gifting, towards a more volatile
UK clothing market.
We continue to see digital growth and positive
trends in mobile, which now represents 55% of
UK digital orders, an increase in penetration of
c.10% on the year.
As we have continued to add choice in
concessions and moved further into non-
clothing categories, own bought mix
declined from 76.6% last year to 75.3%, with
a consequent dilution to gross margin rate,
offset by benefits from reduced markdown.
EBITDA before exceptional charges decreased
by 10.1% to £174.0 million reflecting the impact
of lower store sales and sales mix towards
lower margin divisions. Operating profit
before exceptional costs decreased by
22.0% to £74.0 million, as depreciation
expense rose as expected.
International
In the International segment, gross transaction
value of £604.1 million was 11.1% higher than last
year and reported revenue increased by 9.5% to
£442.1 million. Both metrics have been impacted
by stronger Euro and Danish Kroner exchange
rates, benefiting Group like-for-like sales by
2.3%. On a constant currency basis, International
gross transaction value declined by 0.8%, as a
result of difficult trading conditions within
Denmark and Republic of Ireland.
31
www.debenhams.comStrategic report Financial review continued
Table 1: Financial summary
£m
Gross transaction value1,2
UK
International
Group
Statutory revenue1,2
UK
International
Group
Group like-for-like sales movement3
Group gross margin movement4
EBITDA1,5,6
UK
International
Group
Operating profit1,6
UK
International
Group
Underlying profit before tax6
Exceptional items
Reported profit before tax
Underlying earnings per share6
Basic earnings per share
Dividend per share
Net debt
Net debt : EBITDA (last 12 months)6
52 weeks to
2 September
2017
52 weeks to
27 August
2016
53 weeks to
3 September
2016
% change
(52 v. 52)
2,350.0
604.1
2,954.1
1,892.9
442.1
2,335.0
174.0
43.0
217.0
74.0
33.5
107.5
95.2
(36.2)
59.0
6.4p
4.0p
2,352.1
543.8
2,895.9
1,906.6
403.8
2,310.4
193.6
39.8
233.4
94.9
31.7
126.6
114.1
(12.4)
101.7
7.5p
6.7p
2,386.2
552.3
2,938.5
1,931.9
409.8
2,341.7
198.6
41.1
239.7
98.0
33.0
131.0
118.2
(12.4)
105.8
7.8p
7.0p
3.425p
3.425p
3.425p
2 September
2017
275.9
1.3x
3 September
2016
279.0
1.2x
(0.1%)
11.1%
2.0%
(0.7%)
9.5%
1.1%
2.1%
(30 bps)
(10.1%)
8.0%
(7.0%)
(22.0%)
5.7%
(15.1%)
(16.6%)
(42.0%)
(14.7%)
(40.3%)
0.0%
Notes to the above table and to all references in this statement:
1 UK operating segment comprises stores in the UK and online sales to UK addresses. International operating segment comprises the
international franchise stores, the owned stores in Denmark and the Republic of Ireland and online sales to addresses outside the UK.
2 Gross transaction value (GTV): sales on a gross basis before adjusting for concessions, consignments and staff discounts. Statutory revenue:
sales after adjusting for these items.
3 Like-for-like sales movement relates to sales from stores which have been open for more than 12 months plus online sales.
4 Gross margin: GTV less the value of cost of goods sold, as a percentage of GTV.
5 EBITDA is earnings before interest, taxation, depreciation and amortisation (including loss on disposal of fixed assets).
6 Before exceptional items, comprising costs associated with the Strategic Review and the restructure of Warehouses and Logistics (FY2016:
comprising restructure costs in the Republic of Ireland relating to the examinership process, restructure costs associated with streamlining
support centre and a charge relating to the cost of writing off intangible systems assets following the launch of the new International website.)
32
Strategic reportDebenhams plc Annual Report & Accounts 2017 Franchise despatches have stabilised in the
year as we have focused on optimising the
number of strategic partners and closed out
some of those in the low profit, low growth
category. During the year we closed nine
franchise stores. Four franchise stores were
opened together with 27 brand franchise
stores - partners selling Debenhams brands
in their own branded stores (23 in Australia
and four in Vietnam).
International EBITDA increased by 8.0% to
£43.0 million as a result of savings achieved
through the Irish examinership process
finalised in the Republic of Ireland last year
and translation benefits on profit generated in
Magasin du Nord. Operating profit increased
by 5.7% to £33.5 million.
GROUP SALES AND PROFITS
Sales and revenue
Group gross transaction value increased by
2.0% to £2,954.1 million for the 52 weeks to
2 September 2017 and Group revenue
increased by 1.1% to £2,335.0 million. Group
like-for-like sales increased by 2.1% on a
reported basis and decreased 0.2% on a
constant currency basis.
The constant currency like-for-like sales
performance reflects the mix from stores
to digital, with digital sales growth of 12.7%,
representing 16.0% of Group gross transaction
value (FY2016: 14.7%).
The components of the gross transaction
value increase of 2.0% and like-for-like sales
growth of 2.1% are shown in Table 2:
Table 2: Contribution to sales growth
Operating profit1
As planned, growth in the beauty, gifting and
concession categories, which are dilutive to
gross margin relative to higher margin own
bought clothing categories, has continued to
impact sales mix. However, further progress
has been made to tighten stock and improve
full price sales, resulting in a 20 bps
improvement to markdown. The combination
of the sales mix and markdown is an overall
30bps reduction to the Group gross margin.
Operating costs before depreciation
increased in line with expectations, increasing
3.3% compared to the same period last year
driven by the translation impact of foreign
exchange rates, and the growth of digital.
Operating cost growth in constant currency
was 1.5%. As previously guided, the increase
in the National Living Wage rate continues to
have an impact, driving c.£10 million
additional costs in the year, but this has been
largely mitigated through cost efficiencies.
Depreciation and amortisation increased by
2.5% to £109.5 million, reflecting an increase
in capital expenditure over the last few years.
As a result of the above, Group operating
profit for the 52 weeks to 2 September 2017,
was £107.5 million, (15.1%) below last year.
Net finance costs
Net finance costs decreased by 1.6% to
£12.3 million reflecting the benefit of lower
average debt levels of £257 million compared
with £273 million last year.
1 All items stated before exceptional charges.
UK stores
UK digital
International
Like-for-like-sales – constant
currency
Exchange rate impact
Like-for-like sales – reported
Other
GTV movement – 52 weeks
(1.5%)
+1.4%
(0.1%)
(0.2%)
+2.3%
+2.1%
(0.1%)
+2.0%
33
www.debenhams.comStrategic report Financial review continued
Taxation
Taxation excluding the impact of exceptional
items decreased from £21.6 million last year to
£17.2 million, principally due to a decrease in
reported profits and a decrease in the effective
tax rate. The effective tax rate decreased to
18.1% from 18.9% last year, due to a reduction
in the headline corporation tax rates.
Profit after tax
Profit after tax but before exceptional items
decreased by 15.7% to £78.0 million. Profit
after tax after accounting for exceptional
items decreased by 40.8%.
Earnings per share
Underlying basic and diluted earnings per
share, before exceptional items, decreased by
14.7% to 6.4 pence. The basic weighted average
number of shares in issue increased from
1,227.4 million last year to 1,227.8 million and
the diluted weighted average number of shares
increased from 1,227.9 million to 1,229.0 million.
Cash flow and uses of cash
Debenhams is cash generative and has clear
priorities for the uses of cash. The first priority
is to invest in our Debenhams Redesigned
strategy. Second, we pay our shareholders
a dividend. Third, as we communicated in
October 2015, we have a medium-term
financial leverage target for net debt to
EBITDA of 0.5 times.
Operating cash flow before financing and
taxation reduced from £113.7 million to
£75.6 million as a result of lower EBITDA
and exceptional payments relating to FY2017
(£8.5 million) and FY2016 (£7.4 million).
Cash flow generation, the uses of cash and
the movement in net debt are summarised
in Table 3 opposite.
Capital expenditure
Capital expenditure was £124.8 million during
the year compared to £126.5 million last year.
The small decrease reflects the capital
investment in new stores and modernisations
last year, not repeated this year, offset by an
increased focus on warehouse automation this
year. Investment in new IT systems continues
to be a key focus with 44% (£55 million) of total
capital spend being spent in the year.
Exceptional items
During the financial year, the Group
conducted a strategic review and embarked
on a new strategic business plan together
with a planned restructuring of operations
encompassing the following areas:
Strategic review and restructuring
As a result of the strategic review, the Group
identified that a number of stores may
become unprofitable in the future and so has
recognised exceptional store costs of £10.4
million during the financial year. This relates
to the impairment of property, plant and
equipment and onerous lease commitments.
A £5.1 million charge relates to writing off
legacy IT system assets following the launch
of the new strategy.
Other exceptional charges of £8.0 million
were also incurred in respect of the strategic
review including redundancies (including
some senior management within the trading
division and support centre), professional fees,
recruitment costs of key people to help drive
the strategy and costs arising from strategic
exits from certain international markets.
Strategic warehouse restructuring
During the financial year, the Group carried
out a strategic review of its warehouse
operations which has led to a restructuring
of these facilities. As a result, the Group
announced the closure of its distribution
centre in Northampton and a number of
regional warehousing facilities and recognised
exceptional closure costs of £8.8 million
relating to accelerated depreciation of assets,
dilapidations, onerous lease commitments
and redundancy costs.
Exceptional charges of £3.9 million were
incurred during the financial year relating to
one-off transition costs including staff time,
training and inventory moves totalling
£3.5 million and asset write offs of property,
plant and equipment of £0.4 million. Part of this
restructuring is warehouse automation which
is an ongoing project over the next two years.
Of the £36.2 million charge, £19.2 million
is cash related, of which £8.5m was incurred
in the year.
Profit before tax
Underlying profit before tax before
exceptional items decreased by 16.6% to
£95.2 million (2016: £114.1 million). Reported
profit before tax after exceptional items
decreased by 42.0% to £59.0 million.
Read more on
pages 104-105
34
Strategic reportDebenhams plc Annual Report & Accounts 2017 Table 3: Cash flow, uses of cash and movement in net debt
52 weeks to
2 September
2017
53 weeks to
3 September
2016
217.0
(0.7)
(15.9)
200.4
(124.8)
75.6
(16.3)
(11.1)
(42.0)
(3.1)
3.1
279.0
275.9
239.7
2.5
(2.0)
240.2
(126.5)
113.7
(11.0)
(15.3)
(42.0)
(4.6)
40.8
319.8
279.0
£m
EBITDA
Working capital
Exceptional items
Cash generated from operations
Capital expenditure
Operating cash flow before financing
and taxation
Taxation
Financing
Dividends paid
Other movements
Change in net debt
Opening net debt
Closing net debt
Figure 1: Capital expenditure
New UK stores
UK maintenance
International
Group systems
Logistics
Other
8%
17%
11%
44%
12%
8%
Table 4: Key balance sheet items
£m
Intangible assets
Property, plant and equipment
Inventory
Other assets
Trade and other payables
Other liabilities
Net retirement benefit surplus/(obligations)
Net deferred tax liabilities
Net debt
Reported net assets
2 September
2017
3 September
2016
991.9
654.9
317.8
108.7
(523.3)
(398.7)
80.9
(38.7)
(275.9)
917.6
962.1
670.2
326.3
149.6
(516.3)
(394.5)
(4.1)
(30.4)
(279.0)
883.9
Inventory
Stock levels continued to be managed tightly
during the year, reflecting the ongoing
strategy to plan the business prudently.
Total stock value decreased by 2.6% to
£317.8 million. Terminal stock of 2.8% was in
line with our historical range of 2.5% to 3.5%.
Dividends
An interim dividend of 1.025 pence per share
was paid to shareholders on 5 July 2017 (2016:
1.025 pence) in respect of the 26 weeks ended
4 March 2017 which equated to £12.6 million of
shareholders’ funds (2016: £12.5 million).
The board is fully behind the Debenhams
Redesigned strategy and the long-term
benefits it brings. The board is recommending
a final dividend in line with last year of
2.4 pence per share which will be paid on
19 January 2018 to shareholders who are
on the register on 8 December 2017. The
total dividend for the year is 3.425 pence
(2016: 3.425 pence), in line with our dividend
policy of maintaining a dividend cover of
around 2.0x.
Net debt
The Group’s net debt position as at
2 September 2017 of £275.9 million
improved by £3.1 million from the same
point last year (2016: £279.0 million).
The ratio of net debt to EBITDA of 1.3 times
compares with 1.2 times at the end of the
previous year, on a 53 week basis. The small
increase in the ratio is a result of the
movement in profits this year.
The Group’s Revolving Credit Facility of
£320 million is in place until June 2020,
with an option to extend until June 2021.
In addition, the Group has a £200 million
5.25% Senior Bond in place until July 2021.
Pensions
The Group provides a number of pension
arrangements for its employees. These
include the Debenhams Retirement Scheme
(“DRS”) and the Debenhams Executive
Pension Plan (“DEPP”) (together “the pension
schemes”) which both closed for future service
accrual from 31 October 2006. On an
accounting basis, the net surplus on the
Group’s pension schemes as at 2 September
2017 was £80.9 million (3 September 2016: net
deficit of £4.1 million). The surplus was driven
by a growth in asset value.
35
www.debenhams.comStrategic report Financial review continued
On 6 October 2017, the actuarial valuation of
the Group’s pension schemes at 31 March
2017 was completed, concluding that DEPP
was fully funded on a technical provisions
basis and on a technical provisions basis DRS
had improved since the previous actuarial
valuation but remained in deficit. Therefore
the Group agreed a recovery plan for DRS
which is intended to restore the scheme to
a fully funded position on an ongoing basis.
Under that agreement, the Group agreed
to contribute £5.0 million per annum to
the pension schemes for the period from
1 September 2017 to 31 March 2022.
The agreement replaced an agreement made
in 2015 under which 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 the retail price index
(“RPI”) over the year to the previous
December. Additionally during October 2017,
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.
OUTLOOK AND GUIDANCE
The Group is providing the following guidance
for FY2018, together with updated guidance
on the outlook for the exceptional charges
relating to the delivery of the strategy.
Group gross margin
Total costs
(25bps)
+1% to 2%
Depreciation & amortisation
c.£115 million
Net finance costs
£11–£13 million
Taxation
c.20%
Capital expenditure
c.£150 million
Net debt
Exceptional costs
c.£280–
£300 million
c.£20 million
Impact of currency depreciation
on sourcing costs
Gross margin guidance reflects the expected
impact of sterling depreciation in relation
to the sourcing of own bought goods
denominated in US dollars. As previously
indicated, our hedging protection smoothed
the impact of sterling depreciation in FY2017
and we are currently hedged for FY2018 at an
average rate of c.$1.30 : £1, approximately 15%
below FY2017. The Group continues to invest
in supply chain improvements which are
helping to mitigate some of the additional
currency-related costs. In relation to those
costs we are unable to offset, we intend to
maintain our competitive position, reacting
to market conditions as appropriate.
Expected impact of exceptional
costs in FY2018 and FY2019
The Group gave guidance in April 2017
that exceptional costs over the period of
implementing the Debenhams Redesigned
strategy would amount to approximately
£50 million spread over three years, of which
approximately half would be cash costs.
In FY2017, the Group has incurred exceptional
charges relating to the programme of
£36.2 million, of which the cash impact
charged in the year was £8.5 million.
Debenhams expects to incur the bulk of the
remaining exceptional charge in FY2018, with
an additional cash outflow of approximately
£15 million in the current financial year. The
balance of exceptional costs will be charged
in FY2019.
How we will measure progress
The Group has clear growth ambitions in
our Destination categories. Targets in the
categories of beauty, food, destination and
growth in mobile revenues will be measured
as part of senior management remuneration.
Additionally, the Group will report on progress
in some important operational measures that
will support the successful delivery of the
Debenhams Redesigned strategy, including
full price sales growth and customer net
promoter score. Finally, the Group will target
improved returns on investment and progress
in total shareholder return in line with our
intention to deliver value to our shareholders.
Uncertain trading environment
We are making good progress with
implementing our new strategy, Debenhams
Redesigned, and are pleased with the results
from our initial trials against a background
of rapid change in the business. There is a
lot to do but the early signs from our activity
to date confirm that we are moving in the
right direction.
The environment remains uncertain and
we face tough comparatives over peak.
Nevertheless, we are well prepared for the
important Christmas trading period and
our diversified business model means that
Debenhams is in good shape to withstand
a more volatile market background. We
believe our strategy will set Debenhams on
course for a successful and profitable future.
Matt Smith
Chief Financial Officer
26 October 2017
Read more on
pages 124-127
36
Strategic reportDebenhams plc Annual Report & Accounts 2017 Viability statement
The aim of the Viability Statement is for
the directors to assess the prospects of
Debenhams to meet its liabilities, taking into
account its current position and principal risks.
The board is in agreement that Debenhams is a
viable business and the viability statement can
be found in the directors’ report on page 79.
In making this statement the directors have
considered the resilience of Debenhams,
taking account of its current position and
historical financial performance, the principal
risks facing the business in severe but
theoretical scenarios, and the effectiveness
of any mitigating actions. This assessment has
considered the potential impacts of these risks
on the business model, future performance,
solvency and liquidity over the period.
As noted in note 21 of the financial statements
on page 115, the Group’s revolving credit
facility is due to expire in June 2020 and
contains an option to request an extension
to June 2021. The directors have no reason to
believe that future financing facilities will not
be available when the current facility expires.
The financial position of the Group, including
information on cash flow, can be found in the
financial review section on pages 31 to 36.
In addition, the financial statements include
notes on finance costs (page 106) and financial
risk management including treasury policies
on interest rate, liquidity, currency and credit
risk pages 117 to 121.
STRATEGIC REPORT
The strategic report was approved by a
duly authorised committee of the board
of directors on 26 October 2017 and
signed on its behalf by:
Matt Smith
Chief Financial Officer
26 October 2017
Debenhams has developed an annual three
year strategic plan, which considers the
Group’s cash flows, dividend cover and other
financial key performance indicators over this
period. The three year strategic plan takes
into consideration sensitivities that encompass
a wide spectrum of potential outcomes
including changes in like-for-like sales,
margin rate, costs, capital expenditure
forecasts and franchise store opening plans.
These scenarios are designed to explore the
resilience of Debenhams to the potential
impact of the Principal risks set out on pages
28 to 30, or a combination of those risks.
The directors paid particular attention to
the following principal risks:
• Economic environment
• Currency and hedging
• Competition for customers; and
• Business strategy & transformation
The three year strategic plan is reviewed
each year by the directors. Once approved
by the board, the plan is cascaded across the
business and provides the basis for setting
strategic priorities and detailed budgets
that are subsequently used by the board
to monitor and evaluate performance.
The directors have assessed the viability
of Debenhams over the three year period
to 29 August 2020. This period has been
selected because it reflects the pace of
change in retail; uncertainty surrounding the
UK’s decision to exit the European Union;
aligns with the Group’s plans under its
Debenhams Redesigned strategy and its three
year planning process; and presents the board
and the readers of the annual report with a
reasonable degree of confidence whilst still
providing an appropriate longer-term outlook.
37
www.debenhams.comStrategic report
Chairman’s introduction to governance
PROTECTING SUSTAINABLE
VALUE CREATION
DEAR SHAREHOLDER
On behalf of the board, I am pleased to present our
corporate governance report for the financial year ended
2 September 2017.
as his financial credentials will be a great addition to the
board. In January 2018, David will chair our audit committee
when Mark Rolfe, our current Chairman, will step down from
the board. Mark has been an outstanding chairman of
our audit committee and a valued member of the board.
Since Sergio’s appointment as CEO in October 2016,
our focus has been on devising and implementing the
Debenhams Redesigned strategy which was outlined to
the market in April 2017. We have also been hard at work
fixing the basics and strengthening our management team.
We were delighted to welcome Lisa Myers as a non-
executive director in September 2016. Lisa brings extensive
knowledge of international retail to the board through
her distinguished career in fund management and her
appointment is supporting the execution of our strategy.
The board is committed to promoting high standards
of corporate governance and fully understands that an
efficient, challenging and diverse board, in all aspects,
is essential to enable Debenhams to successfully deliver
its strategy. During the financial year we reviewed our
approach to governance, which had been built upon
the UK Corporate Governance Code. We now have an
enhanced governance framework which determines how
the board manages and controls the business and more
information about this, together with our compliance
statements can be found on pages 39 and 46.
Nicky Kinnaird was appointed as a non-executive director
in November 2016 and, due to her experience and
understanding in brand development and the global beauty
industry, is invaluable to Debenhams as it strives to be the
preferred destination for beauty products and services.
Succession planning and corporate culture have also been
a focus for the board during FY2017 (see pages 8 and 20)
to ensure we have the right people, throughout our
business, to support the future of Debenhams.
Suzanne Harlow stepped down from the board on
20 October 2017. I would like to take this opportunity to
thank Suzanne for her significant contribution over the
23 years she has worked for Debenhams.
Finally, I look forward to meeting shareholders at our next
Annual General Meeting which will be held on 11 January
2018 at 2.00pm at our registered office, 10 Brock Street,
Regent’s Place, London NW1 3FG.
In October 2017, we announced that David Adams
was joining the board as a non-executive director. His
knowledge of the consumer and leisure sectors as well
Sir Ian Cheshire
Chairman
38
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Leadership
BOARD STATEMENTS
The Directors consider that this 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.
Further confirmations to support the disclosures provided within this annual report and accounts are provided below.
Requirement
Compliance statement
Strategic Report
The strategic report was approved by the board of directors on
26 October 2017.
Compliance
with the UK
Corporate
Governance Code
Going concern
In accordance with the Listing Rules of the UK Listing Authority, the Company
confirms that throughout the period ended 2 September 2017 and at the date
of this annual report, it was compliant with all the relevant provisions as set out
in the April 2016 UK Corporate Governance Code, copies of which can be obtained
from the Financial Reporting Council website (www.frc.org.uk).
Having assessed the principal risks and the other matters discussed in connection
with the viability statement, the directors consider it appropriate to adopt the
going concern basis of accounting in preparing these financial statements.
Page 79
Where to find
further information
Pages 2 to 37
Pages 42 to 47
Viability statement
The directors confirm that they have a reasonable expectation that the Group will
continue in operation and meet its liabilities as they fall due over the three-year
period under review.
Robust assessment
of the principal risks
facing the Group
The directors confirm they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its strategy, business model
and future performance. The directors also assessed the Group’s risk appetite with
regard to each risk and considered how to manage and mitigate such risks.
Pages 37 and 79
Pages 28 to 30
Annual review of
the systems of risk
management and
internal control
Remuneration
report
Competition
and Markets
Authority
Modern Slavery
Act 2015
During FY2017, the Audit Committee provided transparency on the Group’s systems
of risk management and internal control which were confirmed as effective.
Pages 26 to 27
The directors confirm that the remuneration report for the year ended 2 September
2017 complies with the requirements of the Listing Rules of the 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 April 2016 UK
Corporate Governance Code.
Pages 54 to 76
The Audit Committee considers that the Company complied with the mandatory
audit processes and audit committee responsibility provisions of the Competition
and Markets Authority Audit Order for the period ending 2 September 2017.
Page 52
The directors confirm, for the financial year ended 2 September 2017, that the steps
that have been taken in relation to our responsibilities under section 54, part 6 of
the Modern Slavery Act 2015 and our activities taken prior to this legislation have
ensured and will continue to ensure that slavery and human trafficking is not
taking place in Debenhams supply chains or in any part of our business operations.
Page 22 and
see website
www.sustainability.
debenhamsplc.com
39
www.debenhams.comCorporate governance Leadership: Board of Directors
A GOOD BLEND OF SKILLS AND EXPERIENCE
1. SIR IAN CHESHIRE
Chairman
2. SERGIO BUCHER
Chief Executive Officer
4. TERRY DUDDY
Senior Independent Director
Date appointed to the board: Sir Ian
joined the board in January 2016,
becoming Chairman in April 2016
Tenure on board: 1 year 7 months
Independent: Yes
Committee membership: 1 2
Relevant skills and experience: Sir Ian has
vast experience of a range of businesses in
both an executive and non-executive
capacity. He spent 17 years with Kingfisher
plc, including seven years as group chief
executive between 2007 and 2014, where
he drove consistent and significant growth
in shareholder value. Sir Ian was formerly
Chairman of the British Retail Consortium,
a non-executive board member of the
Cabinet Office, Senior Independent
Director of Whitbread plc and Chair of the
advisory board of the Cambridge Institute
for Sustainability Leadership.
Principal current external appointments:
Chairman of Menhaden Capital plc,
President of Maisons du Monde and
Chairman of Barclays’ ring fenced bank,
Barclays UK. He is also Government Lead
non-executive, President of the Business
Disability Forum and a Trustee of the Prince
of Wales Charitable Trust.
Board committees key:
1 Nomination Committee
2 Remuneration Committee
3 Audit Committee
Chair of Committee
Date appointed to the board: October 2016
Tenure on board: 10 months
Relevant skills and experience: Sergio
brings extensive experience of international
and multi-channel retailing to his role as
Chief Executive Officer. Sergio worked for
Amazon.com, Inc. where he served as Vice
President, Amazon Fashion Europe since
2013. Previously he was General Manager,
Retail E-Commerce Worldwide, at Puma,
and prior to that held retail roles at Nike
and Inditex, where he led the start-up of
its lingerie retail brand Oysho.
Principal current external appointments:
None
3. MATT SMITH ACA
Chief Financial Officer
Date appointed to the board:
January 2015
Tenure on board: 2 years 8 months
Relevant skills and experience: Matt
brings extensive experience of international
and multi-channel retailing to his role as
Chief Financial Officer. Matt worked for
Mothercare as CFO from 2013 and, prior
to that, he held a number of senior finance
roles within Home Retail Group plc including
Finance Director of Argos. Matt is a
chartered accountant who has worked for
KPMG in London and Sydney.
Principal current external appointment:
Director of blow LTD. and a non-executive
director of Northampton Saints Plc and
Northampton Rugby Football Club Ltd.
Date appointed to the board: Terry joined
the board in April 2015, becoming Senior
Independent Director in January 2016
Tenure on board: 2 years 5 months
Independent: Yes
Committee membership: 1 2 3
Relevant skills and experience: Terry was
Chief Executive of Home Retail Group from
October 2006 until March 2014, having
previously served as CEO of Argos since
its acquisition by GUS in 1998. He had
previously held senior executive roles at
Dixons Stores Group, latterly as MD at PC
World. In addition to the management of a
large public company, Terry brings specific
insight into customer behaviour and retail
markets.
Principal current external appointments:
Non-executive director of Hammerson plc
and Majid Al Futtaim Properties LLC and
Chair of the Retail Trust.
5. MARTINA KING
Independent non-executive director
Date appointed to the board:
August 2009
Tenure on board: 8 years 1 month
Independent: Yes
Committee memberships: 1 2 3
1
2
3
4
5
40
Corporate governance Relevant skills and experience: Martina
has accumulated extensive experience
in management and marketing through
holding a number of senior positions in
marketing and online media including as
managing director of Aurasma, Yahoo!
and Capital Radio. She has also served
as a non-executive director of Capita.
Principal current external appointments:
Chief Executive Officer of Featurespace
Limited.
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 in Europe and the USA.
Principal current external appointments:
None
6. STEPHEN INGHAM
Independent non-executive director
8. NICK Y KINNAIRD
Independent non-executive director
Date appointed to the board:
January 2013
Date appointed to the board: November
2016
Tenure on board: 4 years 7 months
Tenure on board: 9 months
Independent: Yes
Independent: Yes
Committee membership: 2
Committee membership: None
Relevant skills and experience: Stephen
has been Chief Executive Officer of
PageGroup plc since 2006 having worked
for that business since 1987 transforming
it into an international business. Having
served as a CEO of a public company
for many years, Stephen has strong
entrepreneurial and strategic skills.
Relevant skills and experience: Nicky
brings a wealth of experience and
understanding in brand development and
the global beauty industry. Nicky founded
speciality retailer Space NK and, following
the sale of the business, consults for an
international roster of clients in the beauty,
wellness and lifestyle sectors.
Principal current external appointments:
Chief Executive Officer of PageGroup plc.
Stephen is also a member of Great Ormond
Street Hospital’s corporate partnership.
Principal current external appointments:
Director of Nicky Kinnaird Consulting
Limited and Colorscience Inc. Nicky is
also co-founder of Ancora Holdings LLC.
7. PETER FITZGERALD
Independent non-executive director
9. LISA MYERS
Independent non-executive director
Date appointed to the board:
October 2012
Date appointed to the board:
September 2016
Tenure on board: 4 years 10 months
Tenure on board: 1 year
Independent: Yes
Independent: Yes
Committee membership: 3
Committee membership: 3
Relevant skills and experience: Peter’s
experience as a leading e-commerce
executive is invaluable to Debenhams
Relevant skills and experience: Lisa was
lead portfolio manager of some of
Templeton’s flagship global funds and
Executive Vice-president at Franklin
Templeton, managing or co-managing
more than $10 billion of assets. As the
coordinator of Templeton's global
consumer research, Lisa had direct
research responsibility for the retail, textile
and apparel and luxury good sectors.
Most recently Lisa was Co-Head of Global
Partnership Investing at BTG Pactual,
Lisa brings an investor’s perspective to
the board together with a strong focus on
revenue and profitability drivers, brand
equity and return on invested capital.
Principal current external appointments:
Partner at L Catterton, formerly known as
Catterton Partners Corporation.
10. MARK ROLFE FCA
Independent non-executive director
Date appointed to the board:
October 2010
Tenure on board: 6 years 10 months
Independent: Yes
Committee memberships: 1 2 3
Relevant skills and experience: Mark is a
chartered accountant and has considerable
financial and accounting experience having
spent 20 years 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
Barratt Developments Plc, Hornby plc and
The Sage Group plc and as Chairman of
Lane Clark & Peacock LLP.
Principal current external appointments:
None
PAUL EARDLEY
Company Secretary
and General Counsel
Date appointed:
15 October 2007
6
7
8
9
10
41
Corporate governance Corporate governance report
OUR REVISED CORPORATE GOVERNANCE
FRAMEWORK SUPPORTS OUR STRATEGY
In accordance with the Listing Rules of the UK Listing
Authority, the Company confirms that throughout the
period ended 2 September 2017 and at the date of this
annual report, it was compliant with all the relevant
provisions as set out in the April 2016 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 Company’s strategic aims, risk
management and performance. No individual or small
group of individuals dominates the board’s decision-
making process. Strong leadership and strong corporate
governance are integral parts of our corporate culture
and the board leads by example.
Biographical details of the board of directors are on
pages 40 and 41. As at 26 October 2017 the board has
eleven members: the Chairman, eight independent
non-executive directors and two executive directors.
The Chairman
The Chairman is responsible for the effective leadership,
operation and governance of the board and its committees.
He ensures that all directors contribute effectively in the
development and implementation of the Company’s
strategy whilst ensuring that the nature and extent of
the significant risks the Company is willing to embrace
in the implementation of its strategy are determined
and challenged. The Chairman is also responsible for the
induction of new 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.
Sir Ian Cheshire has been Debenhams’ Chairman since
April 2016.
The Chief Executive Officer
The CEO 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 its delegated objectives in accordance with the
Company’s business policies. The roles and responsibilities
of the members of the Executive Committee are detailed in
the table on the next page. The CEO also leads an annual
strategy event to focus on the Group’s overall performance
and the development of the business strategy.
Sergio Bucher has been Debenhams’ CEO since
October 2016.
The Chief Financial Officer
The CFO is responsible for the financial reporting and
management of the Group and strategy. In addition to
the finance, audit, tax and treasury teams, the CFO is
also responsible for property, space planning, legal
and secretariat and investor relations.
Matt Smith has been Debenhams’ CFO since January 2015.
Chairman
Chief Executive Officer
Chief Financial Officer
Senior Independent
Director
Independent
non-executive directors
Sir Ian Cheshire
Sergio Bucher
(appointed to the board:
17 October 2016)
Matt Smith
Terry Duddy
David Adams (appointed to
the board: 19 October 2017)
Peter Fitzgerald
Stephen Ingham
Martina King
Nicky Kinnaird
(appointed to the board:
15 November 2016)
Lisa Myers (appointed to the
board: 6 September 2016)
Mark Rolfe (steps down from
the board on 11 January 2018)
42
Corporate governanceDebenhams plc Annual Report & Accounts 2017 BOARD TENURE AT 26 OCTOBER 2017
0-2 years
2-4 years
4-6 years
6+ years
5
2
2
2
BOARD BALANCE AT 26 OCTOBER 2017
Male
Female
8
3
BOARD COMPOSITION AT
26 OCTOBER 2017
Executive
Directors
Non-Executive
Directors
Chairman
2
8
1
The Senior Independent Director ("SID")
Any concerns that shareholders may have which are not
appropriate for discussion through the normal channels
of Chairman, CEO or CFO will be dealt with by the senior
independent director, who also serves as an intermediary
for the other directors as necessary and acts as a sounding
board for the Chairman. In addition, the SID leads the
annual appraisal of the Chairman’s performance.
Terry Duddy has been the SID since January 2016.
Non-executive directors
As detailed in their biographies on pages 40 and 41 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 2 September 2017, 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. David Adams, who was
appointed to the board on 19 October 2017 is also
considered to be independent.
The independence of non-executive directors who have
served more than six years is subject to rigorous review.
Executive Committee
In order to support the delivery of the strategy, the
business has created three new business units around our
three Destinations: Fashion and Home; Beauty and Beauty
Services, and Food and Events. Ross Clemmow leads the
Food and Events unit and Richard Cristofoli the Beauty and
Beauty Services unit. A new Executive Committee member
responsible for Fashion and Home is to be appointed in
due course. The CEO is responsible for that division in the
interim period. The roles of the members of the Executive
Committee are reflected in the diagram below.
Executive committee
Sergio Bucher
CEO
Matt Smith
CFO
Financial
reporting and
management,
strategy, tax,
treasury, internal
audit, property,
space planning,
legal and
secretariat,
investor relations
and procurement.
Ross Clemmow
Managing
Director Retail,
Digital, Food
& Events
Richard
Cristofoli
Managing
Director Beauty
& Marketing
David Smith
Managing
Director,
International
Angela
Morrison
Technology &
Supply Chain
Director
Food & Events
and UK & ROI
stores
Beauty & Beauty
Services, product
marketing,
advertising, PR,
visual and creative
and customer
strategy and
insight.
Franchises,
Magasin du Nord
and responsibility
for the
international
business strategy
in all channels
and markets
Systems, imports
and exports,
distribution,
logistics and
sourcing
Sally Hyndman
HR Director
HR, culture, pay
and reward,
learning and
development,
recruitment,
pensions, internal
communications
and engagement.
43
www.debenhams.comCorporate governance 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 the Company Secretary
since October 2007.
Board diversity
The Company’s diversity policy was adopted by the
board in FY2014. It is reviewed annually and has since
been updated to reflect subsequent best practice
recommendations including those within the Hampton-
Alexander Review and the Parker Report.
It is the responsibility of the Nomination Committee
to implement and monitor the objectives set out in the
boards diversity policy and to review the policy annually
(last reviewed September 2017). The main objectives of
the policy are to ensure that the board is well balanced,
comprises directors who are sufficiently experienced
and independent in character and who will provide the
necessary skillsets to drive the business forward and to
bring challenge to the board room.
Debenhams is aware of the added value a diverse board
brings to the operation of the Debenhams business and
is therefore seeking to achieve a diverse workforce that
embraces different skillsets, cultural approaches and
different mindsets throughout all areas of the Group.
The bar chart above right illustrates this year’s gender
split at board level, within the Executive Committee,
senior management and for the workforce as a whole.
Male
Female
Gender diversity1
3
8
2
75
17,092
5
84
5,031
Board
Executive
committee
Other senior
executives
All
employees
1 As at the date of this report.
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, with the support of the Nomination
Committee, monitors attendance, committee composition,
length of service, the extent of the directors’ external
interests and any conflicts on an ongoing basis. The letters
of appointment for non-executive directors set out the time
commitment expected for them to perform their duties
effectively. The time required of 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 per annum.
Induction and ongoing development
On appointment, a director is provided with an induction
programme which is tailored to his or her experience of listed
company responsibilities and based on his or her knowledge
of the retail sector. Meetings are arranged with advisors and
visits to operations around the Group are arranged. One-to-
one meetings are held with members of the Executive
Committee, other senior executives in the business and
external advisors as appropriate. The induction includes the
provision of relevant current and historical information about
the Company together with applicable business policies. 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 initiatives which would improve the induction
process. During FY2017, the directors received updates
on their obligations, as well those of the persons closely
associated to them, under the EU Market Abuse Regulation.
The table below details the length of service of our Chairman and each of our non-executive directors:
Director
Date of appointment
Length of service as a non-executive
director at 2 September 2017
Sir Ian Cheshire – Chairman
Terry Duddy
David Adams
Peter Fitzgerald
Stephen Ingham
Martina King
Nicky Kinnaird
Lisa Myers
Mark Rolfe
44
14 January 2016
10 April 2015
19 October 2017
4 October 2012
8 January 2013
1 August 2009
5 November 2016
6 September 2016
1 October 2010
1 year 7 months
2 year 5 months
n/a
4 years 10 months
4 years 7 months
8 years 1 month
9 months
1 year
6 years 10 months
Corporate governanceDebenhams plc Annual Report & Accounts 2017 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 2017. 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 40 and 41. Non-executive
directors are required to obtain the approval of the
Chairman before accepting any further appointments.
A register of related parties is maintained and updated by the
Company Secretary in order that any related party transactions
are identified and the necessary disclosures are made.
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 nine meetings during FY2017 which were
fully attended by all the board members, save for the July
meeting which Terry Duddy was unable to attend due to a
bereavement. In addition to the directors, the operational
section of each board meeting was attended by the
members of the Executive Committee. Details of the
principal items discussed at each meeting are shown
in the table on page 47.
The presentation of timely, high quality information to the
board and its committees is essential to ensure that there
is thorough prior consideration of the issues and informed
debate and challenge at all meetings. All information is
published several days in advance via a secure web portal
in order that directors can fully prepare for the meeting.
If directors are not able to attend meetings due to conflicts
in their schedule, they review the papers due for
consideration 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.
The agenda for each board meeting typically includes
operational reports from the members of the Executive
Committee and an update on the execution of the strategy,
with deep dives on selected projects. Presentations are
requested by the board on an ad hoc basis from the trading
divisions and other business areas, including investor
relations, treasury, taxation, health and safety and human
resources. In addition, the board receives regular updates
on the key Group risks and ensures that the risk
management framework and profile supports the business
strategy. In accordance with the Code, the formal schedule
of matters reserved for the board is reviewed annually.
Board committees
The board committees are the Audit, Remuneration and
Nomination Committees. The terms of reference (which
are reviewed annually) of each committee can be found
on our website at www.debenhamsplc.com.
The members, together with the role and activities of
each board committee, can be found at:
Nomination Committee
Pages 48 and 49
Audit Committee
Pages 50 to 53
Remuneration Committee
Pages 54 to 76
PERFORMANCE EVALUATION
In accordance with the Code, the board, its committees and
each individual director (including the Chairman) has been
evaluated by an external facilitator, Lintstock Limited. Details
of the review and the respective findings are given below.
The findings of the 2016 internal evaluation were that
future agendas and presentations needed to be more
strategic and less operational, and that timekeeping
required more discipline. These recommendations have
been implemented throughout FY2017.
This year’s evaluation was externally facilitated by
Lintstock who have performed evaluations for us before.
The board review concluded that we have an effective
board with the composition of the board and board expertise
highly rated. The performance of the committees supporting
the board was also highly rated. The importance of further
development of board diversity over the next 3-5 years was
emphasised. The board was satisfied that it is kept updated
on major developments between meetings and that its focus
between strategic and operational issues is appropriate. The
importance of focussing on execution against strategy was
emphasised as was oversight of succession plans for key
management positions below the board.
SHARE CAPITAL AND CONTROL
Information which the directors are required to disclose
pursuant to section 992 of the Companies Act 2006
can be found on page 78 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
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 CEO and CFO 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 business performance and strategy.
45
www.debenhams.comCorporate governance
Corporate governance report continued
JANUARY 2017 AGM – HIGHLIGHTS
• Between 849,007,978 and 864,685,303 votes were cast
for each resolution
• The directors who retired and were elected/re-elected
to the board received, on average, 99.04% of votes cast
in favour
• The resolution to approve the directors’ remuneration
report for the period ended 3 September 2016 was
passed with 95.46% of votes cast in favour
•
•
Shareholders by geography
UK
USA
EU
Middle East
Rest of World
56%
28%
5%
7%
4%
A geographical analysis of shareholders is shown in the
pie chart above.
The major shareholders of the Company are listed on
page 78 of the directors’ report.
HOW GOVERNANCE SUPPORTS STRATEGY
Our revised governance framework (see chart below),
which has been adopted by the board, is underpinned by
the UK Corporate Governance Code. It is designed to
safeguard and enhance long-term shareholder value and
to provide a platform to realise the Group’s strategy,
Debenhams Redesigned.
The board:
• Selects its membership through a comprehensive and
considered process, aligned with Company strategy and
its diversity policy (see Nomination Committee section
for more details on our approach)
• Sets the cultural stance for the organisation with
management adopting and implementing policies and
procedures designed to promote both legal compliance
and appropriate ethical standards in all their business
interactions, including the delivery of strategic objectives
• Agrees the risk management process which it considers
to be a fundamental part of an effective governance
programme (see Risk Management and Principal Risks
and Uncertainties sections for more details on our
approach and how this links to strategy)
• Maintains oversight across the delivery of strategic and
operational objectives through independent reports
from the Audit and Remuneration Committees and
updates from key management
• Actively monitors management’s execution of approved
strategic plans against established budgets and timeframes,
to ensure their alignment to strategic objectives
The framework is continually reviewed to ensure it remains
fit for purpose. During FY2017, the Disclosure Committee
was established to aid compliance further to the EU Market
Abuse Regulation.
GOVERNANCE FRAMEWORK
DEBENHAMS PLC
THE BOARD
EXECUTIVE COMMIT TEE
CAPEX COMMIT TEE
DISCLOSURE COMMIT TEE
NOMINATION COMMIT TEE
REMUNERATION COMMITTEE
AUDIT COMMIT TEE
RISK COMMIT TEE
ANNUAL REPORT COMPLIANCE COMMIT TEE
46
Corporate governanceDebenhams plc Annual Report & Accounts 2017 BOARD ACTIVIT Y THROUGH THE YEAR – 2016-2017
SEPT
OCT
NOV
DEC
JAN
• Approved
the budget
• Autumn/
Winter Launch
• B&M roadmap
update
•
International
Overview
• Approved full
year results, report
and accounts
and recommended
the final dividend
• Approved the
corporate risk map
• Presentation
on Sourcing
• Board Evaluation
review
• Presentation on the
Christmas campaign
• Appointment of
Nicky Kinnaird
• Trading update,
CEO Overview
• Presentation on
approach to
strategic plan
• Presentation on
the Supply Chain
• Met with
shareholders
at the Annual
General Meeting
MAR
APR
JUN
JUL
• Strategy meeting
• Approved first half
results and resolved to
pay interim dividend
• Review of Strategic Plan
• Reviewed Schedule
of Matters Reserved
to the Board &
Governance Framework
• Approved the June
trading statement
• HR Overview
• Technology and Supply
• Reviewed draft budget
Chain Overview
• Reviewed Board
Diversity Policy
• Presentation on the
Autumn/Winter launch
and product e-marketing
INVESTOR REL ATIONS CALENDAR
The key elements of the Group’s investor relations calendar in FY2017 are shown in the table below.
September
2016
October
2016
November
2016
December
2016
January
2017
February
2017
April
2017
May
2017
UK investor
meetings
Full year
results
UK
shareholder
roadshow
UK investor
meetings
Trading
update
UK
shareholder
roadshow
Investor
conference
meetings
Investor
conference
meetings
Annual
General
Meeting
European
investor
meetings
UK investor
meetings
First half
results
US
shareholder
roadshow
UK
shareholder
roadshow
European
conference
meetings
Investor
meetings
June
2017
Trading
update
Broker
sales team
meetings
CEO
introductory
meetings
with major
shareholders
UK investor
meetings
UK investor
meetings
US investor
meetings
July
2017
Broker
sales team
meeting
Pre-close
analyst
meetings
47
www.debenhams.comCorporate governance Nomination Committee report
MANAGING SUCCESSION
SIR IAN CHESHIRE
Chairman, Nomination Committee
MEMBERSHIP OF THE
NOMINATION COMMITTEE
The individuals who served on the Committee during the
year under review are set out below:
DEAR SHAREHOLDER
On behalf of the Nomination Committee, I am pleased to
present its report for the year ended 2 September 2017.
The key responsibilities of the Committee are:
Member
Date appointed
Committee member
Sir Ian Cheshire
(Committee
Chairman)
14 January 2016
Terry Duddy
10 April 2015
Martina King
1 August 2009
Mark Rolfe
1 October 2010
48
Attendance at
meetings
during the year
•
2/2
2/2
2/2
2/2
Identifying and nominating, for the approval of the
board, candidates to fill board vacancies based on
merit and objective criteria 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
• Annually reviewing the Board’s diversity policy and
recommending any necessary changes in that policy
to the Board
• Reviewing Director’s conflicts of interest and the number
of external directorships held
The full terms of reference of the Committee are available
on the Company’s website and are reviewed annually by
the Committee.
Corporate governanceDebenhams plc Annual Report & Accounts 2017 ACTIVITIES SINCE YEAR END
• Reviewed the Company’s diversity policy following the
recommendations made in the Hampton-Alexander
Review and the Parker Report
• Recommended to the board the reappointment
of Mark Rolfe for the period from 1 October 2017
to the conclusion of the Annual General Meeting.
• Recommended to the board the appointment of
David Adams
• Externally evaluated the Nomination Committee’s
performance with the assistance of Lintstock and
the Committee concluded that it is appropriately
composed, uses its time effectively and reviews
the composition of the board well
All directors will seek election/re-election at the next
AGM apart from Mark Rolfe, who will step down from the
board and its committees at the Annual General Meeting
on 11 January 2018.
Sir Ian Cheshire
Chairman
ACTIVITIES DURING THE YEAR
The Committee met twice during the year at which it:
• Recommended the appointment of Lisa Myers and
Nicky Kinnaird as non-executive directors. Both
appointments were made to support the business’s
aims to grow the international business and to be the
preferred destination for beauty products and services.
Both appointments were 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 recommend
their appointments to the board
• Reviewed the time commitments and length of service
of the non-executive directors and recommended to
the board the re-appointment of Mark Rolfe for a
further year, effective from 1 October 2016
• Carried out an annual review of the directors’ conflicts of
interest register and the Committee’s terms of reference
DIVERSIT Y
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
and experience required for the board and its committees
to operate effectively. Board appointments are, of course,
made on merit but the Committee is also mindful of the
board’s diversity policy.
Following the board changes which took place this year, the
percentage of women on the Debenhams plc board at the
end of FY2017 was 36%, which is above the current voluntary
target set at a third of board members by 2020. Following
Suzanne Harlow’s departure and the appointment of David
Adams, this is now 27%. Debenhams is keen to embrace
diversity at all levels and is therefore assessing diversity, in
the widest sense, in relation to the recruitment process
throughout the business.
49
www.debenhams.comCorporate governance Audit Committee report
CHAMPIONING THE INTEGRITY OF FINANCIAL REPORTING
MARK ROLFE
Chairman, Audit Committee
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)
Date appointed
Committee member
1 October 2010
(appointed
Committee chairman
2 September 2012)
Terry Duddy
10 April 2015
Peter Fitzgerald 18 October 2012
Martina King
1 August 2009
Lisa Myers
6 September 2016
Attendance at
meetings
during the year
3/3
3/3
3/3
3/3
3/3
50
DEAR SHAREHOLDER,
On behalf of the Audit Committee (“the Committee”),
I am pleased to present its report for the period ended
2 September 2017. 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
2017 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 39.
The board has accepted the Committee’s
recommendations on the form of the viability
statement and the assessment period.
We welcomed Lisa Myers as a member of the
Committee following her appointment to the
board of Debenhams plc on 6 September 2016.
In October 2017, we announced the appointment of
David Adams as a non-executive director. David will
become chair of the Audit Committee in January 2018
when I will step down. I wish him all the best in the role.
Mark Rolfe
Chairman, Audit Committee
Corporate governanceDebenhams plc Annual Report & Accounts 2017 All of the members of the Committee are independent
non-executive directors and, in the Board’s view, the
Committee as a whole has competence relevant to the
retail sector and its operations. In accordance with the
FRC’s Code, Mark Rolfe is considered by the board to
have recent and relevant financial experience.
In addition to the members of the Committee, the
Chairman, the CFO, the director of internal audit and risk
management and senior representatives of the Company’s
external auditors, PwC LLP, attend and receive papers for
each meeting. The Company Secretary is secretary to the
Committee assisted by the deputy company secretary.
After each meeting, the chairman reports to the board on
the matters discussed, on recommendations and on
actions to be taken.
The Committee met three times during FY2017, with
meetings timed to coincide with the financial and
reporting cycles of the Company. Attendance at these
meetings is set out on page 50. In addition, the Committee
met with the Company’s external auditor twice during the
year without management being present and once with
each of the CFO 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 good practice. The terms of reference of
the Committee are available on the Company’s website:
www.debenhamsplc.com.
In accordance with the terms of reference, the
Committee’s responsibilities include, but are not
limited to, the following matters:
• Monitoring 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
• Reviewing any changes in accounting principles,
considering the appropriateness of accounting
policies adopted by the Company, and the use
of any alternative performance measures
• Reviewing the internal audit programme and ensuring
that the internal audit function is properly resourced
• Agreeing with the external auditors the nature and
scope of the audit and reviewing the output
• Reviewing and monitoring the effectiveness of the
risk management and internal control systems within
the business
• Considering the appointment of the external auditors
and their independence and making recommendations
to the board in relation to their appointment,
remuneration and terms of engagement
• Reviewing the Company’s plans for the prevention
and detection of fraud, bribery and corruption
• Assessing the long-term viability of the Company
over a three-year period taking into account its
current position and principal risks
• Providing 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 also received a presentation on the
process and stress testing undertaken in relation
to the viability statement included in this report
• The Committee considered the clarity and
completeness of the disclosures within the financial
reports reviewed; and
• Reviewed the requirements of IFRS16 with regard
to Debenhams lease portfolio in readiness for the
adoption of the accounting standard in 2020
Internal audit and risk management
The Committee received and considered updates from the
director of internal audit and risk management at each of its
meetings during the year covering amongst other matters:
• The output from the Group-wide risk review process
to identify, evaluate and mitigate risks and the Group’s
changing risk profile
• The adequacy and effectiveness of the internal
financial controls
• Updates on any fraud attempts or incidents further to the
processes in place throughout the Group which prevent
and detect fraud, including concerns raised in confidence
by employees via the Company’s whistleblowing process
which are also reported through to the Committee
• Progress against the approved audit plan, the key
findings from reviews undertaken and management’s
implementation of its recommendations
• The resource requirements for internal audit and
risk management
Governance
• Externally facilitated formal evaluations of the Committee
together with the internal and external audit functions
were conducted by Lintstock Ltd
• The compliance committee, chaired by Matt Smith,
CFO, 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 compliance
statements in relation to the disclosures within this
annual report are provided on page 39
51
www.debenhams.comCorporate governance Audit Committee report continued
• The Risk Committee, which is chaired by the director
of internal audit and risk management, supported
the Audit Committee in the identification and
assessment of the Group’s significant risks
• The Committee receives briefings and training by
senior management which, this year, included the
requirements of the new Public Tax Statement to be
published by Debenhams. Previously, training has
covered supplier income, leases, share-based payments,
revenue recognition and retirement benefits costs
External audit
• The scope of the audit for FY2017 was agreed together
with the fees and terms of engagement. Details of the
amounts paid to the external auditors for the audit
services for FY2017 are given on page 104 in note 6
to the financial statements
• The Committee considered the regulations contained
within the Competition and Markets Authority Audit
Order to ensure that the Company carries out specific
functions in relation to audit services. The Company’s
statement of compliance with these regulations is
provided on page 39
• The approach for the auditor tender process scheduled
for FY2018 was agreed
• The non-audit work carried out by PwC in accordance
with the Company’s prevailing External Auditor’s
Independence Policy was approved and PwCs
independence confirmed
SIGNIFICANT AREAS OF FOCUS IN
RELATION TO THE FINANCIAL STATEMENTS
The significant areas of focus considered by the Committee
in relation to FY2017 are provided in the table below.
The significant issues considered in relation to the Group’s
financial statements for the period ended 2 September
2017 are set out in the table 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 81 to 88.
Matters considered
Actions
Revenue recognition
As with most companies, there is a risk that, in order to
achieve the planned results, revenue may be recognised in
contravention of the Group’s policy for revenue recognition.
The Committee has reviewed revenue recognition
practice and the underlying assumptions and estimates.
In addition, the internal audit function has reported 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.
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 103.
During FY2017, 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.
Exceptional items
As a result of the strategic reviews, the Group has incurred
one-off costs totalling £36.2m (before tax), see note 7 on
pages 104 to 105.
The exceptional costs incurred this year related to
the strategic review and restructure and the strategic
warehouse restructuring. The Committee has considered
the quantum of each exceptional cost or charge and has
approved the disclosures made.
52
Corporate governanceDebenhams plc Annual Report & Accounts 2017 The Company’s policy identifies three categories of
accounting services. The first category is audit-related
services which the auditors are permitted to provide, such
as interim and full year reports. 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 prohibited services included in the Company’s policy
are itemised in more detail and the list includes all the
services set out on the FRC’s “black list”. The third
category is “potential” services which the auditors may, in
certain circumstances, provide subject to compliance with
the independence policy. These services include 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 17% of the total audit fee paid to
PwC, see note 6 on page 104.
The audit fees paid by the pension schemes were £41,000.
EXTERNAL AUDITOR APPOINTMENT
PwC has served as the Company’s auditors since
flotation in 2006 and John Ellis has been the audit
partner since 1 September 2013.
The Committee has agreed with the Board that the
external audit will be put out to tender during FY2018.
The tender process is scheduled to commence in
Spring 2018 with the successful auditor shadowing
PwC during the 2018 year-end audit process and attending
Committee meetings prior to their formal appointment.
A recommendation will be proposed to shareholders at
the Company’s 2019 AGM to appoint the new auditor
of the Company. PwC will not be invited to participate in
the tender due to the prevailing rules on auditor rotation.
The Committee is satisfied that PwC remains independent
and is best placed to conduct the Company’s audit
for FY2018 and therefore recommends that PwC be
re-appointed as the Company’s auditors.
Mark Rolfe
Chairman, Audit Committee
PERFORMANCE EVALUATION
The Audit Committee performance evaluation was
externally facilitated with the assistance of Lintstock.
The process also included evaluation of the external
auditors and the internal audit function.
The performance of the Committee was rated highly
overall with effective monitoring of the management
of risk, review of the quality of the group’s financial
reporting and assessment of the system of internal
controls. Training is provided to Committee members
alongside the meetings and an updated schedule of
training relevant to the external challenges will be created.
The Committee were pleased with the results of the
external and the internal audit evaluation. The external
auditors were seen to be independent, objective, to
understand the business risks and issues and to be firm
in their challenges, when appropriate. The effectiveness
with which internal audit meets the expectations of the
Committee was highly rated.
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 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 and specifically those services which
the Company’s auditors may never provide. As part of the
committee’s assessment of the ongoing independence
of the auditor, the Committee receives details of any
relationship between the Group and PwC that may have
a bearing on their independence and seeks confirmation
from PwC that they remain independent.
As regards the risk of the external auditors’ withdrawal
from the market, the Company considers that there are
sufficient other auditors in the marketplace should this
situation arise.
The 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 the Chief
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 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.
53
www.debenhams.comCorporate governance Chairman’s introduction to Remuneration
OUR REMUNERATION PHILOSOPHY
SUPPORTS OUR LONG-TERM APPROACH
MARTINA KING
Chairman, Remuneration Committee
STRUCTURE OF THE
REMUNERATION REPORT
Statement by the Chairman of
the Remuneration Committee
Directors’ remuneration policy
Annual report on remuneration
Page 54
Pages 56 to 63
Pages 64 to 76
54
DEAR SHAREHOLDERS
On behalf of the Remuneration Committee (“the
Committee”), I am pleased to present our annual
remuneration report for FY2017 along with our new
Directors’ remuneration policy (“policy”).
The trading environment has continued to be tough for
Debenhams over the last 12 months and this is reflected in
our incentive outcomes with no bonus or PSP payouts in
respect of FY2017. The Committee’s key focus during the year
has been on undertaking a thorough review of our policy to
ensure it aligns with our Debenhams’ Redesigned strategy.
On behalf of the Committee I have consulted extensively
with shareholders regarding policy and its application and
we are pleased with the level of support received.
May 2017 PSP award
In our FY2016 Directors’ remuneration report we
communicated that the Performance Share Plan (“PSP”)
awards due to be made in November 2016 would be
deferred until May 2017 to ensure that the performance
measures and targets were fully aligned with our
Debenhams Redesigned strategy, which we announced
in April 2017.
Prior to the grant of the PSP award, I wrote to our main
shareholders to consult on our proposed performance
measures. The awards granted in May 2017 are based 70%
on earnings per share (“EPS”) performance and 30% on
Corporate governanceDebenhams plc Annual Report & Accounts 2017 performance against strategic objectives, in-line with
awards granted in prior years. We did, however, change
our approach to setting EPS targets, setting absolute EPS
targets for FY2019 rather than growth targets to provide a
clear focus on achieving earnings goals. We also changed
the strategic objectives used to ensure they fully reflected
our new strategy. The strategic objectives are: beauty
gross transaction value growth, food gross transaction
value growth, mobile gross transaction value growth and
online fulfilment cost per unit improvement. Further details
are provided on pages 66 and 67.
Remuneration policy
In-line with the remuneration reporting regulations, we
are required to seek shareholder approval for a revised
Directors’ remuneration policy at our AGM in January 2018.
In light of the appointment of Sergio and the announcement
of the Debenhams Redesigned strategy, the Committee
took the opportunity to undertake a thorough review of
the existing policy.
We considered a range of structures for our remuneration
framework going forward, but ultimately concluded that,
at present, it is appropriate to retain the same broad
framework, being an annual bonus and PSP. As our
remuneration policy framework is unchanged, the policy
that we are submitting for shareholder approval at the
January 2018 AGM is broadly unchanged from our current
policy. Reflecting shareholder feedback we have reduced
the pension opportunity set out in our policy for any new
executive directors to a maximum of 15% of base salary.
To further align executives’ interests with those of
shareholders, we have increased the shareholding
guideline to 200% of salary for the CEO and 150% of salary
for the CFO (from 100% of salary for both executives). The
executives will generally be expected to retain 50% of any
vested shares under the PSP until this guideline is met.
For FY2018 our annual bonus plan will continue to be
based 80% on Profit before Tax (“ PBT”) and 20% on
customer service.
To reflect shareholder feedback, and to ensure alignment
between the PSP, shareholder value creation and returns
generated, we have further changed the performance
measures used for the PSP. November 2017 awards will be
based 50% on relative Total Shareholder Return (“TSR”)
against a bespoke group of retail comparators, 25% on
EPS performance and 25% on Return on Capital Employed
(ROCE). We again consulted with our major shareholders in
relation to the changes in performance measures. Further
details are provided on page 72.
For FY2018, award opportunities for the CEO will revert to
an annual bonus opportunity of 100% of base salary and
150% of base salary PSP award following the higher awards
granted in his first year for employment. Award
opportunities for the CFO remain unchanged.
The CFO’s salary was increased by 1.5% to £418,271 on
1 April 2017 as part of the normal annual review. This was
in-line with the increase across the senior management
population and below the average increase across the
wider workforce. The CEO elected to not receive a salary
increase at this time.
Following the year end we have been restructuring the
organisation to ensure we have the right framework in
place to support the implementation of the Debenhams
Redesigned strategy. As part of this a number of the
members of the Executive Committee will be taking on
additional responsibilities, including the CFO who, going
forward will be responsible for strategy. To reflect the
size and scope of this additional responsibility the
Committee agreed it was appropriate to increase Matt
Smith’s salary by 5% from 1 November 2017 to £439,200.
The salary review date for the organisation is being moved
to November and therefore salaries for executive directors
will next be reviewed with effect from 1 November 2018.
FY2017 annual bonus
The annual bonus for FY2017 was based 80% on PBT
targets and 20% on a customer measure – Net Promoter
Score (“NPS”). The threshold PBT target was not met. The
NPS performance significantly exceeded maximum target.
Payment under this element, however, was also subject
to the threshold PBT target being met. No annual bonus
payment will therefore be made to executive directors
in respect of FY2017. Further details are provided on
pages 64 and 65.
FY2014 PSP award
For the PSP awards granted in November 2014 and May
2015, 70% of the award was subject to EPS performance
and 30% to strategic objectives. The targets for awards
were not met and therefore those PSP awards will lapse
in November 2017 and May 2018. Further details are
provided on page 65.
Board changes
Suzanne Harlow stepped down from the Board and left
the business on 20 October 2017 following 23 years with the
Company. I would like to echo Sir Ian and Sergio’s thanks
to Suzanne for her significant contribution over her career
with us. In order to support the delivery of the Debenhams
Redesigned strategy, the structure of the organisation has
been changed as a result of which the main board role of
the Group Trading Director no longer exists.
Suzanne Harlow’s remuneration terms in relation to her
departure are in line with her service agreement and the
policy as approved by shareholders in December 2014.
Further details are provided on page 69.
Our Directors’ remuneration policy will be subject to a
binding vote and our Directors’ remuneration report will
be subject to an advisory vote at the AGM on 11 January
2018. We look forward to receiving your support for the
policy and report.
Martina King
Chairman, Remuneration Committee
55
www.debenhams.comCorporate governance Remuneration policy
This remuneration report for the year ended 2 September
2017 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.
The following sets out our Directors’ remuneration policy
(the ‘policy’). This policy will be put forward for shareholder
approval at the AGM on 11 January 2018 and will apply to
payments made from this date.
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
(the “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 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
executives’ ongoing commitment to the business
REMUNERATION POLICY TABLE
FOR EXECUTIVE DIRECTORS
The table below sets out a summary of our remuneration
Policy for executive directors. Further information regarding
the implementation of the policy can be found in the annual
report on remuneration commencing on page 64.
No substantive amendments have been made to the Policy
from the directors’ remuneration policy approved by
shareholders at the 2014 AGM. Minor changes have been
made to the Policy to reflect the terms of the Performance
Share Plan 2016 (approved by shareholders on 14 January
2016), to remove share plans which are no longer in
operation, to reduce the maximum pension opportunity
for new recruits, to increase in shareholding guidelines,
to reflect the revised performance measures for the
Performance Share Plan (as outlined in the Chairman’s
letter) and to clarify the practical operation of the policy.
Element
Base salary
Purpose and
link to strategy
• Supports the recruitment and retention of executive directors of the required calibre to fulfil the role
without paying more than is considered necessary to do so
• Rewards executives for the performance of their role
Key features/
operation
• Paid in cash
• Normally reviewed annually with effect from 1 November but may be reviewed more or less frequently
•
at the Committee’s discretion
In determining base salaries, the Committee considers:
– Pay levels at companies of a similar size and complexity and other retail companies
– External market conditions
– Pay and conditions elsewhere in the Group
– The individual’s skills, knowledge, experience and performance
What is the
maximum
potential value?
• 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
• 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
Performance metrics None
56
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Element
Pension
Purpose and
link to strategy
• Provides funds to allow executives to save for retirement
• Provides a market competitive retirement benefit thereby recruiting and retaining executives of the
required calibre
Key features/
operation
•
In determining pension arrangements, the Committee takes into account relevant market practice
and practice throughout the Group
• Executive directors are generally provided with a cash allowance in lieu of a pension provision or
a contribution to a defined contribution pension scheme or similar arrangement
• 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
What is the
maximum
potential value?
• The CEO’s annual cash pension allowance is 20% of base salary
• The annual pension contribution for the CFO is 15% of base salary
• New appointments would be entitled to a maximum pension contribution of 15% of salary
Performance metrics None
Element
Benefits
Purpose and
link to strategy
Key features/
operation
• Provides a market competitive level of benefits for executive directors, thereby recruiting and
retaining executives of the required calibre
• Executive directors receive a benefits allowance which can be used to fund a range of benefits (in line
with the allowance provided to the wider management population)
• Executive directors also benefit from the Company’s Directors’ and officers’ liability and indemnity
insurance
• 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
•
In accordance with the terms of his appointment, the CEO receives a housing allowance for the first
two years of his employment and reasonable re-location expenses were met by the Company
• Executive directors may 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 any
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
What is the
maximum
potential value?
•
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
• The overall value of benefits will depend on the individual’s circumstances and the cost of providing
such benefits by the Company and therefore there is no maximum
• The current level of benefit allowance for executive directors is £18,375 (this may be changed during
the life of the policy
• The executive directors’ participation in any all-employee share plans will be in line with relevant
statutory limits
Performance metrics None
57
www.debenhams.comCorporate governance Remuneration policy continued
Element
Annual bonus
Purpose and
link to strategy
Key features/
operation
What is the
maximum
potential value?
• Rewards and incentivises the achievement of annual objectives which are aligned with key financial
and strategic goals and supports the enhancement of shareholder value
• Unless otherwise determined by the Committee, bonuses are paid in cash following the year end
• Bonuses are not pensionable
• Malus and clawback provisions apply (see page 59 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
• Maximum opportunity of 100% of base salary
• The bonus starts accruing from threshold levels of performance
Performance metrics
• The Committee determines appropriate performance metrics to support the annual business
strategy, external expectations and the enhancement of shareholder value on an annual basis
• The bonus may be based on a mix of profitability, strategic financial, strategic non-financial and
individual performance targets
• 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
Performance Share Plan (“PSP”)
Purpose and
link to strategy
Incentivises executives to achieve Debenhams’ long-term strategy and create sustainable shareholder value
•
• Aligns with shareholder interests through the delivery of shares
• Acts as a retention tool
Key features/
operation
• Awards normally vest based on performance assessed 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 adjust
the final vesting level if it does not consider that it reflects the underlying performance of the Company
• Malus and clawback provisions apply (see page 59 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 (which may assume the dividends had been reinvested in the
Company’s shares). However, it is not the current intention of the Committee that dividend equivalents
will be paid on shares that vest
What is the
maximum
potential value?
• The maximum value of shares over which an individual can be granted an award in respect of 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
• Typically 25% of an award vests for threshold levels of performance
Performance metrics
• Awards granted in FY2018 will vest subject to a combination of relative TSR, underlying EPS and ROCE
• 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
• 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
58
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Difference in 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, the individuals’ 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, materially 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 performance 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
• Share awards may be granted in the form of conditional
share awards, forfeitable shares, nil or nominal cost options
or in such other form that the Committee determines has
the same economic effect. Awards may be settled in cash
• The Committee reserves the right to make any
remuneration payments and/or 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 above where
the terms of the payment were agreed (i) before 9
December 2014 (the date the Company’s first
shareholder-approved directors’ remuneration policy
came into effect); (ii) before the policy set out above
came into effect, provided that the terms of the payment
were consistent with the shareholder-approved directors’
remuneration policy in force at the time they were
agreed; or (iii) 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, in
relation to an award over shares, the terms of the
payment are “agreed” at the time the award is granted
SHAREHOLDING GUIDELINES
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. The shareholding
guideline is 200% of base salary for the CEO and 150% of
base salary for the CFO. Executives are generally expected
to retain 50% of any post-tax shares that vest under any
share incentive plans until this shareholding is reached.
NOTES TO THE POLICY TABLE
Malus and clawback
Malus and clawback provisions apply to the annual bonus
and PSP. Annual bonus payments may be subject to
clawback for a period of three years following the payment
of the cash bonus. PSP awards may be subject to clawback
for a period of three years following vesting.
The Committee has the discretion to reduce or withhold an award
(“malus”) or clawback awards in the following circumstances:
• 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 may also apply in other circumstances at the
discretion of the Committee.
Annual bonus performance measures
• The Committee sets annual bonus performance targets
each year based on the measures that it considers are
most appropriate for the business. Annual bonus
targets are set with reference to internal forecasts and
market expectations. 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 therefore these will not be
disclosed in advance. Details of performance against
targets and any resulting annual bonus payout will
normally be included in the annual report on
remuneration for the year on which the bonus
performance is based
Performance Share Plan performance measures
• For awards to be granted in FY2018, the Committee
has chosen to use relative TSR (50%), underlying EPS
(25%) and ROCE (25%). 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
• EPS and ROCE targets are set with reference to internal
forecasts and market expectations. The parameters of
the TSR performance measure have been structured
based on market typical practice
• The Committee considers that these measures are
aligned with our Debenhams Redesigned strategy
announced in April 2017
• Details of the specific measures, weightings and targets
applying to the PSP awards are disclosed in the annual
report on remuneration
59
www.debenhams.comCorporate governance Remuneration policy continued
REMUNERATION OUTCOMES IN DIFFERENT PERFORMANCE SCENARIOS
The charts below set out an illustration of the policy for FY2018. The charts provide an illustration of the proportion
of total remuneration made up of each component of the policy and the value of each component.
Three scenarios have been illustrated for each executive director:
Below threshold performance
Mid-range performance
Maximum performance
• Fixed remuneration
• No annual bonus payout
• No vesting under the PSP
• Fixed remuneration
• 50% annual bonus payout
• 50% vesting under the PSP
• Fixed remuneration
• 100% annual bonus payout
• 100% vesting under the PSP
Fixed pay currently comprises the following elements:
Director
CEO – Sergio Bucher
CFO – Matt Smith
Base salary
£700,000
£439,200
Benefits
£163,409
£33,948
Pension
Total
£140,000
£1,003,409
£65,880
£539,028
• Base salary is the base salary in place on appointment for Sergio Bucher and from 1 November 2017 for Matt Smith
• The benefits figure is based on the amount received during 2017 as per the single figure. This reflects the annual
benefits allowance and the taxable value of other benefits provided during the year. Pension is based on the cash
contribution of 20% of base salary for the CEO and 15% of base salary for the CFO
• The annual bonus is based on the annual policy maximum of 100% of base salary for both executive directors.
The PSP is based on 150% of base salary for the CEO and 100% of base salary for the CFO
CEO
Max
Mid
Below
CFO
Max
Mid
Below
0
25%
38%
19%
28%
37%
53%
100%
38%
31%
31%
55% 22.5% 22.5%
100%
500
1000
1500
2000
2500
3000
Fixed pay
Annual bonus
PSP
60
Corporate governanceDebenhams plc Annual Report & Accounts 2017 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 principle would be that awards would
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 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.
In the event of recruitment the Committee may grant
awards to a new executive director relying on the
exemption in the Listing Rules which allows for the grant
of awards, to facilitate, in unusual circumstances, the
recruitment of an executive director, without seeking
prior shareholder approval or under any other appropriate
Company incentive plan.
The remuneration package for a newly appointed non-executive director would normally be in line with the structure set
out in the policy table for non-executive directors.
Executive director service contracts
Notice
period
• 12 months’ notice by the Company or by the executive director
• The notice period for any newly appointed executive director would be up to 12 months’ on either side
Expiry date
• Sergio Bucher entered into his service contract on 25 May 2016
• Matt Smith entered into his service contract on 25 July 2014
• These 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 Sergio Bucher and Matt Smith may, at the Committee’s discretion,
be paid in equal monthly instalments which would, at the Committee’s discretion, be subject to
mitigation or as a lump sum. The Company’s policy for new executive directors is that contracts
would reflect these principles
• The Committee reserves the right to make any other payments in connection with a director’s cessation
of office or employment where the payments are made in good faith in discharge of an existing legal
obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim
arising in connection with the cessation of a director’s office or employment. Any such payments may
include, but are not limited to, paying any fees for outplacement assistance and/or the director’s legal
and/or professional advice fees in connection with the cessation of office or employment
The service agreements are available to shareholders to view on request from the Company Secretary at the Company’s
registered office.
61
www.debenhams.comCorporate governance Remuneration policy continued
ARRANGEMENTS FOR DIRECTORS
LEAVING DEBENHAMS
Details of the arrangements in relation to fixed
remuneration are set out in the section on page 61.
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 be
pro-rated to take account of the time served during the year.
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.
TAKEOVER OR MERGER OF THE COMPANY
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.
OTHER CORPORATE EVENTS
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
that, in the Committee’s opinion, the performance conditions
applicable to these awards have, or are likely to have,
been met.
EXTERNAL APPOINTMENTS
FOR EXECUTIVE DIRECTORS
Executive directors may undertake external directorships
with the consent of the board. Any proposed external
directorships are considered by the Nomination Committee
to ensure that they do not cause a conflict of interest.
REMUNERATION POLICY TABLE FOR NON-EXECUTIVE DIRECTORS
Element
Fees
Purpose and link
to remuneration
strategy
Key features/
operation
• 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
• 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 or an increased
time commitment as appropriate
• Fees are reviewed at appropriate intervals by the board
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 Fee levels are set out in the annual report on
remuneration
62
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Element
Benefits and expenses
Purpose and link
to remuneration
strategy
Key features/
operation
• To provide suitable arrangements to allow non-executive directors to discharge their duties effectively
• 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
What is the
maximum
potential value?
None
TERMS AND CONDITIONS
FOR THE CHAIRMAN AND
NON-EXECUTIVE DIRECTORS
The Chairman has a letter of appointment from the Company
covering matters such as duties, time commitment, fees and
other business interests. The Chairman is appointed for an
initial three years which may be extended for further terms of
three years by mutual agreement.
CONSIDERING ALL-EMPLOYEE
REMUNERATION ARRANGEMENTS
When determining the 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.
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 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. 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 term.
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 directly with employees about executive director pay,
it does receive informal feedback on employees’ views via the
HR Director and the Head of Pay & Reward.
The remuneration arrangements for the members of the
Executive Committee who are not executive directors and
the Company Secretary 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
annual bonus scheme and PSP together with shareholding
guidelines. The Committee takes into account the views of
shareholders when formulating and implementing the policy.
63
www.debenhams.comCorporate governance 2017
Executive director
Sergio Bucher – CEO1
2016
Executive director
Sergio Bucher – CEO1
The annual report on remuneration
This report sets out details of the implementation of the
remuneration policy during FY2017 and provides details as
to how the Committee intends to implement the policy
during FY2018. This part of the report will be subject to an
advisory shareholder vote at the Annual General Meeting
on 11 January 2018. This report contains unaudited
information except where stated that it is audited.
What did executive directors earn in respect
of FY2017 (audited) and FY2016 (audited)?
The table below sets out a single figure of remuneration
for each executive director for FY2017 and FY2016.
Suzanne Harlow – Group Trading Director5
429,6662
15,634
Matt Smith – CFO
429,6662
33,9486
94,526
62,200
Base
salary
(£)
Benefits
(£)
Retirement
benefits
(£)
Bonus
(£)
PSP
awards
(£)
Compensation
(£)
Total
(£)
612,949
163,4093
122,590
0
0
0
n/a
445,1844
1,344,132
0
0
n/a
n/a
539,826
525,814
Suzanne Harlow – Group Trading Director5
408,5372
30,800
79,932
Matt Smith – CFO
408,5372
32,183
61,280
0
0
Base
salary
(£)
Benefits
(£)
Retirement
benefits
(£)
Bonus
(£)
PSP
awards
(£)
Compensation
(£)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Total
(£)
n/a
519,269
502,000
1 Appointed to the board on 17 October 2016 so the 2017 disclosure is not a full year.
2 For the period 24 June 2016 until the date Sergio Bucher joined the board (17 October 2016), Matt Smith and Suzanne Harlow shared the CEO
responsibilities. The Committee determined that it was appropriate for them to receive an additional duties allowance for this period of
£30,000 each to reflect the increased scope of their role and additional responsibilities. £15,000 was paid to each of them during FY2016
with the balance of £15,000 being paid to each of them during the year ended 2 September 2017. This allowance, which is included in base
salary for the purpose of the single figure, did not attract bonus, PSP or pension.
3 As part of the terms of his appointment, for the first two years of his employment Sergio is provided with a housing allowance and the
Company agreed to meet reasonable relocation expenses. The amount therefore includes £99,129 in relation to housing allowance and
£47,863 in relation to relocation expenses for FY2017.
4 As a consequence of joining Debenhams, Sergio forfeited an award of restricted stock in his previous employer’s restricted stock plan.
In order to compensate him for this he received a cash payment of £445,184 on joining the business (being around the date on which that
restricted stock award would have vested). This payment represents the value of that stock on the business day prior to the announcement
of his appointment on 26 May 2016.
5 Suzanne Harlow stepped down from the board of Debenhams plc on 20 October 2017.
6 During the year Matt Smith elected to receive a company car. As a result of this a total of £17,170 was deducted from his benefits allowance
reflecting the cost of providing the car. The above single figure amount includes the P11D value of the car of £30,911.
The following details how the single figure for FY2017 has
been calculated:
Base salary – Matt Smith and Suzanne Harlow received a
salary increase of 1.5% on 1 April 2017 taking their base
salaries to £418,271. Sergio Bucher elected to not receive
a base salary increase during FY2017.
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. Suzanne Harlow purchased an additional five
days’ holiday during the year (£7,924). This amount has not
been deducted from the above figures.
Retirement benefits – Sergio Bucher received a cash
contribution in lieu of pension of 20% of base salary
(£122,590). Matt Smith received a cash contribution in lieu
of pension of 15% of base salary (£62,200). 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 £11,172. Suzanne
Harlow also received a cash contribution in lieu of pension
of 18% of base salary up to 31 March 2017, rising to 23% of
base salary, effective from 1 April 2017, based on age and
having more than 20 years’ pensionable service (£83,354).
Annual bonus for FY2017 – The maximum bonus for the
year was 150% of base salary for the CEO and 100% for
the CFO and the Group Trading Director. The bonus was
based 80% on Group PBT and 20% on a customer focused
measure, net promoter score. 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.
Bonus targets and performance achieved are set out
in the table on the next page:
64
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Measure
Pay out (% of max)
PBT
Measure
Payout (% of max)
Threshold
Target
Maximum
10%
£100m
50%
100%
£109.1m
£120.1m
Threshold
Target
Maximum
0%
50%
100%
Actual
0%
£95.2m
Actual
0%
NPS Moving Annual Target (improvement on prior year)
+0 points
+3 points
+5 points
+23 points
The payout of the portion of the bonus based on NPS was also subject to achieving a minimum level of profit
performance. While the NPS performance significantly exceeded the maximum target, the minimum level of profit
performance was not achieved and therefore no bonus will be paid to executive directors in respect of FY2017.
PSPs – PSP awards granted in November 2014 and May 2015 were subject to the following performance targets:
Measure
EPS (70%)
Strategic
objectives (30%)
EPS growth
Gross margin
Digital EBITDA
Growth margin
90 bps
25% per annum
Target
Actual performance
3% per annum to 10% p.a. growth
(4.7%) per annum growth
(40) bps
11.2% per annum
1.1% per annum
0.5% per annum
UK GTV Growth
3.8% per annum
International
EBITDA Growth
16.0% per annum
25% of the EPS amount vests for meeting threshold levels of performance and 100% vesting for reaching maximum levels
of performance with straight line vesting between threshold and maximum. The strategic objectives were subject to a
single performance hurdle.
The EPS performance targets and targets for strategic objectives were not met and the awards will therefore lapse in full
on 3 November 2017 and 1 May 2018.
Pensions (audited)
Suzanne Harlow was a deferred in service member of the Debenhams Executive Pension Plan. The table below shows the
pension accrued at the year end.
Accumulated
total accrued
pension at
2 September
2017
(£pa)
Transfer value
of accrued
pension as at
2 September
2017
(£)
Transfer value
of accrued
pension as at
3 September
2016
(£)
Increase in
accrued
pension during
the year
(£pa)
Increase in
accrued
pension during
the year (net
of inflation)
(£pa)
Increase/
(decrease) in
transfer value
during the
period
(£)
Suzanne Harlow
41,136
1,257,274
1,451,702
960
558
(194,428)
Suzanne Harlow participated in the Debenhams Executive
Pension Plan until 2006 when it was closed to future accruals
and then became a deferred in service member of this
scheme. Her normal retirement date under this plan was
31 July 2026. She was not entitled to any additional benefits if
she retired prior to this date; any benefits drawn early would
have been actuarially reduced to reflect early retirement. She
also received a cash allowance in lieu of pension contribution
of 18% of base salary up to 31 March 2017, rising to 23% on
1 April 2017 based on age and having more than 20 years’
pensionable service.
Scheme interests awarded during the financial year (audited)
In light of Sergio Bucher’s appointment and the strategic
review of the business, we announced in our FY2016
remuneration report that the PSP awards that were due to
be granted in November 2016 would be deferred to ensure
that the performance measures and targets were fully
aligned with the new strategic direction for the business.
Accordingly, awards with the following performance
targets (which were announced to the market at the time
of grant) were made on 31 May 2017.
65
www.debenhams.comCorporate governance The annual report on remuneration continued
Scheme interests awarded during the financial year (audited) continued
Individual
Sergio Bucher
Suzanne Harlow
Matt Smith
Type of
interest
0.01 pence
option
0.01 pence
option
0.01 pence
option
Basis on which
award made
Number of
shares awarded
Face value of
shares
(£)1
Percentage
vesting at
threshold
Performance
period end
200% of
base salary2
100% of
base salary
100% of
base salary
2,794,411
£1,400,000
25%
29 August 2020
834,872
£418,271
25%
29 August 2020
834,872
£418,271
25%
29 August 2020
1 The face value of shares awarded was calculated using the closing mid-market share price on the date of award (31 May 2017), which was 50.1 pence.
2 Sergio Bucher’s award for FY2017 was set at 200% of base salary in connection with his appointment. His award level for FY2018 will revert to
150% of base salary.
These awards are based 70% on EPS growth targets and 30% on financial measures that underpin our strategy.
EPS targets
The May 2017 PSP awards vest based on underlying EPS performance for FY2019. Rather than growth targets, we set
absolute EPS targets to ensure a clear focus on achieving this goal. The EPS targets are as follows:
Entry (25% vesting)
Target (50% vesting)
Maximum (100% vesting)
5.6p
6.0p
8.0p
These targets were set taking into account our business plan, market conditions and external expectations of our
performance. The Committee believes these targets are appropriate and suitably stretching. Target performance
was calibrated and aligned with market consensus for our performance for FY2019 at the time the targets were set.
The maximum target was set to be significantly in excess of market expectations and the Committee believes that
if this is achieved it will represent exceptional performance in a challenging market.
Strategic objectives
Following the review the strategic objectives were changed compared to the November 2015 awards to ensure the
strategic objectives fully reflected the Debenhams Redesigned strategy. The following objectives apply:
Strategic objective
Destination
Grow market leading position in
premium beauty & beauty services
Proposed metric
(7.5% of award each)
Rationale
Beauty gross transaction value growth Debenhams already holds a market
leading position in premium beauty
and this remains a significant target
for growth. We see the £4 billion
beauty services market as a prime
opportunity to extend our reach in
this category.
Destination
Meet me @ Debenhams – step
change food and drink offer in store
Food gross transaction value growth
Digital
Mobile @ Everywhere – re platform
and harness the power of mobile
to unify across all channels
Mobile gross transaction value growth
Simplify & Focus
Accelerated warehouse automation
Online cost per unit improvement
Leisure and hospitality are becoming
an intrinsic part of the social shopping
experience. We see this category –
both the development of own brands
and the creation of new strategic
relationships – as a key driver of
footfall to stores.
Leveraging our digital platform
and moving from being functional
and reliable to sociable and fun
will be critical to connecting with
customers and broadening
Debenhams reach globally.
Focus on reducing per unit fulfilment
costs as online sales growth remains
a key focus for the business.
66
Corporate governanceDebenhams plc Annual Report & Accounts 2017 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. Vesting in respect of these
strategic measures is also subject to the company meeting a ROCE underpin whereby ROCE for FY2019 must be
greater than 10%.
The financial targets for the strategic measures are considered by the Board to be market sensitive and therefore we are
not able to disclose these measures at the current time. We will however disclose the targets in full, along with actual
performance against targets, at the time of vesting. The financial strategic targets set are specific and measurable and
full vesting will not be achieved unless performance is significantly ahead of our plan. In previous years targets have
been set as a single ‘cliff edge’ target but for the May 2017 award a range has been set with 25% of the relevant measure
vesting for hitting target and 100% vesting for hitting maximum.
Shareholding guidelines
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. Reflecting shareholder feedback and prevailing market practice, the
shareholding guideline has been increased from 100% of salary to 200% of base salary for the CEO and to 150%
of base salary for the CFO.
Executives are generally expected to retain 50% of any post-tax shares that vest under any share incentive plans until
this shareholding is reached.
Directors’ shareholdings and share interests (audited)
The value of the directors’ current shareholding shown in the table below has been calculated using the three month
average closing share price to 2 September 2017 of 43.55p. This table relates to the shareholding guidelines in place
during FY2017 and therefore does not reflect the increase in shareholding guidelines for FY2018.
Ordinary
shares
held at 26
October
2017
Ordinary
shares
held at 2
September
2017
Ordinary
shares
held at 3
September
2016
Unvested
awards
subject to
performance
Unvested
options
subject to
performance
Vested
options
not
exercised
Shareholding
requirement
Current
shareholding
Requirement
met?
187,617
187,617
–
2,794,411
617,287
617,287
617,287
2,327,2032
97,465
97,465
53,000
2,302,1782
–
–
–
Sergio
Bucher
– CEO1
Suzanne
Harlow
– Group
Trading
Director
Matt
Smith
– CFO
–
£700,000
£81,707
169,689
£418,271
£268,828
No
No
–
£418,271
£42,446
No
1 Sergio Bucher joined the board on 17 October 2016.
2 Suzanne Harlow was awarded 925,925 shares on 3 November 2014 and Matt Smith was awarded 900,900 shares on 1 May 2015. As noted above,
the performance targets for the three years ended 2 September 2017 have not been met and these awards therefore will therefore lapse in FY2018.
67
www.debenhams.comCorporate governance The annual report on remuneration continued
Scheme interests (audited)
Performance Share Plan
Number
of shares
held at 3
September
2016
Shares
awarded
during
the year
Shares
lapsed
during
the year
Shares
exercised
during
the year
Number
of shares
held at 2
September
2017
Market
value on
date of
award
Market
value on
date of
exercise
Earliest
date of
vesting
Expiry
date of
vesting
period
–
2,794,411
900,900
566,406
–
–
–
834,872
925,925
566,406
–
–
–
834,872
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,794,411
50.1p
900,900
88.8p
566,406
89.6p
834,872
50.1p
925,925
64.8p
566,406
89.6p
834,872
50.1p
–
–
–
–
–
–
–
31.5.20
30.11.20
1.5.18
1.10.18
3.11.18
3.5.19
31.5.20
30.11.20
3.11.17
3.5.18
3.11.18
3.5.19
31.05.20
30.11.20
Director
Sergio
Bucher
Matt
Smith
Date of
award
31 May
2017
1 May
20151
3 November
2015
31 May
2017
Suzanne
Harlow
3 November
20141
3 November
2015
31 May
2017
1 The awards granted on 3 November 2014 and 1 May 2015 have not met the applicable performance targets during the 3 year performance
period to 2 September 2017 and will therefore lapse in full on 3 November 2017 and 1 May 2018 respectively. Targets are outlined on page 65.
2 Awards granted in FY2016 are subject 70% to EPS growth and 30% subject to strategic objectives. For the EPS element 25% of the award vests
for achievement of 3% per annum growth with 100% of the award vesting for achieving 10% per annum EPS growth.
3 Performance targets for awards granted in FY2017 are outlined on page 66.
Update on performance against strategic
measures for “in-flight” PSP awards
The measures and performance targets for awards granted
in November 2014 and May 2015 are disclosed on page 65
of the report. These targets were not met and the awards
will lapse.
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 based
on performance in FY2016, FY2017 and FY2018.
For PSP awards granted in November 2015 and May 2016,
30% of the shares vest subject to the satisfaction of the
four key strategic measures of the Group being: 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 at the time of award
as they were considered to be commercially sensitive.
Executive Share Option Plan (ESOP)
For awards granted in May 2017, the four strategic
measures were as follows: beauty gross transaction value,
food gross transaction value, mobile gross transaction
value and online cost per unit improvement.
The Committee set stretching targets and these were
not disclosed at the time of the award as they were
considered to be commercially sensitive. It is still early
in the performance cycle but two of the measures are
currently ahead of target and two are currently behind.
Vesting will be determined based on performance in
FY2017, FY2018 and FY2019.
Shares
granted
during the
year
Shares
lapsed
during the
year
Shares
vested
during the
year
Number
of shares
held at 2
September
2017
Option
price
Earliest
date of
exercise
Expiry date
of options
–
–
–
–
–
–
35,108
85.45p
24.11.12
24.11.19
134,581
85.45p
24.11.12
24.11.19
Number
of shares
held at 3
September
2016
35,108
134,581
Date of
award
Approved
scheme 24
November
2009
Unapproved
scheme 24
November
2009
Director
Suzanne
Harlow
68
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Payments to past directors (audited)
As disclosed in last year’s report, Michael Sharp continued
to receive monthly payments in lieu of notice, based on his
final base salary, benefits and pension supplement, during
the period 4 September 2017 to 13 April 2017 being the
end of the twelve month period following his cessation.
granted in November 2014 were not met and these
awards will lapse in full. PSP awards granted in 2015 and
2017 will continue to vest under the normal timetable
subject to the achievement of performance conditions.
The awards will be pro-rated to reflect service from the
respective grant dates to 20 October 2017. She will
not receive a PSP award in November 2017
Payments for loss of office (audited)
No payments were made for loss of office during the year.
• Suzanne is also eligible to receive her staff discount
for two years from leaving
Leaving arrangements for Suzanne Harlow
Suzanne Harlow stepped down from the board and left the
business on 20 October 2017 following 23 years’ service.
In order to support the delivery of the Debenhams’
Redesigned strategy, the structure of the organisation
has been changed and the main board role of the Group
Trading Director no longer exists.
Suzanne Harlow’s remuneration terms in relation to her
departure are in line with her service agreement and the
remuneration policy as approved by shareholders in
December 2014 and are as follows:
• Suzanne Harlow was made a payment in lieu of notice
comprising 12 months’ salary and benefits. She also
received £30,000 in respect of her statutory rights in
connection with her departure
• Outplacement support in the amount of £54,000
(inclusive of VAT), and up to £15,000 (plus VAT) in
respect of legal fees incurred in connection with her
departure will also be paid
• Suzanne Harlow remained entitled to participate in
the annual bonus for FY2017 as she was in employment
for the full financial year. As stated on pages 64 and 65,
the performance targets for the annual bonus were not
met and no payment was made. She will not participate
in the annual bonus plan for FY2018
• Suzanne Harlow has been treated as a good leaver for
the purpose of the Performance Share Plan. As stated
on page 65, the performance targets for awards
Executive director service contracts
Notice
period
12 months’ notice by the Company or
by the executive director
Sergio Bucher entered into his service
agreement on 25 May 2016
Matt Smith entered into his service
agreement on 25 July 2014
Suzanne Harlow entered into her service
agreement on 11 December 2013 and it
terminated on 20 October 2017
Expiry date
All are rolling contracts with no expiry date
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. Suzanne Harlow resigned as director of
Ermes Department Stores Plc and fees in respect of that
directorship during the period 4 September 2016 to
10 January 2017 (her resignation date) were paid to
and retained by Debenhams Retail plc. Matt Smith was
appointed a director of blow LTD. on 12 September 2017
and no fees are payable in respect of that directorship.
Total shareholder return performance graph
The performance graph below shows the Company’s total shareholder return against the FTSE All-Share General
Retailers Index over the period from 29 August 2009 to 2 September 2017. The FTSE All-Share General Retailers Index
has been chosen as it is made up of a broad spectrum of retail competitors (including major general retail listed
comparators) in the principal product areas in which the Company trades.
250
200
150
100
50
0
9
0
-
g
u
A
0
1
-
g
u
A
1
1
-
p
e
S
2
1
-
p
e
S
Debenhams
FTSE All-Share General Retailers Index
3
1
-
g
u
A
4
1
-
g
u
A
5
1
-
g
u
A
6
1
-
g
u
A
7
1
-
g
u
A
69
www.debenhams.comCorporate governance The annual report on remuneration continued
Historical Chief Executive Officer pay
The table below sets out details of the CEO’s pay for the current year and the previous six years and the payout of
incentive awards as a proportion of the maximum opportunity for each period. The CEO’s pay is calculated as per the
single figure of remuneration shown on page 64.
Single figure of total remuneration
£1,477,607 £1,044,515 £1,288,857
£754,396
£990,959
£986,323
£690,530
£898,9481
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
Annual variable element award
rates against maximum opportunity
Long-term incentive vesting rates
against maximum opportunity
100%
33.3%
40%
0%
0%
0%
0%
0%
N/A
N/A
PSP: 32%
ESOP:
100%
N/A
22%
17%
N/A2
N/A3
1 This figure excludes a cash payment of £445,184 made to Sergio Bucher to compensate him for remuneration foregone at his previous
employer. Including this buy-out gives a total single figure for the year of £1,344,132.
2 No PSP award was granted in FY2016.
3 Sergio Bucher was not in the role of CEO during FY2015 and therefore did not receive a PSP award. The performance conditions for PSP awards
granted during FY2015 to other participants were not met and therefore 0% of the award will vest.
The CEO for FY2010 and FY2011 was Rob Templeman. Michael Sharp was CEO from the start of FY2012 to 24 June 2016.
For the remainder of 2016 and for the period from 4 September 2016 to 16 October 2016, Matt Smith and Suzanne
Harlow shared the CEO responsibilities. Their pay for those additional responsibilities has not been included in this
analysis as they were acting in a temporary capacity. Sergio Bucher was appointed CEO on 17 October 2016.
Percentage change in remuneration of the CEO
The change in remuneration from FY2016 to FY2017 of the CEO 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
CEO
12.1%
206%
0.0%
UK employees (average
full time equivalent)
4.73%
5.8%
0.0%
Michael Sharp stepped down from the board in June 2016 and at the point he left the Company his basic salary was
£624,255. Sergio Bucher joined the Company in October 2016 with a starting base salary of £700,000.
Sergio Bucher waived his right to receive a base salary increase during FY2017.
As part of the terms of Sergio Bucher’s appointment, for the first two years of his employment Sergio is provided with
a housing allowance and reasonable relocation expenses. The expenses relating to Sergio’s relocation have not been
included in this analysis.
No bonus was paid to the CEO in respect of FY2016 and FY2017.
Relative importance of spend on pay
The chart below sets out the amounts paid in FY2016 and FY2017 in respect of the remuneration of all employees and
dividends to shareholders.
Profit Before Tax
Distributions by way of dividends
in respect of the year
Overall expenditure on
remuneration for all employees
2.9%
-16.6%
0.0%
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
£m
500
400
300
200
100
0
70
Corporate governanceDebenhams plc Annual Report & Accounts 2017 The Debenhams Retail Employee Trust 2004
The Debenhams Retail Employee Trust 2004 (“the Trust“) currently holds 1,673,537 shares in the Company. Any shares
allocated under the Debenhams 2008 Share Incentive Plan (a plan for employees below board level) 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 FY2017: 2.03% (FY2016: 1.08%) of share capital.
Implementation of policy for FY2018
The following summarises how policy will be implemented for FY2018:
Opportunity
Performance measures
Changes from FY2017
Salary
CEO – £700,000
n/a
CFO – £439,200
• The salary for the CFO was increased by 1.5% on
1 April 2017. The CEO elected to not receive a pay rise
• Following the year end we have been restructuring the
organisation to ensure we have the right framework in
place to support the implementation of the Debenhams
Redesigned strategy. As part of this a number of the
members of the Executive Committee will be taking
on additional responsibilities, including the CFO who,
going forward will be responsible for strategy. To reflect
the size and scope of this additional responsibility the
Committee agreed it was appropriate to increase Matt
Smith’s salary by 5% from 1 November 2017 to £439,200
• The annual salary review date for the Company is being
amended and therefore salaries will next be reviewed
with effect from 1 November 2018
Pension
and
benefits
CEO – 20% of salary
• No changes
CFO –
15% of salary
Benefits as set out
in policy
Annual
bonus
CEO –
100% of salary
80% PBT
CFO –
100% of salary
PSP
CEO –
150% of salary
CFO –
100% of salary
20% customer measure
The portion of the
annual bonus subject to
customer services is
also subject to meeting
a minimum level of
profit performance.
50% relative TSR
compared to a bespoke
peer group of retail
companies
25% EPS
25% ROCE
• No changes to performance measures
• The CEO’s annual bonus opportunity for FY2017
was 150% as agreed on his appointment. This has
reverted to 100% for FY2018
• Performance measures for awards to be granted in
FY2018 have been reviewed to reflect shareholder
feedback and to ensure alignment between the PSP
and shareholder value creation and returns generated
• Details of measures and targets are set out on page 59
• The CEO’s annual PSP opportunity for FY2017 was
200% as agreed on his appointment. This has reverted
to 150% for FY2018
71
www.debenhams.comCorporate governance The annual report on remuneration continued
FY2018 PSP performance measures
PSP awards to be granted in FY2018 will be subject to performance conditions with 50% of the award keyed off relative
TSR compared to a bespoke peer group of retail companies, 25% of the award keyed off EPS performance and 25%
keyed off ROCE performance.
For the relative TSR measures 25% vests for achieving median performance against the group with 100% vesting for
upper quartile performance.
The peer group includes the following companies: AO World, B&M European Value Retail, Card Factory, Dixons Carphone,
Dunelm Group, Halfords Group, JD Sports Fashion, Marks & Spencer Group, Mothercare, Next, Pets At Home Group,
Sports Direct International, WH Smith.
EPS targets are as follows:
Entry (25% vesting)
Target (50% vesting)
Maximum (100% vesting)
5.8p
6.3p
8.2p
Target performance has been set to be aligned with market consensus for our performance for FY2020. The maximum
target has been set to be significantly in excess of market expectations and the Committee believes that if this is
achieved it will represent exceptional performance in a challenging market.
ROCE targets are as follows:
Entry (25% vesting)
Target (50% vesting)
Maximum (100% vesting)
10.7%
10.9%
11.8%
In order for the award to vest, the Committee must also be satisfied that the underlying financial performance of the
Company over the performance period is sufficient to justify the vesting of the award.
For the purpose of defining ROCE capital employed will include a capitalised value of future store rental payments at an
eight times multiple and profitability items on a pre-rental basis.
Element
Key features/operation
Implementation for FY2018
Fees
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
Fees are reviewed at appropriate intervals by
the board
The Chairman is paid an all-inclusive fee
Fees for the year are:
Basic fee – £40,000
Senior Independent Director – £10,000
Committee chairmanship fee (Audit and
Remuneration) – £10,000
Committee membership fee (per committee) –
£2,500
The non-executive Chairman’s fee is £200,000
Benefits and
expenses
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
72
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Terms and conditions for the Chairman and non-executive directors
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. 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.
The following summarises when the current non-executives were appointed and the end of their current contract.
Name
Date of appointment
Contract end date
Sir Ian Cheshire
14 January 2016
Appointed for a term of three years ending on 13 January 2019
Terry Duddy
10 April 2015
Appointed for a term of three years ending on 9 April 2018
David Adams
19 October 2017
Appointed for a term of three years ending on 18 October 2020
Peter Fitzgerald
4 October 2012
Stephen Ingham
8 January 2013
Contract renewed for a further three years at the end of his initial term.
The end date for his current contract is 3 October 2018
Contract renewed for a further three years at the end of his initial term.
The end date for his current contract is 7 January 2019
Martina King
1 August 2009
Contract renewed for a further three years at the end of her second term.
The end date for her current contract is 31 July 2018
Nicky Kinnaird
15 November 2016
Appointed for a term of three years ending on 14 November 2019
Lisa Myers
Mark Rolfe
6 September 2016
Appointed for a term of three years ending on 5 September 2019
1 October 2010
Having served 7 years, his contract has been renewed and expires at the
conclusion of the next Annual General Meeting. The end date for his
current contract is 11 January 2018
All appointments are subject to the Company’s Articles of Association and the annual re-election by shareholders.
73
www.debenhams.comCorporate governance The annual report on remuneration continued
What did non-executive directors earn in respect of FY2017 (audited) and FY2016 (audited)
The table below sets out the fees payable to each director not performing an executive function in respect of FY2017 and FY2016.
2017
2016
Fees
Benefits
Total
Fees
Benefits
Total
Sir Ian
Cheshire
Terry
Duddy
Peter
Fitzgerald
Stephen
Ingham
Martina
King
Non-executive Chairman,
chairman of Nomination
Committee, member of
Remuneration Committee
Senior Independent Director
and member of Remuneration,
Audit and Nomination
committees
£200,000
£57,500
Member of Audit Committee
£42,500
Member of Remuneration
Committee
Chairman of the Remuneration
& Sustainability1 Committees,
member of Audit and
Nomination committees
Mark Rolfe Chairman of Audit Committee,
member of Remuneration and
Nomination committees
Lisa Myers2 Non-executive Director and
Member of Audit Committee
£42,500
£62,500
£55,000
£42,064
Nicky
Kinnaird3
Non-executive Director
£31,846
–
–
–
–
–
–
–
–
£200,000
£127,435
£57,500
£53,782
£42,500
£42,500
£42,500
£42,500
£62,500
£59,711
£55,000
£55,000
£42,064
£31,846
–
–
–
–
–
–
–
–
–
–
£127,435
£53,782
£42,500
£42,500
£59,711
£55,000
–
–
1 The Sustainability Committee was disbanded on 3 September 2017 and no further fees will be payable from that date.
2 Lisa Myers joined 6 September 2016.
3 Nicky Kinnaird joined 15 November 2016.
Former Director (audited)
Dennis
Millard1
Non-independent non-
executive director and a
member of the Nomination
Committee and of the
Remuneration Committee
2017
2016
Fees
Benefits
Total
Fees
Benefits
Total
£15,801
–
£15,801
£50,865
–
£50,865
1 Dennis Millard stepped down from the board on 12 January 2017.
74
Corporate governanceDebenhams plc Annual Report & Accounts 2017 The total interests of the Chairman and non-executive directors in the share capital of the Company as at 2 September
2017 are shown below.
Director
Sir Ian Cheshire
Terry Duddy
Peter Fitzgerald
Stephen Ingham
Martina King
Dennis Millard (resigned 14 January 2017)
Mark Rolfe
Lisa Myers (appointed 6 September 2016)
Nicky Kinnaird (appointed 15 November 2016)
1 Balance of shares disclosed is as at date of resignation.
The information in the table above is audited.
Ordinary
shares held at
3 September
2016
Ordinary
shares held at
2 September
2017
Ordinary
shares held at
26 October
2017
575,000
140,000
–
74,557
10,000
69,455
30,000
–
–
625,000
140,000
–
74,557
10,000
69,4551
30,000
–
–
625,000
140,000
–
74,557
10,000
n/a
30,000
–
–
Consideration of matters in relation to directors’ remuneration
Remuneration Committee members during the year
Martina King is chairman of the Committee and is joined by Sir Ian Cheshire, Terry Duddy, Stephen Ingham, and Mark Rolfe.
Details of the members’ background and experience is provided within their biography on pages 40 to 41.
Director
Position
Number of meetings held and attended
during the year (of those eligible to attend)
Martina King, Committee Chairman
Independent non-executive director
4/4
Sir Ian Cheshire
Terry Duddy1
Stephen Ingham
Mark Rolfe
Independent non-executive Chairman 4/4
Senior Independent non-executive
director
Independent non-executive director
Independent non-executive director
3/4
4/4
4/4
1 Terry Duddy was unable to attend the meeting held in July 2017 due to a family bereavement.
Role of the Committee
The full terms of reference for the Remuneration Committee, which are reviewed annually, are available on the Company’s
website at www.debenhamsplc.com. In summary, the Committee has responsibility for determining all elements of the
remuneration of the Executive Committee 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.
75
www.debenhams.comCorporate governance The annual report on remuneration continued
The Committee’s main activities during the year
• Approved the recruitment arrangements for
Sergio Bucher
• Approved the directors’ remuneration report for FY2016
• Reviewed performance against targets for the executive
directors’ FY2017 bonuses
• Reviewed the operation of the PSP, particularly the
performance measures for the 31 May 2017 PSP awards
• Approved a pay increase for the CFO and Group Trading
Director. Sergio Bucher elected not to receive a pay rise
• Reviewed the executive remuneration strategy for
FY2018 and consulted with shareholders on a new
remuneration policy for approval at the AGM to be held
in January 2018
• Approved the executive directors’ bonus plan for FY2018
• Evaluated the performance of the Committee
• Approved the terms of Suzanne Harlow’s
severance agreement
Performance evaluation of the Committee
This year’s formal evaluation of the Committee was
conducted by Lintstock Ltd, and concluded that the quality
of the information that the committee receives is high and
this enables it to use its time effectively. The experience
of the members was rated particularly high in an ever-
changing regulatory environment around remuneration.
Advisors to the Committee
In performing its duties, the Committee has received advice
from Deloitte LLP (“Deloitte”) which acted as external
advisor 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 £59,500.
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, and corporate
employment and personal 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.
The Committee consider that the advice received from
the advisors is independent, straightforward, relevant
and appropriate and that it has an appropriate level of
access to them and has confidence in their advice.
The CEO, the CFO, the HR Director and the Head of
Pay & Reward 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 the
previous policy and the FY2016 annual remuneration report:
Director
2014 directors remuneration
policy (2014 AGM)
2016 annual remuneration
report (2017 AGM)
For
98.65%
Against
1.35%
95.46%
4.54%
289,364 and 64,091 votes were withheld in relation to
the policy report and annual remuneration report
resolutions respectively.
On behalf of the board
Martina King
Chairman, Remuneration Committee
26 October 2017
76
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Directors’ report
As required by the Companies Act 2006, the directors’ report
of Debenhams plc for the year ended 2 September 2017 is
comprised of these pages 77 to 79 and information found in
the following sections of the Annual Report, 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.
Information
Location in Annual Report
Sir Ian Cheshire
Sergio Bucher (appointed 17 October 2016)
Matt Smith
Suzanne Harlow (resigned 20 October 2017)
Terry Duddy
David Adams (appointed 19 October 2017)
Peter Fitzgerald
Stephen Ingham
Martina King
Dennis Millard (resigned 12 January 2017)
Mark Rolfe
Lisa Myers (appointed 6 September 2016)
Nicky Kinnaird (appointed 15 November 2016)
Review of the business,
principal risks and
uncertainties and KPIs
Strategy
Business model
Future business
developments
Environmental matters
(including GHG emissions),
employees and social,
community and human
rights issues (including
information about the
Company’s policies in
relation to these matters)
Anti-corruption and
Anti-bribery
Employment policy for
disabled persons and
employee engagement
throughout the workforce
Gender diversity
Business model and
strategy, key performance
indicators, financial review,
and principal risks and
uncertainties
Business model & strategy
and CEO’s strategic
perspective
Business model and
strategy in action
CEO’s strategic perspective
Resources, Relationships
& Sustainability
Resources, Relationships
& Sustainability
Resources, Relationships
& Sustainability
Nomination
Committee report
PROFIT AND DIVIDENDS
The profit after tax for the financial year ending
2 September 2017 was £48.8 million (2016: £85.9 million).
The directors recommend the payment of a final dividend
of 2.4 pence per ordinary share, to be paid on 19 January
2018 to members on the register at the close of business
on 8 December 2017. This together with the interim
dividend of 1.025 pence per share paid on 7 July 2017
gives a full year dividend of 3.425 pence per share.
DIRECTORS
The following persons were directors of the Company
during the period ended 2 September 2017 and unless
otherwise stated at the date of this Annual Report:
The membership of the board and biographical details of the
directors are given on pages 40 to 41. The business of the
Company is managed by the board who 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 is 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 they all, apart from
Mark Rolfe, offer themselves either for election, in the case
of David Adams, or re-election in the case of all other
directors. A formal evaluation of the performance of each
director and of the board has been carried out and the
performance of each of them continues to be effective
and to demonstrate commitment to his or her role. There is
more information on the evaluation and its outcome within
the corporate governance report on page 45.
In addition to the indemnity provisions in their Articles of
Association, the Company and other Group companies
have entered into a direct indemnity agreement with
each of the directors and certain other officers or senior
employees of the Group. These indemnities constitute
qualifying indemnities for the purposes of the Companies
Act 2006 and remain in force at the date of approval of
this report without any payment having been made
77
www.debenhams.comCorporate governance Directors’ Report continued
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, as
at 2 September 2017, pursuant to the Disclosure Guidance
and Transparency Rules. This information was correct at the
date of notification. It should be noted that these holdings
may have changed since being notified to the Company.
Notification of any changes is not required until the next
applicable threshold is crossed.
Shareholder
Schroders plc
Number of
Shares
221,104,693
Sports Direct International plc1
129,437,779
Brandes Investment
Partners LP
123,055,442
The Goldman Sachs Group Inc2
105,177,527
Standard Life Aberdeen
100,446,970
Milestone Resources
Group Limited
Deutsche Bank
ING Groep N.V.
Norges Bank
89,183,155
61,718,583
40,515,686
36,727,709
Percentage of
issued share
capital
18.00%
10.54%
10.02%
8.56%
8.18%
7.26%
5.02%
3.30%
3.00%
1 As at 18 August 2017, Sports Direct International plc also holds a Put
Option Agreement with Goldman Sachs International referencing
128,927,113 ordinary shares of Debenhams plc (representing 10.5%
of the issued share capital of Debenhams). The maturity period for
this option contract is October/November 2017.
2 Holding made up of 0.08% stock loan and 7.97% by financial instruments.
The following notification(s) have been received since
2 September 2017 and up to 25 October 2017:
Shareholder
Brandes Investment
Partners LP (13.09.2017)
Deutsche Bank AG
(27.09.2017)
Deutsche Bank AG
(28.09.2017)
The Goldman Sachs
Group Inc (23.10.17)
Number of
Shares
Percentage of
issued share
capital
135,077,895
11.00%
below
5% threshold
61,896,000
114,381,401
n/a
5.04%
9.32%
Sports Direct International plc1
142,330,490
11.59%
Any notifications received during the period 26 October
and 8 November, being one month prior to the date of the
notice of Annual General Meeting are included in the
notes to that notice.
SHARE CAPITAL
As at 2 September 2017, the issued share capital of the
Company was 1,227,822,150 ordinary shares of 0.01 pence each
and 59,041,231 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 0.01p each. No shares
were transferred out of Treasury during the year.
At the January 2017 Annual General Meeting, shareholders
authorised the Company to purchase up to 122,782,215
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 annual authority that the Company seeks 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 monies payable in respect of that
share have been paid. There are no known arrangements
which may restrict voting rights.
As at 2 September 2017, the Debenhams Retail Employee
Trust 2004 (the “Trust”) holds 1,673,537 ordinary shares in
the Company (0.13%). 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.
1 As at 25 October 2017, Sports Direct International plc also holds an
interest in shares through a Put Option Agreement with Goldman
Sachs International in respect of 116,034,402 ordinary shares of
Debenhams plc (representing 9.45% of the issued share capital of
Debenhams). The maturity period for this option contract is October/
November 2017. They also have an interest in 0.16% of the shares
through a contract for differences with Monecor (London) Ltd.
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
78
Corporate governanceDebenhams plc Annual Report & Accounts 2017 not a fully paid share (although not so as to prevent
dealings in shares taking place on an open and proper
basis). The board may also refuse to register the transfer
of a certificated share where the instrument of transfer is
invalid. There are no known arrangements which may
restrict the transfer of shares.
SIGNIFICANT AGREEMENTS
There are 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
25 February 2016 contains mandatory prepayment
• The terms and conditions of the 5.25% senior notes due
2021 contain a requirement for the Company to make
an offer to 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 contains
provision regarding change of control. Awards under
the plan may vest subject to the satisfaction of any
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 in the remuneration policy.
POLITICAL DONATIONS
There were no disclosable expenses made during the
financial year which fall within the definition of a political
donation under the Political Parties, Elections and
Referendums Act 2000. It is the Group’s policy not to
make donations to political organisations or independent
election candidates or incur political expenditure.
FINANCIAL INSTRUMENTS
Debenhams does not enter into financial instruments for
speculative trade. Details of financial instruments entered
into for underlying risks are set out in note 23 on page 122
of the financial statements. Information regarding the
Group’s financial risk management policies is set out in
note 22 to the financial statements on pages 117 to 121.
EVENTS SINCE YEAR END
• £7.5m investment in blow LTD
• David Adams was appointed as a non-executive
director on 19 October 2017
• Suzanne Harlow stepped down from the board on
20 October 2017
GOING CONCERN
Having assessed the principal risks and the other
matters discussed in connection with the viability
statement, the directors considered it appropriate
to adopt the going concern basis of accounting in
preparing the financial statements.
LONG-TERM VIABILIT Y STATEMENT
The directors have assessed the viability of the Group over
a three year period. This has taken into account the
Company’s three year strategy plan, business model, risk
appetite, and principal risks and uncertainties, along with
the Company’s current financial position. Based on this
review, the directors confirm that they have a reasonable
expectation that the Group will continue in operation and
meet its liabilities as they fall due over the three-year
period under review. Further details on the assessment of
the long-term viability statement can be found on page 37.
CORPORATE GOVERNANCE STATEMENT
In accordance with the Financial Conduct Authority’s
Disclosure Guidance 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
42 to 47 and risk management report on pages 26 to 30 and
are therefore incorporated into this report by reference.
DISCLOSURE OF INFORMATION
TO AUDITORS
Each of the directors of the Company at the time when the
directors’ report was approved confirms that:
a) so far as the director is aware, there is no information
needed by the Company’s auditors in connection with
preparing their report of which the Company’s auditors
are unaware; and
b) s/he has taken all the steps that s/he ought to have
taken as a director in order to make herself or himself
aware of any information needed by the Company’s
auditors in connection with preparing the report and to
establish that the Company’s auditors are aware of that
information.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP has indicated its willingness
to continue in office and a resolution dealing with its
re-appointment as auditor of the Company will be
proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting of Debenhams plc will be
held at Debenhams Head Office, 10 Brock Street, Regent’s
Place, London NW1 3FG on 11 January 2018. The Notice is
given, together with explanatory notes, in the booklet
which accompanies this report.
The directors’ report was approved by a duly appointed
and authorised committee of the board of Directors on
26 October 2017 and signed on its order by:
Paul Eardley
Company Secretary
79
www.debenhams.comCorporate governance Statement of directors’ responsibilities
in respect of the financial statements
The directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have prepared the Group financial statements
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and
Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101
“Reduced Disclosure Framework”, and applicable law).
Under company law the directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group
and Company and of the profit or loss of the Group and
Company for that period. In preparing the financial
statements, the directors are required to:
• select suitable accounting policies and then apply
them consistently;
• state whether applicable IFRSs as adopted by the
European Union have been followed for the Group
financial statements and United Kingdom Accounting
Standards, comprising FRS 101, have been followed
for the company financial statements, subject to any
material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and Company will continue in business
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group and Company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the Group and Company 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.
The directors are also responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for the 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.
The directors consider that the annual report and
accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Group and Company’s
performance, business model and strategy.
Each of the directors, whose names and functions are
listed in the corporate governance section of this report
confirm that, to the best of their knowledge:
• the Company financial statements, which have been
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 “Reduced
Disclosure Framework”, and applicable law), give a true
and fair view of the assets, liabilities, financial position
and profit of the Company;
• the Group financial statements, which have been
prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
• the Directors’ report includes a fair review of the
development and performance of the business and the
position of the Group and Company, together with a
description of the principal risks and uncertainties that
it faces
On behalf of the board
Sergio Bucher
Chief Executive Officer
26 October 2017
80
Corporate governanceDebenhams plc Annual Report & Accounts 2017 Independent auditors’ report to
the members of Debenhams plc (Group)
REPORT ON THE AUDIT OF THE GROUP FINANCIAL STATEMENTS
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 2 September 2017 and of its profit and cash flows for the year
then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation
We have audited the financial statements, included within the Annual Report & Accounts (the “Annual Report”), which
comprise: the Consolidated Balance Sheet as at 2 September 2017; the Consolidated Income Statement and Statement of
Comprehensive Income, the Consolidated Cash Flow Statement, and the Consolidated Statement of Changes in Equity for the
year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the group.
Other than those disclosed in note 6 to the financial statements, we have provided no non-audit services to the group in the
period from 4 September 2016 to 2 September 2017.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
Overall group materiality: £4.8 million (2016: £5.9 million), based on 5% of profit before
tax and exceptional items
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 financially 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 profit before tax and exceptional items
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 provisioning for out of season inventory
Goodwill and store asset impairment assessment
Defined benefit pension plans
Exceptional items
www.debenhams.com
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www.debenhams.comFinancial Statements
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
Risk of fraud in revenue recognition in relation
to 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 52
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 despatched 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.
How our audit addressed the key audit matter
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 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 a sample of year end accounts
receivable balances with no material issues noted.
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.
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Risk of fraud in revenue recognition in relation
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 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 a sample of year end accounts
receivable balances with no material issues noted.
to 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 52
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 despatched 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.
Key audit matter
Inventory valuation using the retail method
and provisioning for out of season inventory.
Refer to page 52 (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 key audit matter
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 counts 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. We also assessed 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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Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
83
83
www.debenhams.comFinancial Statements
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
Key audit matter
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 14 and 15 for
further details on the impairment assessment.
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.
This risk is relevant to Debenhams Retail plc, Debenhams
Properties Limited, Debenhams Retail (Ireland) Limited and
Magasin du Nord as these are the only entities that have
store assets.
The Group balance sheet also includes £819.5 million
of 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. This risk is relevant to
Debenhams Retail plc and Debenhams Retail (Ireland)
Limited as these are the only entities with goodwill
included on their balance sheet.
How our audit addressed the key audit matter
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 (2.0%) to 4.0%), are driven by the implementation
of the new Debenhams Redesigned strategy. We have
agreed the growth rates to management’s five year plan
and assessed the components of that five year plan. The
growth rates used are in line with the five year plan;
The directors’ key assumptions for long-term sales growth
rates of 1.0%, 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 of 7.3%), 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
We agreed the impairment charge recognised regarding store
assets of £7.2m to management’s impairment assessment and
challenged these assumptions used. We also reviewed the
calculations for the value in use of stores that had not been
impaired to ensure that the impairment charge was complete.
For marginal stores, not impaired, we challenged management
and understood their argument 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 when using the
sensitivities we applied.
We found, based on our audit work, that the key assumptions
used by management were supportable.
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Financial StatementsDebenhams plc Annual Report & Accounts 2017
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
Key audit matter
How our audit addressed the key audit matter
Goodwill and store asset impairment assessment.
We tested that the impairment models used by management
Refer to note 5 to the financial statements for the
for both goodwill and store impairment were mathematically
directors’ disclosures of the critical accounting
correct with no issues noted.
estimates and judgements related to the goodwill
impairment assessment and notes 14 and 15 for
further details on the impairment assessment.
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 challenged the directors on the inputs into their
impairment assessment calculations, including:
The directors’ key assumptions for short-term sales growth
rates (from (2.0%) to 4.0%), are driven by the implementation
of the new Debenhams Redesigned strategy. We have
agreed the growth rates to management’s five year plan
and assessed the components of that five year plan. The
growth rates used are in line with the five year plan;
The directors’ key assumptions for long-term sales growth
rates of 1.0%, 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
We focused on this area because of the significant carrying
data; and
value of store assets within the Group and the judgement
The discount rate (post tax rate of 7.3%), by assessing the
used in management’s impairment assessment including
cost of capital for the Group and comparable organisations,
assumptions over future growth rates and discount rate.
forming a view of risk premiums as appropriate. Having
This risk is relevant to Debenhams Retail plc, Debenhams
performed this assessment we believe this is an appropriate
Properties Limited, Debenhams Retail (Ireland) Limited and
discount rate
Magasin du Nord as these are the only entities that have
store assets.
We agreed the impairment charge recognised regarding store
assets of £7.2m to management’s impairment assessment and
The Group balance sheet also includes £819.5 million
challenged these assumptions used. We also reviewed the
of goodwill which relates primarily to the acquisition in
calculations for the value in use of stores that had not been
December 2003 of the Debenhams Group by Debenhams
impaired to ensure that the impairment charge was complete.
plc. Management’s assessment of the store portfolio as
For marginal stores, not impaired, we challenged management
detailed above is used to form the basis of the goodwill
and understood their argument for the carrying value of store
impairment review and is therefore subject to the same
assets and agreed that the carrying value was appropriate.
assumptions as the store impairment review above.
We focused on this area due to the changes noted in the
including the short-term growth rates and discount rates as
retail market as detailed above. This risk is relevant to
these are the key assumptions in the impairment model and
Debenhams Retail plc and Debenhams Retail (Ireland)
noted that whilst the calculations are most sensitive to changes
Limited as these are the only entities with goodwill
in short-term growth rates, there is sufficient headroom for this
included on their balance sheet.
not to result in impairments being required when using the
We also performed sensitivity analysis on the key assumptions
sensitivities we applied.
We found, based on our audit work, that the key assumptions
used by management were supportable.
Key audit matter
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 24 for detailed
disclosures in relation to these plans.
The Group has two defined benefit pension plans which
comprise total pension assets of £1,123.4 million and total
pension liabilities of £1,042.5 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.
This risk is relevant to Debenhams Retail plc as this is the
only entity which has employees in the defined benefit
pension schemes.
Exceptional items.
Refer to note 5 to the financial statements for the
directors’ disclosures on the critical accounting
estimates and judgements related to the exceptional
items and note 7 for detailed disclosures in relation
to these items.
The group has classified £36.2 million as exceptional costs
in the current period. The classification of exceptional costs
includes judgements on the nature of the cost incurred and
the recurrence of those costs in future years. These costs
are attributable to the Strategic review and restructuring
and Strategic warehouse restructuring.
We focused on this area because of the magnitude of the
amount of costs being classified as exceptional items in the
current period and the element of judgement involved in
determining whether an item should be classified as an
exceptional item or included within the underlying results.
This risk is relevant to Debenhams Retail plc and Debenhams
Properties Limited which are the only entities that have
incurred exceptional items in the year.
How our audit addressed the key audit matter
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.
We evaluated the assessment of management covering the
nature of the item, cause of occurrence and the scale of the
impact of that item on reported performance.
We considered and challenged the consistency of the use of
exceptional items, both within the single set of accounts and
year on year.
Our testing noted that management were able to demonstrate
the nature of the expenses were non-recurring and related to
the roll out of the new strategy.
We reviewed the disclosures given in both the notes to the
financial statements and in the strategic and directors’ reports
to ensure the disclosure of exceptional items was sufficient for
users of the accounts to understand the nature of and reasons
for the costs.
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 structure of the group, the accounting processes and controls, and the industry
in which it 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.
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www.debenhams.comFinancial Statements
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
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 evaluation of and review of the work performed, 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 in aggregate 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
£4.8 million (2016: £5.9 million).
How we determined it
5% of profit before tax and exceptional items.
Rationale for benchmark applied
We believe that profit before tax and exceptional items is the primary measure used
by the shareholders in assessing the performance of the group, and is generally
accepted auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was £2.3m to £4.5m. Certain components were audited to a local
statutory audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£0.5 million (2016: £0.5 million) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in
respect of the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the directors’ identification of any material
uncertainties to the group’s ability to continue as a going concern over a period of at
least twelve months from the date of approval of the financial statements.
We are required to report if the directors’ statement relating to Going Concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
Outcome
We have nothing material to add
or to draw attention to. However,
because not all future events or
conditions can be predicted, this
statement is not a guarantee as to
the group’s ability to continue as a
going concern.
We have nothing to report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
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Financial StatementsDebenhams plc Annual Report & Accounts 2017 Independent auditors’ report to
the members of Debenhams plc (Group)
continued
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 evaluation of and review of the work performed, 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 in aggregate 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
£4.8 million (2016: £5.9 million).
How we determined it
5% of profit before tax and exceptional items.
Rationale for benchmark applied
We believe that profit before tax and exceptional items is the primary measure used
by the shareholders in assessing the performance of the group, and is generally
accepted auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was £2.3m to £4.5m. Certain components were audited to a local
statutory audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£0.5 million (2016: £0.5 million) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Going concern
Reporting obligation
In accordance with ISAs (UK) we report as follows:
We are required to report if we have anything material to add or draw attention to in
We have nothing material to add
respect of the directors’ statement in the financial statements about whether the
or to draw attention to. However,
directors considered it appropriate to adopt the going concern basis of accounting in
because not all future events or
preparing the financial statements and the directors’ identification of any material
conditions can be predicted, this
uncertainties to the group’s ability to continue as a going concern over a period of at
statement is not a guarantee as to
least twelve months from the date of approval of the financial statements.
the group’s ability to continue as a
Outcome
going concern.
We are required to report if the directors’ statement relating to Going Concern in
We have nothing to report.
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act
2006,(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain
opinions and matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 2 September 2017 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency
or liquidity of the group
We have nothing material to add or draw attention to regarding:
The directors’ confirmation on page 27 of the Annual Report that they have carried out a robust assessment of the principal
risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity
The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated
The directors’ explanation on page 79 of the Annual Report as to how they have assessed the prospects of the group, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust
assessment of the principal risks facing the group and statement in relation to the longer-term viability of the group.
Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the
directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions
of the UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the
knowledge and understanding of the group and its environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
The statement given by the directors, on page 80, that they consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information necessary for the members to assess the group’s position
and performance, business model and strategy is materially inconsistent with our knowledge of the group obtained in the
course of performing our audit
The section of the Annual Report on page 52 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee
The directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing Rules, for review by the auditors
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www.debenhams.comFinancial Statements
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 80, the directors are responsible for
the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
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.
Appointment
Following the recommendation of the audit committee, we were appointed by the members of Debenhams plc to audit the
financial statements for its first year after incorporation for the year ended 3 September 2005 and subsequent financial periods.
The period of total uninterrupted engagement is 13 years, covering the years ended 3 September 2005 to 2 September 2017.
Before 2005, we were auditors of other entities within the Debenhams plc group. The audit committee have set out details
of their planned audit tender timetable on page 53 of the annual report and accounts.
OTHER MATTER
We have reported separately on the company financial statements of Debenhams plc for the year ended 2 September 2017
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
Reading
26 October 2017
88
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Independent auditors’ report to
the members of Debenhams plc (Group)
continued
Consolidated income statement
For the financial year ended 2 September 2017
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
Directors’ Remuneration
the Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 80, the directors are responsible for
the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Use of this report
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
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.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
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.
Appointment
Following the recommendation of the audit committee, we were appointed by the members of Debenhams plc to audit the
financial statements for its first year after incorporation for the year ended 3 September 2005 and subsequent financial periods.
The period of total uninterrupted engagement is 13 years, covering the years ended 3 September 2005 to 2 September 2017.
Before 2005, we were auditors of other entities within the Debenhams plc group. The audit committee have set out details
of their planned audit tender timetable on page 53 of the annual report and accounts.
OTHER MATTER
We have reported separately on the company financial statements of Debenhams plc for the year ended 2 September 2017
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
Reading
26 October 2017
88
Debenhams plc Annual Report & Accounts 2017
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
52 weeks ended 2 September 2017
53 weeks ended 3 September 2016
Before
exceptional
items
£m
2,335.0
(2,046.1)
288.9
(124.5)
(56.9)
107.5
0.1
(12.4)
95.2
(17.2)
Note
3, 4
6
9
10
11
Exceptional
items (note 7)
£m
Before
exceptional
items
£m
Total
£m
Exceptional
items (note 7)
£m
–
(24.1)
(24.1)
(10.6)
(1.5)
(36.2)
–
–
(36.2)
7.0
2,335.0
(2,070.2)
2,341.7
(2,039.8)
264.8
(135.1)
(58.4)
71.3
0.1
(12.4)
59.0
(10.2)
301.9
(115.4)
(55.5)
131.0
1.4
(14.2)
118.2
(22.3)
–
(8.5)
(8.5)
(1.8)
(2.1)
(12.4)
–
–
(12.4)
2.4
Total
£m
2,341.7
(2,048.3)
293.4
(117.2)
(57.6)
118.6
1.4
(14.2)
105.8
(19.9)
Profit for the financial year attributable
to owners of the parent
78.0
(29.2)
48.8
95.9
(10.0)
85.9
EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE PARENT
Basic earnings per share
Diluted earnings per share
Pence
per share
6.4
6.4
13
13
Pence
per share
Pence
per share
4.0
4.0
7.8
7.8
Pence
per share
7.0
7.0
www.debenhams.com
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www.debenhams.comFinancial Statements
Consolidated statement of
comprehensive income
For the financial year ended 2 September 2017
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
Change in the valuation of available-for-sale investments
Currency translation differences:
Retranslation of overseas subsidiaries
Foreign currency cash flow hedges:
Fair value gains
Recycled and adjusted against cost of inventory
Cash flow hedges reclassified and reported in the income statement
Taxation relating to items that may be reclassified
Total other comprehensive income/(expense)
Total comprehensive income for the financial year
52 weeks
ended
2 September
2017
£m
53 weeks
ended
3 September
2016
£m
48.8
85.9
Note
24
11
16
22
22
11
76.7
(18.5)
58.2
(0.1)
5.9
4.6
(50.4)
0.2
8.2
(31.6)
26.6
75.4
(41.1)
8.1
(33.0)
(0.8)
7.4
41.8
(27.2)
0.8
(1.5)
20.5
(12.5)
73.4
90
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Consolidated statement of
comprehensive income
For the financial year ended 2 September 2017
Consolidated balance sheet
As at 2 September 2017
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
Change in the valuation of available-for-sale investments
Currency translation differences:
Retranslation of overseas subsidiaries
Foreign currency cash flow hedges:
Fair value gains
Recycled and adjusted against cost of inventory
Cash flow hedges reclassified and reported in the income statement
Taxation relating to items that may be reclassified
Total other comprehensive income/(expense)
Total comprehensive income for the financial year
Note
24
11
16
22
22
11
52 weeks
ended
53 weeks
ended
2 September
3 September
2017
£m
48.8
76.7
(18.5)
58.2
(0.1)
5.9
4.6
(50.4)
0.2
8.2
(31.6)
26.6
75.4
2016
£m
85.9
(41.1)
8.1
(33.0)
(0.8)
7.4
41.8
(27.2)
0.8
(1.5)
20.5
(12.5)
73.4
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
Retirement benefit obligations
Provisions
Net assets
Equity
Share capital
Share premium account
Merger reserve
Reverse acquisition reserve
Hedging reserve
Other reserves
Retained earnings
Total equity
2 September
2017
£m
3 September
2016
£m
Note
14
15
16
23
18
24
25
17
18
23
19
21
23
20
27
21
23
25
26
24
27
28
28
991.9
654.9
1.2
0.5
19.3
80.9
15.3
962.1
670.2
1.3
10.7
17.4
6.4
20.1
1,764.0
1,688.2
317.8
82.9
4.8
40.0
445.5
(116.4)
(12.0)
(523.3)
(9.8)
(10.2)
(671.7)
(226.2)
(199.5)
(5.3)
(54.0)
(351.7)
–
(9.7)
(620.2)
917.6
0.1
682.9
1,200.9
(1,199.9)
(6.2)
(3.5)
243.3
917.6
326.3
81.1
39.1
56.3
502.8
(135.6)
(7.6)
(516.3)
(14.7)
(14.0)
(688.2)
(185.4)
(199.7)
(3.7)
(50.5)
(354.5)
(10.5)
–
(618.9)
883.9
0.1
682.9
1,200.9
(1,199.9)
31.2
(9.3)
178.0
883.9
90
Debenhams plc Annual Report & Accounts 2017
The financial statements on pages 89 to 135 were approved by the board on 26 October 2017 and were signed on its behalf by:
Matt Smith
Chief Financial Officer
www.debenhams.com
91
91
www.debenhams.comFinancial Statements
Consolidated statement
of changes in equity
For the financial year ended 2 September 2017
Share
capital and
share
premium
account
£m
Note
Merger
reserve
£m
Reverse
acquisition
reserve
£m
Hedging
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Balance at 29 August 2015
Profit for the financial year
Other comprehensive
income/(expense) for
the financial year
Total comprehensive income
for the financial year
Share-based payment credit
Dividends paid
Total transactions with owners
Balance at 3 September 2016
Profit for the financial year
Other comprehensive
(expense)/income for
the financial year
Total comprehensive
expense)/income for
the financial year
Share-based payment charge
Taxation recognised
directly in equity
Dividends paid
Purchase of shares by Debenhams
Retail Employment Trust 2004
Total transactions with owners
29
12
29
11
12
28
683.0
1,200.9
(1,199.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
683.0
1,200.9
(1,199.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(16.5)
–
167.9
85.9
Total
equity
£m
853.3
85.9
7.2
7.2
–
–
–
(9.3)
–
(33.0)
(12.5)
52.9
(0.8)
(42.0)
(42.8)
178.0
48.8
73.4
(0.8)
(42.0)
(42.8)
883.9
48.8
17.9
–
13.3
13.3
–
–
–
31.2
–
(37.4)
5.8
58.2
26.6
(37.4)
5.8
–
–
–
–
–
–
–
–
–
–
107.0
0.5
0.6
(42.0)
(0.8)
(41.7)
75.4
0.5
0.6
(42.0)
(0.8)
(41.7)
Balance at 2 September 2017
683.0
1,200.9
(1,199.9)
(6.2)
(3.5)
243.3
917.6
For a description of other reserves see note 28.
92
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Consolidated statement
of changes in equity
For the financial year ended 2 September 2017
Consolidated cash flow statement
For the financial year ended 2 September 2017
Share
capital and
share
premium
account
£m
683.0
Note
Merger
reserve
£m
Reverse
acquisition
reserve
£m
1,200.9
(1,199.9)
Hedging
reserve
Other
Retained
reserves
earnings
£m
(16.5)
–
£m
167.9
85.9
Balance at 29 August 2015
Profit for the financial year
Other comprehensive
income/(expense) for
the financial year
Total comprehensive income
for the financial year
Share-based payment credit
Dividends paid
Total transactions with owners
Balance at 3 September 2016
Profit for the financial year
Other comprehensive
(expense)/income for
the financial year
Total comprehensive
expense)/income for
the financial year
Share-based payment charge
Taxation recognised
directly in equity
Dividends paid
Purchase of shares by Debenhams
Retail Employment Trust 2004
Total transactions with owners
29
12
29
11
12
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
853.3
85.9
73.4
(0.8)
(42.0)
(42.8)
883.9
48.8
75.4
0.5
0.6
(42.0)
(0.8)
(41.7)
(33.0)
(12.5)
7.2
7.2
–
–
–
(9.3)
–
–
–
–
–
–
52.9
(0.8)
(42.0)
(42.8)
178.0
48.8
107.0
0.5
0.6
(42.0)
(0.8)
(41.7)
(37.4)
5.8
58.2
26.6
(37.4)
5.8
£m
17.9
–
13.3
13.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
683.0
1,200.9
(1,199.9)
31.2
Balance at 2 September 2017
683.0
1,200.9
(1,199.9)
(6.2)
(3.5)
243.3
917.6
For a description of other reserves see note 28.
Cash flows from operating activities
Cash generated from operations
Finance income
Finance costs
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Repayment of revolving credit facility
Dividends paid
Purchase of shares by Debenhams Retail Employment Trust 2004
Finance lease payments
Debt issue costs
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Net cash and cash equivalents at beginning of financial year
Foreign exchange gains on cash and cash equivalents
Net cash and cash equivalents at end of financial year
52 weeks
ended
2 September
2017
£m
53 weeks
ended
3 September
2016
£m
200.4
0.1
(11.2)
(16.3)
173.0
(72.6)
(52.2)
(124.8)
(25.0)
(42.0)
(0.8)
(1.6)
–
(69.4)
(21.2)
40.8
0.1
19.7
240.2
0.3
(15.6)
(11.0)
213.9
(79.3)
(47.2)
(126.5)
(15.0)
(42.0)
–
(2.9)
(1.3)
(61.2)
26.2
14.4
0.2
40.8
Note
31
21
12
28
32
92
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
93
93
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
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,
beauty and gifting products and products for use in the
home. The Group trades from department stores and online
in the UK, the Republic of Ireland and Denmark 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. Consequently the year ended 2 September
2017 is a 52-week year, with the comparative year ended
3 September 2016 being a 53-week year.
The subsidiary undertakings within the Group during the
financial year ended 2 September 2017 are disclosed in
note 4 to the Debenhams plc Company financial statements.
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 (“IFRS”) including International
Accounting Standards (“IAS”) and IFRS Interpretations
Committee (“IFRS IC”) interpretations and with those parts of
the Companies Act 2006 applicable to companies reporting
under accounting standards as adopted for use in the EU. The
consolidated financial statements for the financial years ended
2 September 2017 and 3 September 2016 have been prepared
under the historical cost convention as modified by the
revaluation of available-for-sale financial assets and financial
assets and financial liabilities (including derivative instruments)
at fair value through the income statement.
The preparation of the financial statements, in conformity
with IFRS, requires the use of estimates and assumptions that
affect the 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).
Alternative performance measures
In reporting financial information, the Group presents
alternative performance measures “APMs”, which are not
defined or specified under the requirements of IFRS and
therefore may not be directly comparable with other
companies’ APMs.
The Group believes that these APMs, which are not
considered a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on
the performance of the business. The APMs are consistent
with how business performance is planned and reported
within the internal management reporting to the board and
executive committee. Some of the measures are also used
for the purpose of setting remuneration targets.
The key APMs that the Group uses include gross transaction
value; like-for-like sales; gross margin; underlying profit before
tax before exceptional items; underlying earnings per share
before exceptional items; underlying Group earnings before
interest, taxation, depreciation, amortisation and exceptional
items (“underlying EBITDA”); effective tax rate; net debt and
return on capital employed. Each of these APMs and others
used by the Group, are set out in the Glossary on pages 152 to
154 including explanations of how they are calculated and how
they can be reconciled to a statutory measure where relevant.
Items which are both non-recurring and material in either size
or nature are presented as exceptional items within their
relevant income statement line. The separate reporting of
exceptional items helps provide a better indication of
underlying performance of the Group. The principal items
which are included as exceptional items are costs arising
from significant strategy changes that are not considered by
the Group to be part of the normal operating costs of the
business. These costs may include restructuring and other
associated costs (only where there is a significant or wholesale
restructuring programme), impairment charges and onerous
lease charges.
Basis of consolidation
The financial statements comprise a consolidation of
the accounts of Debenhams plc, its subsidiaries and the
Group’s share of its interests in associates.
a) 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.
94
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017 Notes to the financial statements
For the financial year ended 2 September 2017
1 GENERAL INFORMATION
Introduction
Alternative performance measures
In reporting financial information, the Group presents
Debenhams plc (“the Company”) is a public limited company
alternative performance measures “APMs”, which are not
incorporated and domiciled in the United Kingdom under
defined or specified under the requirements of IFRS and
the Companies Act 2006 (Company number 5448421). The
therefore may not be directly comparable with other
address of the registered office is 10 Brock Street, Regent’s
companies’ APMs.
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,
beauty and gifting products and products for use in the
home. The Group trades from department stores and online
in the UK, the Republic of Ireland and Denmark 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. Consequently the year ended 2 September
2017 is a 52-week year, with the comparative year ended
3 September 2016 being a 53-week year.
The subsidiary undertakings within the Group during the
financial year ended 2 September 2017 are disclosed in
note 4 to the Debenhams plc Company financial statements.
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 (“IFRS”) including International
Accounting Standards (“IAS”) and IFRS Interpretations
Committee (“IFRS IC”) interpretations and with those parts of
the Companies Act 2006 applicable to companies reporting
under accounting standards as adopted for use in the EU. The
consolidated financial statements for the financial years ended
2 September 2017 and 3 September 2016 have been prepared
under the historical cost convention as modified by the
revaluation of available-for-sale financial assets and financial
assets and financial liabilities (including derivative instruments)
at fair value through the income statement.
The preparation of the financial statements, in conformity
with IFRS, requires the use of estimates and assumptions that
affect the 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).
The Group believes that these APMs, which are not
considered a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on
the performance of the business. The APMs are consistent
with how business performance is planned and reported
within the internal management reporting to the board and
executive committee. Some of the measures are also used
for the purpose of setting remuneration targets.
The key APMs that the Group uses include gross transaction
value; like-for-like sales; gross margin; underlying profit before
tax before exceptional items; underlying earnings per share
before exceptional items; underlying Group earnings before
interest, taxation, depreciation, amortisation and exceptional
items (“underlying EBITDA”); effective tax rate; net debt and
return on capital employed. Each of these APMs and others
used by the Group, are set out in the Glossary on pages 152 to
154 including explanations of how they are calculated and how
they can be reconciled to a statutory measure where relevant.
Items which are both non-recurring and material in either size
or nature are presented as exceptional items within their
relevant income statement line. The separate reporting of
exceptional items helps provide a better indication of
underlying performance of the Group. The principal items
which are included as exceptional items are costs arising
from significant strategy changes that are not considered by
the Group to be part of the normal operating costs of the
business. These costs may include restructuring and other
associated costs (only where there is a significant or wholesale
restructuring programme), impairment charges and onerous
lease charges.
Basis of consolidation
The financial statements comprise a consolidation of
the accounts of Debenhams plc, its subsidiaries and the
Group’s share of its interests in associates.
a) 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.
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.
b) Associates
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in
the financial and operating policy decisions of the investee,
but it is not control or joint control over those policies.
The Group’s share of the results of associates is incorporated
into the Group’s results using the equity method of
accounting. Investments in associates are carried in the
Group balance sheet at cost plus post-acquisition changes
in the Group’s share of the net assets of the entity, less any
impairment in value. The carrying values of investments in
associates include acquired goodwill.
If the Group’s share of losses in an associate equals or
exceeds its investment in the associate, the Group does not
recognise further losses, unless it has incurred obligations
to do so or made payments on behalf of the associate.
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 goods are despatched or when goods are sold to
the customer depending on the terms of the franchise
agreement. Revenue from franchise fees is recognised
when earned.
It is the Group’s policy to sell its products to retail customers
with a right of return. Accumulated experience is used to
estimate and provide for such returns at the time of sale.
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.
94
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
95
95
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
2 ACCOUNTING POLICIES CONTINUED
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.
The Group 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.
96
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Debenhams plc Annual Report & Accounts 2017
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.
The resulting net exchange difference is 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 inter company 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.
Financial StatementsDebenhams plc Annual Report & Accounts 2017 Notes to the financial statements
For the financial year ended 2 September 2017
continued
2 ACCOUNTING POLICIES CONTINUED
Foreign exchange
Retirement benefit costs
a) Functional and presentation currency
The Group operates various defined benefit and defined
Items included in the financial statements of each of the
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
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:
calculated by applying the discount rate to the net defined
Assets and liabilities are translated at the closing rate at the
benefit liability or asset. Administration costs of pension
date of the balance sheet.
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.
The Group 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.
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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.
The resulting net exchange difference is 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 inter company 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 tax asset is
realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on
investments in subsidiaries, except where the timing of the
reversals of the temporary differences is controlled by the
Group and it is probable that the temporary differences will
not reverse in the foreseeable future.
Leased assets
a) Finance leases
Leases of assets which transfer substantially all the risks and
rewards of ownership to the Group are classified as finance
leases. Finance leases are classified as a financial liability and
measured at amortised cost. Finance leases are capitalised at
the inception of the lease at the lower of the fair value of the
asset or the present value of the minimum lease payments
and depreciated over the useful economic life or the period
of the lease. The resulting lease obligations are included
in liabilities.
Lease payments are apportioned between finance costs and
reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability.
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 all
business combinations.
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 business combination are initially measured at
their fair values at the acquisition date. 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 also 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%
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www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
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 is 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 the assets are brought into use:
Not depreciated
1.0%
1.0% or life of lease
if shorter
Freehold land
Freehold buildings
Long leasehold land and buildings
including landlords’ fixtures and fittings
Short leasehold land and buildings
including landlords’ fixtures and fittings Life of lease
Retail fixtures and fittings
Office equipment
Computer equipment
Vehicles
4.0% to 25.0%
10.0% to 12.5%
10.0% to 33.3%
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.
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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. Available-for-sale investments are recognised at fair value.
The fair values of quoted investments are based on current
bid prices. If the market for a financial asset (and for unlisted
securities) is not active, 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.
Financial StatementsDebenhams plc Annual Report & Accounts 2017 Notes to the financial statements
For the financial year ended 2 September 2017
continued
2 ACCOUNTING POLICIES CONTINUED
Impairment testing
Impairment testing
Assets that have an indefinite useful life are not subject to
Assets that have an indefinite useful life, for example goodwill
depreciation and are tested annually for impairment. Assets
or intangible assets not ready for use, are not subject to
that are subject to depreciation are reviewed for impairment
amortisation and are tested annually for impairment. Assets
whenever events or changes in circumstances indicate that
that are subject to amortisation are reviewed for impairment
the carrying value may not be recoverable. An impairment
whenever events or changes in circumstances indicate that
loss is recognised for the amount by which the asset’s carrying
the carrying value may not be recoverable. An impairment
amount exceeds its recoverable amount.
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 is 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 the assets are brought into use:
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
Freehold land
Freehold buildings
Not depreciated
that are either designated in this category or are not classified
1.0%
in the other financial instrument categories being “Fair value
Long leasehold land and buildings
1.0% or life of lease
through profit or loss” or “Loans and receivables”. They are
including landlords’ fixtures and fittings
if shorter
included in non-current assets unless management intends to
Short leasehold land and buildings
dispose of the investment within 12 months of the balance sheet
including landlords’ fixtures and fittings Life of lease
date. Available-for-sale investments are recognised at fair value.
Retail fixtures and fittings
Office equipment
Computer equipment
Vehicles
4.0% to 25.0%
10.0% to 12.5%
10.0% to 33.3%
20.0%
The fair values of quoted investments are based on current
bid prices. If the market for a financial asset (and for unlisted
securities) is not active, the Group establishes fair value by
using valuation techniques. These include the use of recent
Gains and losses on disposal are determined by comparing
arm’s length transactions, reference to other instruments that
proceeds with carrying amount. These are included in the
are substantially the same, discounted cash flow analysis and
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.
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.
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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. Inventories on consignment at third
parties are 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.
Transaction costs associated with borrowings 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 credited to the income
statement on a straight line basis over the term of the relevant
lease. Other payables also relate to the spreading of charges
in respect of leases with fixed annual increments in rent
(escalating rent clauses) over the term of the relevant lease.
Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation as a result of past events and where
it is more likely than not an outflow of resources will be
required to settle the obligation and the amount can be
reliably estimated. Provisions are measured at management’s
best estimate of the expenditure required to settle the
obligation at the balance sheet date.
Derivatives
Derivatives comprise forward foreign currency contracts and
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
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.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, the hedge relationship
no longer qualifies for hedge accounting, the forecast transaction
is no longer expected to occur or the Group de-designates the
hedge relationship. The replacement or roll-over of a hedging
instrument into another hedging instrument is not an expiration
or termination if it formed part of the Group’s documented
hedging strategy from inception.
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www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
2 ACCOUNTING POLICIES CONTINUED
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, terminated 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 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:
Amendment to IAS 7 “Cash flow statements” disclosure
initiative
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Amendment to IAS 12 “Income taxes” on recognition
of deferred tax assets for unrealised losses
IFRS 16 “Leases” was issued on 13 January 2016 and is
effective for periods beginning on or after 1 January 2019.
The standard is yet to be endorsed by the EU. IFRS 16
requires lessees to recognise a lease liability reflecting future
lease payments and a right-of-use asset for lease contracts,
subject to limited exceptions for short-term leases and leases
of low value assets.
The Group has invested in a new property management
system to prepare for the adoption of the new standard.
The Group is currently assessing the impact of IFRS 16 on
its existing lease portfolio of approximately 250 property
leases and other contracts. Work performed to date includes
consideration of the transition approach and collection of
relevant data from different areas of the business. In order
to quantify the impact of IFRS 16, judgements are required
which include, amongst others, the lease term, including
consideration of extension options and the discount rate.
IFRS 16 is expected to have a material impact on the balance
sheet as both assets and liabilities will increase and is also
expected to have a material impact on key components within
the income statement because operating lease rental charges
will be replaced by depreciation and finance costs. IFRS 16 will
not have any impact on the underlying commercial performance
of the Group nor the cash flow generated in the year.
It is not possible to provide an accurate assessment of the effect
of this standard until a detailed review has been completed on
an individual lease basis. The Group's undiscounted operating
lease commitments at 2 September 2017 under the current
leasing standard, is disclosed in note 30.
Other standards and interpretations in issue, but not yet
effective, which are not expected to have a material effect
on the Group’s net assets or results are:
Annual improvements to IFRS: 2014 – 2016 Cycle
IFRS 9 “Financial instruments” and amendments to IFRS 9
“Financial instruments” on general hedge accounting
IFRS 15 “Revenue from contracts with customers” and
amendments to IFRS 15 “Revenue from contracts with
customers” clarifications
Amendment to IFRS 2 “Share-based payment” on
clarifying share-based payment transactions
Amendment to IAS 40 “Investment property” transfers
of investment property
IFRIC 22 “Foreign currency transactions and advance
consideration”
IFRIC 23 “Uncertainty over income tax”
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
2 ACCOUNTING POLICIES CONTINUED
Amendment to IAS 12 “Income taxes” on recognition
a) Cash flow hedges
of deferred tax assets for unrealised losses
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.
IFRS 16 “Leases” was issued on 13 January 2016 and is
effective for periods beginning on or after 1 January 2019.
The standard is yet to be endorsed by the EU. IFRS 16
requires lessees to recognise a lease liability reflecting future
lease payments and a right-of-use asset for lease contracts,
subject to limited exceptions for short-term leases and leases
of low value assets.
The Group has invested in a new property management
system to prepare for the adoption of the new standard.
The Group is currently assessing the impact of IFRS 16 on
its existing lease portfolio of approximately 250 property
leases and other contracts. Work performed to date includes
consideration of the transition approach and collection of
When a hedged instrument expires, is sold, terminated or
relevant data from different areas of the business. In order
when a hedge no longer meets the criteria for hedge
to quantify the impact of IFRS 16, judgements are required
accounting, hedge accounting is discontinued. Any
which include, amongst others, the lease term, including
cumulative gain or loss existing in equity at that time is held in
consideration of extension options and the discount rate.
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.
IFRS 16 is expected to have a material impact on the balance
sheet as both assets and liabilities will increase and is also
expected to have a material impact on key components within
the income statement because operating lease rental charges
will be replaced by depreciation and finance costs. IFRS 16 will
b) Derivatives that do not qualify for hedge accounting
not have any impact on the underlying commercial performance
Certain derivatives do not qualify for hedge accounting.
of the Group nor the cash flow generated in the year.
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
It is not possible to provide an accurate assessment of the effect
of this standard until a detailed review has been completed on
an individual lease basis. The Group's undiscounted operating
lease commitments at 2 September 2017 under the current
Ordinary shares are classified as equity.
leasing standard, is disclosed in note 30.
Incremental costs directly attributable to the issue of new shares
Other standards and interpretations in issue, but not yet
in equity are shown as a deduction, net of tax, from the proceeds.
effective, which are not expected to have a material effect
Where the Company purchases its own ordinary shares,
on the Group’s net assets or results are:
the consideration paid, including any directly attributable
Annual improvements to IFRS: 2014 – 2016 Cycle
incremental costs (net of income taxes), is deducted from
IFRS 9 “Financial instruments” and amendments to IFRS 9
equity attributable to the Company’s equity holders until the
“Financial instruments” on general hedge accounting
shares are cancelled or reissued. Where such ordinary shares
IFRS 15 “Revenue from contracts with customers” and
are subsequently reissued, any consideration received, net
amendments to IFRS 15 “Revenue from contracts with
of any directly attributable incremental transaction costs
customers” clarifications
together with the related income tax effects, is included in
Amendment to IFRS 2 “Share-based payment” on
equity attributable to the Company’s equity holders.
clarifying share-based payment transactions
New standards and interpretations
The following standards and amendments 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:
Amendment to IAS 7 “Cash flow statements” disclosure
Amendment to IAS 40 “Investment property” transfers
of investment property
IFRIC 22 “Foreign currency transactions and advance
consideration”
IFRIC 23 “Uncertainty over income tax”
initiative
100
Debenhams plc Annual Report & Accounts 2017
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 representing the geographical areas in
which the Group operates. The UK segment consists of the
UK store and online retail business. The International segment
consists of subsidiaries in the Republic of Ireland and
Denmark, together with international franchise and online
operations. Transactions between segments have been
eliminated from the information presented below.
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.
UK
£m
International
£m
Total
£m
Financial year ended 2 September 2017
Gross transaction value
Concessions, consignments and staff discounts
External revenue
Operating profit before exceptional items
Exceptional items
Operating profit after exceptional items
Other segment items
Depreciation (note 15)
Amortisation (note 14)
Impairment of property, plant and equipment (note 15)
Loss on disposal and write off of property, plant and equipment (note 15)
Loss on disposal and write off of intangible assets (note 14)
Financial year ended 3 September 2016
Gross transaction value
Concessions, consignments and staff discounts
External revenue
Operating profit before exceptional items
Exceptional items
Operating profit after exceptional items
Other segment items
Depreciation (note 15)
Amortisation (note 14)
Impairment of intangible assets (note 14)
2,350.0
(457.1)
1,892.9
74.0
(34.3)
39.7
81.0
19.0
7.2
1.2
4.6
2,386.2
(454.3)
1,931.9
98.0
(5.4)
92.6
82.3
18.2
–
604.1
(162.0)
442.1
33.5
(1.9)
31.6
8.5
1.0
–
–
–
552.3
(142.5)
409.8
33.0
(7.0)
26.0
7.1
1.0
2.2
2,954.1
(619.1)
2,335.0
107.5
(36.2)
71.3
89.5
20.0
7.2
1.2
4.6
2,938.5
(596.8)
2,341.7
131.0
(12.4)
118.6
89.4
19.2
2.2
www.debenhams.com
101
101
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
3 SEGMENTAL REPORTING CONTINUED
Segmental analysis of results
Total segmental operating profit may be reconciled to total profit before taxation as follows:
Total operating profit
Finance income
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
2 September
2017
£m
3 September
2016
£m
71.3
0.1
(12.4)
59.0
118.6
1.4
(14.2)
105.8
2 September
2017
£m
3 September
2016
£m
1,892.9
205.6
147.5
89.0
2,335.0
1,931.9
185.1
136.3
88.4
2,341.7
Non-current assets, which comprise intangible assets and property and plant and equipment analysed by country, are set out
below:
United Kingdom
Denmark
Republic of Ireland
Rest of the world
Total non-current assets
2 September
2017
£m
1,585.9
36.0
24.0
0.9
1,646.8
3 September
2016
£m
1,582.1
28.4
21.5
0.3
1,632.3
Additions to intangible assets and property, plant and equipment analysed by operating segment are set out below:
Financial year ended 2 September 2017
Financial year ended 3 September 2016
UK
£m
116.1
120.3
International
£m
15.6
9.4
Total
£m
131.7
129.7
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.
2 September
2017
£m
3 September
2016
£m
2,954.1
2,938.5
102
102
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
3 SEGMENTAL REPORTING CONTINUED
Segmental analysis of results
Total segmental operating profit may be reconciled to total profit before taxation as follows:
Revenues analysed by country, based on the customers’ location, are set out below:
Total operating profit
Finance income
Finance costs
Total profit before taxation
United Kingdom
Denmark
Republic of Ireland
Rest of the world
Total external revenue
below:
United Kingdom
Denmark
Republic of Ireland
Rest of the world
Total non-current assets
Non-current assets, which comprise intangible assets and property and plant and equipment analysed by country, are set out
Additions to intangible assets and property, plant and equipment analysed by operating segment are set out below:
Financial year ended 2 September 2017
Financial year ended 3 September 2016
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.
2 September
3 September
2017
£m
71.3
0.1
(12.4)
59.0
2017
£m
205.6
147.5
89.0
2017
£m
36.0
24.0
0.9
2 September
3 September
1,892.9
1,931.9
2,335.0
2,341.7
2 September
3 September
1,585.9
1,582.1
1,646.8
1,632.3
2016
£m
118.6
1.4
(14.2)
105.8
2016
£m
185.1
136.3
88.4
2016
£m
28.4
21.5
0.3
Total
£m
131.7
129.7
2 September
3 September
2017
£m
2016
£m
2,954.1
2,938.5
UK
£m
116.1
120.3
International
£m
15.6
9.4
5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the consolidated Group financial statements requires the Group to make estimates and assumptions that
affect the application of policies and reported amounts. 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. Actual results may differ from these estimates. The significant judgements applied in the preparation of
the consolidated financial statements, along with 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.
Sources of estimation uncertainty
Estimated impairment of goodwill and store assets
The Group tests whether goodwill and store assets have suffered any impairment in accordance with the accounting policies
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 notes 14 and 15 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.
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 24 for further details.
A retirement benefit surplus is only recognised to the extent that it is expected to be recoverable in the future.
Property provisions
Property provisions comprise onerous lease provisions, relating to leases on properties which the Group plans to exit and
dilapidations provisions. Onerous lease provisions are based on the lower of the net cost of fulfilling or exiting the contract.
The ultimate costs and timing of cash flows are dependent on exiting the property lease contracts and sub-letting surplus
space. Significant assumptions are used in making these calculations, in particular the nature, timing and value of mitigating
lease costs including the level of sub-lease income, and changes in these assumptions and future events could cause the
value of these provisions to change. Refer to note 27 for further details.
Judgements made in applying accounting policies
Exceptional items
The Group separately reports exceptional items within their relevant income statement line as it believes this helps provide
a better indication of the underlying performance of the Group.
Judgement is required in determining whether an item should be classified as an exceptional item or included within
underlying results. This assessment covers the nature of the item, cause of occurrence and the scale of the impact of
that item on reported performance. Reversals of previous exceptional items are assessed based on the same criteria.
A breakdown of the exceptional items included in the income statement is disclosed in note 7.
102
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
103
103
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
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 15)
Amortisation of intangible assets (note 14)
Impairment of intangible assets (note 14)
Impairment of property, plant and equipment (note 15)
Loss on disposal and write off of property, plant and equipment (note 15)
Loss on disposal and write off of intangible assets (note 14)
Operating lease rentals
Foreign exchange gains
Auditors’ remuneration
2 September
2017
£m
3 September
2016
£m
9.7
1,151.3
89.5
20.0
–
7.2
1.2
4.6
221.4
(49.4)
0.5
7.5
1,153.7
89.4
19.2
2.2
–
0.1
–
220.7
(24.1)
0.5
Services provided by the Company’s auditors and network firms
During the financial year the Group obtained the services from the Company’s auditors and its associates detailed below:
Audit services
Annual audit fees for the Company and the consolidated accounts
Other services
Audit of subsidiary companies
Other non-audit services
2 September
2017
£m
3 September
2016
£m
0.2
0.2
0.1
0.2
0.2
0.1
Non-audit service fees payable to the Group’s auditors during the financial year ended 3 September 2016 included £84,277
for their role as independent accountant in the examinership process in the Republic of Ireland (see note 7). This is a role
typically performed by the auditors.
7 EXCEPTIONAL ITEMS
Exceptional items for the 52 weeks ended 2 September 2017 comprise the following:
Exceptional cost of sales
Exceptional distribution costs
Exceptional administration costs
Exceptional items before taxation
Taxation on exceptional items
Exceptional items after taxation
Strategic
review and
restructuring
£m
Strategic
warehouse
restructuring
£m
21.1
0.9
1.5
23.5
(4.9)
18.6
3.0
9.7
–
12.7
(2.1)
10.6
Total
£m
24.1
10.6
1.5
36.2
(7.0)
29.2
104
104
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
2017
£m
9.7
1,151.3
89.5
20.0
–
7.2
1.2
4.6
221.4
(49.4)
0.5
2017
£m
0.2
0.2
0.1
2016
£m
7.5
1,153.7
89.4
19.2
2.2
0.1
–
–
220.7
(24.1)
0.5
2016
£m
0.2
0.2
0.1
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 15)
Amortisation of intangible assets (note 14)
Impairment of intangible assets (note 14)
Impairment of property, plant and equipment (note 15)
Loss on disposal and write off of property, plant and equipment (note 15)
Loss on disposal and write off of intangible assets (note 14)
Operating lease rentals
Foreign exchange gains
Auditors’ remuneration
Services provided by the Company’s auditors and network firms
During the financial year the Group obtained the services from the Company’s auditors and its associates detailed below:
2 September
3 September
Annual audit fees for the Company and the consolidated accounts
Audit services
Other services
Audit of subsidiary companies
Other non-audit services
Non-audit service fees payable to the Group’s auditors during the financial year ended 3 September 2016 included £84,277
for their role as independent accountant in the examinership process in the Republic of Ireland (see note 7). This is a role
typically performed by the auditors.
7 EXCEPTIONAL ITEMS
Exceptional items for the 52 weeks ended 2 September 2017 comprise the following:
Exceptional cost of sales
Exceptional distribution costs
Exceptional administration costs
Exceptional items before taxation
Taxation on exceptional items
Exceptional items after taxation
Strategic
review and
Strategic
warehouse
restructuring
restructuring
£m
21.1
0.9
1.5
23.5
(4.9)
18.6
£m
3.0
9.7
–
12.7
(2.1)
10.6
Total
£m
24.1
10.6
1.5
36.2
(7.0)
29.2
6 OPERATING PROFIT
2 September
3 September
During the financial year the Group conducted a strategic review and embarked on a new strategy Debenhams Redesigned
together with a planned restructuring of operations encompassing the following areas:
Strategic review and restructuring
As part of the strategic review, the Group revised future projections for all stores to reflect the change of direction. This review
identified stores at risk of becoming unprofitable over time and where anticipated future performance will not support the
carrying value of store assets. Exceptional store costs of £10.4 million relating to impairment of property, plant and equipment
and onerous lease commitments have been recognised during the financial year as a result.
Other exceptional charges of £13.1 million were incurred as a result of transforming the business in line with the new
Debenhams Redesigned strategy including redundancies (including some senior management within the trading division
and the support centre), professional fees, recruitment costs of key people to help drive the strategy, asset write-offs of
legacy IT systems and costs arising from strategic exits from certain international markets.
Costs incurred in relation to the strategic review and restructuring are considered to be exceptional because the Debenhams
Redesigned strategy is a significant change of direction for the business and costs are not considered to be normal operating
costs. Further details of the Debenhams Redesigned strategic review are set out in the CEO’s strategic perspective on pages 6 to 8.
Strategic warehouse restructuring
During the financial year, the Group carried out a strategic review of its warehouse operations which led to a restructuring.
As a result, the Group announced the closure of its distribution centre at Northampton and certain regional warehousing
facilities and recognised exceptional closure costs of £8.8 million relating to accelerated depreciation of assets, dilapidations,
onerous lease commitments and redundancy costs.
Exceptional charges of £3.9 million were incurred during the financial year relating to one-off transition costs including staff
time, training and inventory moves totalling £3.5 million and asset write-offs of property, plant and equipment of £0.4 million.
Part of this restructuring is warehouse automation which is an ongoing project over the next two years.
Costs incurred in relation to the strategic warehouse restructuring are considered to be exceptional because the project is
non-recurring and costs are not considered to be normal operating costs.
Exceptional items for the 53 weeks ended 3 September 2016 comprise the following:
Exceptional cost of sales
Exceptional distribution costs
Exceptional administrative expenses
Exceptional items before taxation
Taxation on exceptional items
Exceptional items after taxation
Irish
examinership
£m
UK
restructuring
£m
International
website
£m
1.9
0.7
1.4
4.0
(1.3)
2.7
3.9
1.1
0.7
5.7
(1.1)
4.6
2.7
–
–
2.7
–
2.7
Total
£m
8.5
1.8
2.1
12.4
(2.4)
10.0
Irish examinership
The Irish business was entered into an examinership process in May 2016 which concluded in August 2016. Costs were incurred
in relation to the examinership and restructuring of the Irish business. These costs include legal and professional fees, a limited
number of redundancy costs and warehouse dilapidation costs offset by a £2.3 million reduction in the balance of accounts
payable at the end of examinership.
UK restructuring
UK restructuring costs represent the amount incurred for redundancies and fees within the support centre.
International website
International website costs represent the write-off of the old International website intangible asset following the launch of the
new International website during the 53 weeks ended 3 September 2016.
104
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
105
105
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
8 EMPLOYEES
Wages and salaries including restructuring costs and other termination benefits
Social security costs
Other pension costs (note 24)
Share-based payments (note 29)
Employment costs
Average monthly number of employees (including key management):
Full time
Part time
Total
2 September
2017
£m
3 September
2016
£m
366.5
23.0
17.5
0.5
407.5
357.4
22.4
17.0
(0.8)
396.0
Number
Number
8,431
18,651
27,082
8,392
19,501
27,893
Information concerning directors’ remuneration, shares and share interests is included in the directors’ remuneration report on
pages 54 to 76, which forms part of these financial statements.
Key management compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits and termination benefits
Share-based payments
2 September
2017
£m
3 September
2016
£m
4.4
0.5
1.0
0.2
6.1
3.5
0.5
1.2
(0.6)
4.6
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 16 members (2016: 15 members).
9 FINANCE INCOME
Interest on bank deposits
Net interest on net defined benefit pension schemes’ liability/asset (note 24)
10 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 21)
Interest payable on finance leases
Capitalised finance costs – qualifying assets (note 14, 15)
106
106
Debenhams plc Annual Report & Accounts 2017
2 September
2017
£m
3 September
2016
£m
0.1
–
0.1
0.3
1.1
1.4
2 September
2017
£m
3 September
2016
£m
2.8
10.4
0.2
1.3
0.2
(2.5)
12.4
3.3
10.6
0.8
1.3
0.1
(1.9)
14.2
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
Wages and salaries including restructuring costs and other termination benefits
8 EMPLOYEES
Social security costs
Other pension costs (note 24)
Share-based payments (note 29)
Employment costs
Average monthly number of employees (including key management):
Full time
Part time
Total
2 September
3 September
2017
£m
366.5
23.0
17.5
0.5
407.5
2016
£m
357.4
22.4
17.0
(0.8)
396.0
Number
Number
8,431
18,651
27,082
8,392
19,501
27,893
2 September
3 September
2017
£m
4.4
0.5
1.0
0.2
6.1
2017
£m
0.1
–
0.1
2017
£m
2.8
10.4
0.2
1.3
0.2
(2.5)
12.4
2016
£m
3.5
0.5
1.2
(0.6)
4.6
2016
£m
0.3
1.1
1.4
2016
£m
3.3
10.6
0.8
1.3
0.1
(1.9)
14.2
Information concerning directors’ remuneration, shares and share interests is included in the directors’ remuneration report on
pages 54 to 76, which forms part of these financial statements.
Key management compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits and termination benefits
Share-based payments
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 16 members (2016: 15 members).
9 FINANCE INCOME
2 September
3 September
Interest on bank deposits
Net interest on net defined benefit pension schemes’ liability/asset (note 24)
10 FINANCE COSTS
2 September
3 September
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 21)
Interest payable on finance leases
Capitalised finance costs – qualifying assets (note 14, 15)
106
Debenhams plc Annual Report & Accounts 2017
11 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 changes in current tax rate on the net deferred tax asset recognised at the beginning of the
financial year
Deferred taxation (credit)/charge (note 25)
Taxation charge for the financial year
2 September
2017
£m
3 September
2016
£m
12.6
0.2
12.8
1.8
(0.3)
(3.1)
(1.0)
(2.6)
10.2
19.7
(0.6)
19.1
3.2
(0.1)
–
(2.3)
0.8
19.9
The effective tax rate for the financial year is lower at 17.3%, (excluding exceptional items 18.1%), (2016: 18.8% (excluding
exceptional items 18.9%)) than the rate of corporation tax in the UK of 19.6% (2016: 20.0%). The differences are explained below:
Profit before taxation
Profit on ordinary activities at standard rate of corporation tax in the UK of 19.6% (2016: 20.0%)
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
2 September
2017
£m
3 September
2016
£m
59.0
11.6
(0.2)
1.9
–
1.1
(1.3)
(2.9)
10.2
105.8
21.2
3.0
(1.0)
(1.3)
1.5
(2.9)
(0.6)
19.9
The Finance Act 2016 (“the 2016 Act”), which was enacted on 15 September 2016, included legislation to reduce the main rate
of corporation tax to 17.0% from 1 April 2020.
The effect of the reduction in the corporation tax rate enacted in the 2016 Act has been to reduce the net deferred tax
liability recognised at the previous year end, 3 September 2016, by approximately £0.9 million. This £0.9 million decrease
has been recognised in line with the treatment of the assets and liabilities giving rise to the net deferred tax liability.
www.debenhams.com
107
107
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
11 TAXATION CONTINUED
In addition to the amount charged to the income statement, taxation movements recognised in other comprehensive income were:
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
Current taxation
Deferred taxation
Currency translation differences
Gains on cash flow hedges
Cash flow hedges reclassified and reported in the income statement
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
Taxation movements recognised directly in equity were:
Taxation recognised directly in equity
Deferred taxation
Share-based payments
Total taxation recognised directly in equity
12 DIVIDENDS
Final paid 2.4 pence (2016: 2.4 pence) per £0.0001 share
Settled in cash
Interim paid 1.025 pence (2016: 1.025 pence) per £0.0001 share
Settled in cash
2 September
2017
£m
3 September
2016
£m
(1.5)
20.0
18.5
0.3
(0.3)
0.8
–
(9.0)
(8.2)
10.3
(2.3)
(5.8)
(8.1)
–
(0.6)
1.8
0.1
0.2
1.5
(6.6)
2 September
2017
£m
3 September
2016
£m
0.6
0.6
–
–
2 September
2017
£m
3 September
2016
£m
29.4
12.6
42.0
29.5
12.5
42.0
A final dividend of 2.4 pence per share (2016: 2.4 pence per share) was paid during the financial year in respect of the financial
year ended 3 September 2016, together with an interim dividend of 1.025 pence per share (2016: 1.025 pence per share) in
respect of the financial year ended 2 September 2017. The directors are recommending a final dividend in respect of the
financial year ended 2 September 2017 of 2.4 pence per share (2016: 2.4 pence per share), which will absorb an estimated
£29.5 million (2016: £29.4 million) of shareholders’ equity. It will be paid on 19 January 2018 to shareholders who are on the
register of members at close of business on 8 December 2017. No liability is recorded in the financial statements in respect
of the final dividend as it was not approved at the balance sheet date.
108
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
11 TAXATION CONTINUED
In addition to the amount charged to the income statement, taxation movements recognised in other comprehensive income were:
2 September
3 September
Taxation relating to items that will not be reclassified to the income statement
13 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 share, 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
Exceptional items after taxation (note 7)
Profit for the financial year after taxation –
before exceptional items
Weighted average number of shares
Shares held by ESOP (weighted)
Shares issuable (weighted)
Weighted average number of shares used
in calculating earnings per share
Earnings per share
Earnings per share – before exceptional items
2 September 2017
Diluted
£m
Basic
£m
48.8
29.2
78.0
Number
m
1,227.8
–
–
48.8
29.2
78.0
Number
m
1,227.8
–
1.2
Basic
£m
85.9
10.0
95.9
Number
m
1,227.6
(0.2)
–
3 September 2016
Diluted
£m
85.9
10.0
95.9
Number
m
1,227.6
(0.2)
0.5
1,227.8
1,229.0
1,227.4
1,227.9
Pence
per share
Pence
per share
Pence
per share
Pence
per share
4.0
6.4
4.0
6.4
7.0
7.8
7.0
7.8
Notes to the financial statements
For the financial year ended 2 September 2017
continued
Current taxation
Pension schemes
Deferred taxation
Remeasurements of pension schemes
Current taxation
Deferred taxation
Currency translation differences
Gains on cash flow hedges
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
Cash flow hedges reclassified and reported in the income statement
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
Taxation movements recognised directly in equity were:
Taxation recognised directly in equity
Deferred taxation
Share-based payments
Total taxation recognised directly in equity
12 DIVIDENDS
Final paid 2.4 pence (2016: 2.4 pence) per £0.0001 share
Interim paid 1.025 pence (2016: 1.025 pence) per £0.0001 share
Settled in cash
Settled in cash
2017
£m
(1.5)
20.0
18.5
0.3
(0.3)
0.8
–
(9.0)
(8.2)
10.3
2017
£m
0.6
0.6
2017
£m
29.4
12.6
42.0
2016
£m
(2.3)
(5.8)
(8.1)
–
(0.6)
1.8
0.1
0.2
1.5
(6.6)
2016
£m
–
–
2016
£m
29.5
12.5
42.0
2 September
3 September
2 September
3 September
A final dividend of 2.4 pence per share (2016: 2.4 pence per share) was paid during the financial year in respect of the financial
year ended 3 September 2016, together with an interim dividend of 1.025 pence per share (2016: 1.025 pence per share) in
respect of the financial year ended 2 September 2017. The directors are recommending a final dividend in respect of the
financial year ended 2 September 2017 of 2.4 pence per share (2016: 2.4 pence per share), which will absorb an estimated
£29.5 million (2016: £29.4 million) of shareholders’ equity. It will be paid on 19 January 2018 to shareholders who are on the
register of members at close of business on 8 December 2017. No liability is recorded in the financial statements in respect
of the final dividend as it was not approved at the balance sheet date.
108
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109
109
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
14 INTANGIBLE ASSETS
Cost
At 29 August 2015
Additions
Exchange rate movement
Disposals and write-offs
At 3 September 2016
Additions
Exchange rate movement
Disposals and write-offs
At 2 September 2017
Accumulated amortisation and impairment
At 29 August 2015
Charge for the financial year
Impairment loss (note 7)
Exchange rate movement
Disposals and write-offs
At 3 September 2016
Charge for the financial year
Exchange rate movement
Disposals and write-offs
At 2 September 2017
Net book value
At 2 September 2017
At 3 September 2016
At 29 August 2015
Acquired
licences and
trademarks
£m
Internally
generated
software
£m
Purchased
software
£m
Goodwill
£m
818.0
–
0.9
–
818.9
–
0.6
–
819.5
–
–
–
–
–
–
–
–
–
–
819.5
818.9
818.0
7.2
–
–
–
7.2
–
–
–
7.2
4.4
0.7
–
–
–
5.1
0.7
–
–
5.8
1.4
2.1
2.8
Total
£m
1,011.1
50.9
2.4
(3.6)
1,060.8
53.3
1.8
(15.2)
151.6
43.7
1.4
(2.6)
194.1
42.8
1.1
(12.0)
34.3
7.2
0.1
(1.0)
40.6
10.5
0.1
(3.2)
226.0
48.0
1,100.7
64.9
16.4
2.0
1.3
(2.6)
82.0
15.7
0.7
(8.0)
90.4
135.6
112.1
86.7
10.3
2.1
0.2
–
(1.0)
11.6
3.6
–
(2.6)
79.6
19.2
2.2
1.3
(3.6)
98.7
20.0
0.7
(10.6)
12.6
108.8
35.4
29.0
24.0
991.9
962.1
931.5
Assets in the course of construction at net book value, included primarily within internally generated software, was:
Assets in the course of construction
2 September
2017
£m
3 September
2016
£m
84.8
61.8
Amortisation and impairment 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
110
110
Debenhams plc Annual Report & Accounts 2017
2 September
2017
£m
3 September
2016
£m
13.5
2.0
4.5
20.0
16.8
0.7
3.9
21.4
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
Accumulated amortisation and impairment
226.0
48.0
1,100.7
Cost
At 29 August 2015
Additions
Exchange rate movement
Disposals and write-offs
At 3 September 2016
Additions
Exchange rate movement
Disposals and write-offs
At 2 September 2017
At 29 August 2015
Charge for the financial year
Impairment loss (note 7)
Exchange rate movement
Disposals and write-offs
At 3 September 2016
Charge for the financial year
Exchange rate movement
Disposals and write-offs
At 2 September 2017
Net book value
At 2 September 2017
At 3 September 2016
At 29 August 2015
Included within:
Cost of sales
Distribution costs
Administrative expenses
818.0
0.9
818.9
0.6
819.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
819.5
818.9
818.0
£m
7.2
7.2
–
–
–
–
–
–
7.2
4.4
0.7
–
–
–
5.1
0.7
–
–
5.8
1.4
2.1
2.8
151.6
43.7
1.4
(2.6)
194.1
42.8
1.1
(12.0)
64.9
16.4
2.0
1.3
(2.6)
82.0
15.7
0.7
(8.0)
90.4
135.6
112.1
86.7
Total
£m
1,011.1
1,060.8
50.9
2.4
(3.6)
53.3
1.8
(15.2)
79.6
19.2
2.2
1.3
(3.6)
98.7
20.0
0.7
(10.6)
108.8
991.9
962.1
931.5
2016
£m
61.8
2016
£m
16.8
0.7
3.9
21.4
34.3
7.2
0.1
(1.0)
40.6
10.5
0.1
(3.2)
10.3
2.1
0.2
–
(1.0)
11.6
3.6
–
(2.6)
12.6
35.4
29.0
24.0
2017
£m
84.8
2017
£m
13.5
2.0
4.5
20.0
Assets in the course of construction at net book value, included primarily within internally generated software, was:
2 September
3 September
Assets in the course of construction
Amortisation and impairment of intangible assets
Amortisation of the Group’s intangible assets has been charged to the income statement as follows:
2 September
3 September
14 INTANGIBLE ASSETS
Acquired
licences and
trademarks
Internally
generated
software
£m
Purchased
software
£m
Goodwill
£m
Amortisation and impairment includes an impairment loss of £nil (2016: £2.2 million) which has been charged to the income
statement within exceptional cost of sales.
Intangible assets includes within “purchased software” the following assets held under finance leases:
Cost
Accumulated amortisation
Net book value
2 September
2017
£m
3 September
2016
£m
8.2
(2.7)
5.5
7.1
(1.4)
5.7
Contractual commitments at 2 September 2017 were £nil (2016: £6.3 million).
Capitalised finance costs
Finance costs capitalised on qualifying assets included in additions amounted to £2.1 million (2016: £1.2 million). Accumulated
finance costs capitalised included in the cost of intangible assets (net of disposals) amounted to £3.7 million (2016: £1.6 million).
The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 4.2% (2016: 4.5%).
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 UK and other.
Goodwill
At 2 September 2017
At 3 September 2016
UK
£m
793.5
793.5
Other
£m
26.0
25.4
Total
£m
819.5
818.9
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 the Group’s three-year internal forecasts which incorporate the impact of the strategic
review, the results of which have been approved by the board. The forecasts are extrapolated to five years based on management’s
expectations. Internal forecasts are built up using management’s previous experience and incorporates management’s view of current
economic conditions and trading expectations. Management determined sales growth to be a key assumption. The annual sales
growth ranges from (2.0)% to 4.0% during the five-year period. Cash flows beyond the five-year period are extrapolated based on the
assumption of 1.0% (2016: 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 7.3% (2016: 7.1%) and reflects the
specific risks in the retail business. The pre-tax discount rate is 8.4% (2016: 8.3%).
Management determined the gross margin for each CGU based on performance of individual stores and its expectations
for the market. 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 2 September 2017 no impairment of goodwill has been required (2016: £nil).
110
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111
111
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
15 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 29 August 2015
Additions
Exchange rate movements
Disposals and write-offs
At 3 September 2016
Additions
Exchange rate movements
Disposals and write-offs
At 2 September 2017
Accumulated depreciation and impairment
At 29 August 2015
Charge for the financial year
Exchange rate movements
Disposals and write-offs
At 3 September 2016
Charge for the financial year
Impairment loss (note 7)
Exchange rate movements
Disposals and write-offs
At 2 September 2017
Net book value
At 2 September 2017
At 3 September 2016
At 29 August 2015
1.6
–
–
–
1.6
–
–
–
1.6
0.2
–
–
–
0.2
–
–
–
–
0.2
1.4
1.4
1.4
7.7
–
–
–
7.7
–
–
–
7.7
1.4
0.1
–
–
1.5
0.1
–
–
–
1.6
6.1
6.2
6.3
Total
£m
1,392.2
78.8
15.6
(34.8)
1,451.8
78.4
11.6
(22.8)
379.0
3.4
3.0
(2.3)
383.1
3.1
2.2
–
1,003.9
75.4
12.6
(32.5)
1,059.4
75.3
9.4
(22.8)
388.4
1,121.3
1,519.0
154.9
14.7
1.1
(2.3)
168.4
15.3
2.2
0.8
–
560.4
74.6
8.9
(32.4)
611.5
74.1
5.0
6.6
(21.6)
716.9
89.4
10.0
(34.7)
781.6
89.5
7.2
7.4
(21.6)
186.7
675.6
864.1
201.7
214.7
224.1
445.7
447.9
443.5
654.9
670.2
675.3
Assets in the course of construction, included primarily in fixtures and fittings within “Vehicles, fixtures and equipment” above
at net book value was:
Assets in the course of construction
2 September
2017
£m
3 September
2016
£m
34.2
24.0
112
112
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
Accumulated depreciation and impairment
388.4
1,121.3
1,519.0
Land and buildings
Short leasehold
Long
fixtures and
Freehold
£m
leasehold
fittings
£m
Vehicles,
fixtures and
equipment
£m
1.6
7.7
383.1
1,059.4
1,451.8
£m
7.7
–
–
–
–
–
–
7.7
1.4
0.1
–
–
1.5
0.1
–
–
–
1.6
6.1
6.2
6.3
3.4
3.0
(2.3)
3.1
2.2
–
154.9
14.7
1.1
(2.3)
168.4
15.3
2.2
0.8
–
186.7
201.7
214.7
224.1
75.4
12.6
(32.5)
75.3
9.4
(22.8)
560.4
74.6
8.9
(32.4)
611.5
74.1
5.0
6.6
(21.6)
675.6
445.7
447.9
443.5
Total
£m
78.8
15.6
(34.8)
78.4
11.6
(22.8)
716.9
89.4
10.0
(34.7)
781.6
89.5
7.2
7.4
(21.6)
864.1
654.9
670.2
675.3
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
0.2
0.2
0.2
1.4
1.4
1.4
Cost
At 29 August 2015
Additions
Exchange rate movements
Disposals and write-offs
At 3 September 2016
Additions
Exchange rate movements
Disposals and write-offs
At 2 September 2017
At 29 August 2015
Charge for the financial year
Exchange rate movements
Disposals and write-offs
At 3 September 2016
Charge for the financial year
Impairment loss (note 7)
Exchange rate movements
Disposals and write-offs
At 2 September 2017
Net book value
At 2 September 2017
At 3 September 2016
At 29 August 2015
at net book value was:
Assets in the course of construction, included primarily in fixtures and fittings within “Vehicles, fixtures and equipment” above
Assets in the course of construction
2 September
3 September
2017
£m
34.2
2016
£m
24.0
15 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following assets held under finance leases included primarily in “Vehicles, fixtures
and equipment":
379.0
1,003.9
1,392.2
Cost
Accumulated depreciation
Net book value
2 September
2017
£m
3 September
2016
£m
8.0
(6.3)
1.7
8.0
(5.2)
2.8
Contractual commitments at 2 September 2017 were £0.5 million (2016: £0.2 million).
Capitalised finance costs
Finance costs capitalised on qualifying assets included in additions amounted to £0.4 million (2016: £0.7 million). Accumulated
finance costs capitalised included in the cost of property, plant and equipment (net of disposals) amounted to £3.4 million
(2016: £3.0 million). The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 4.2%
(2016: 4.5%).
Impairment test for store assets
Store assets are subject to impairment reviews whenever changes in events or circumstances indicate that an impairment may
have occurred. Store assets (or the CGU to which the assets belong) are written down to the higher of fair value less costs
to sell and value-in-use. The key assumptions for the value-in-use calculations are based on those detailed for the goodwill
impairment model in note 14 as applicable to stores.
During the year, the Group has recognised an impairment charge of £7.2 million as a result of store impairment testing.
This impairment charge has been recognised within exceptional items within cost of sales (see note 7).
The Group has performed a sensitivity analysis on the impairment tests for its store portfolio using various reasonably
possible scenarios. An increase of one percentage point in the post-tax discount rate would have resulted in an increase
to the impairment charge of £0.2 million. A decrease of one percentage point in the growth rate after year three would
have resulted in an increase to the impairment charge of £0.3 million.
16 AVAILABLE-FOR-SALE INVESTMENTS
At 29 August 2015
Decrease in the market value charged to the statement of comprehensive income
At 3 September 2016
Decrease in the market value charged to the statement of comprehensive income
At 2 September 2017
The Group holds 10% (2016: 10%) of the issued shares of Ermes Department Stores Plc (“Ermes”), a company listed on
the Cyprus Stock Exchange whose shares are quoted in Euros. The market value of the shares at 2 September 2017 was
£1.2 million (2016: £1.3 million). Ermes is a company that is registered and trades in Cyprus.
Total
£m
2.1
(0.8)
1.3
(0.1)
1.2
17 INVENTORIES
Items held for resale
2 September
2017
£m
3 September
2016
£m
317.8
326.3
112
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
113
113
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
18 TRADE AND OTHER RECEIVABLES
Non-current
Trade and other receivables
Allowance for doubtful debts
Other receivables include contractual lease deposits of £18.7 million (2016: £16.8 million).
2 September
2017
£m
3 September
2016
£m
19.8
(0.5)
19.3
17.4
–
17.4
2 September
2017
£m
3 September
2016
£m
Current
Trade receivables
Allowance for doubtful debts
Other receivables
Prepayments and accrued income
28.6
(1.1)
27.5
2.1
53.3
82.9
At the year end, £24.6 million (2016: £24.6 million) of the trade receivables were denominated in sterling, £0.5 million
(2016: £0.5 million) in Euros and £3.5 million (2016: £2.8 million) in Danish krone.
The movement in the allowance for doubtful debts is analysed as follows:
At 29 August 2015
Increase in provision
At 3 September 2016
Increase in provision
At 2 September 2017
27.9
(0.9)
27.0
3.5
50.6
81.1
Total
£m
(0.4)
(0.5)
(0.9)
(0.7)
(1.6)
Trade receivables which are past their due date but not impaired amount to £2.7 million (2016: £6.6 million). Trade receivables
which are past their due date are provided based on estimated irrecoverable amounts from the sale of goods. At 2 September
2017, £1.6 million (2016: £0.9 million) of trade receivables were past their due date and impaired. Included in prepayments and
accrued income is £4.2 million (2016: £4.8 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.
19 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2 September
2017
£m
3 September
2016
£m
40.0
56.3
114
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
2017
£m
19.8
(0.5)
19.3
2017
£m
28.6
(1.1)
27.5
2.1
53.3
82.9
2016
£m
17.4
–
17.4
2016
£m
27.9
(0.9)
27.0
3.5
50.6
81.1
Total
£m
(0.4)
(0.5)
(0.9)
(0.7)
(1.6)
Non-current
Trade and other receivables
Allowance for doubtful debts
Current
Trade receivables
Allowance for doubtful debts
Other receivables
Prepayments and accrued income
At 29 August 2015
Increase in provision
At 3 September 2016
Increase in provision
At 2 September 2017
At the year end, £24.6 million (2016: £24.6 million) of the trade receivables were denominated in sterling, £0.5 million
(2016: £0.5 million) in Euros and £3.5 million (2016: £2.8 million) in Danish krone.
The movement in the allowance for doubtful debts is analysed as follows:
Trade receivables which are past their due date but not impaired amount to £2.7 million (2016: £6.6 million). Trade receivables
which are past their due date are provided based on estimated irrecoverable amounts from the sale of goods. At 2 September
2017, £1.6 million (2016: £0.9 million) of trade receivables were past their due date and impaired. Included in prepayments and
accrued income is £4.2 million (2016: £4.8 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.
19 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2 September
3 September
2017
£m
40.0
2016
£m
56.3
18 TRADE AND OTHER RECEIVABLES
20 TRADE AND OTHER PAYABLES
2 September
3 September
Other receivables include contractual lease deposits of £18.7 million (2016: £16.8 million).
Trade payables
Other payables
Taxation and social security
Accruals
Deferred income
2 September
3 September
21 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
2 September
2017
£m
3 September
2016
£m
331.3
82.4
24.2
82.1
3.3
523.3
338.3
79.8
26.5
68.6
3.1
516.3
2 September
2017
£m
3 September
2016
£m
20.3
93.1
1.4
1.6
116.4
197.9
1.6
199.5
315.9
15.5
117.4
1.5
1.2
135.6
197.3
2.4
199.7
335.3
1 Revolving credit facility is stated net of unamortised issue costs of £1.9 million (2016: £2.6 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 £1.4 million
(2016: £1.5 million) and are stated net of unamortised issue costs of £2.1 million (2016: £2.7 million). Interest on the senior notes is payable
semi-annually.
At 2 September 2017, the Group’s drawings under credit facilities outstanding comprised revolving credit facility drawings
of £95.0 million (2016: £120.0 million). During the year ended 3 September 2016, the Company refinanced its £350.0 million
revolving credit facility, choosing to reduce the facility size to £320.0 million in the process and extending the maturity from
October 2018 to June 2020. The amended revolving credit facility contains an option to request an extension to June 2021.
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 £0.7 million for the year ended
2 September 2017 (2016: £0.8 million). The amortisation charge relating to the issue costs of the senior notes was
£0.6 million for the year ended 2 September 2017 (2016: £0.5 million).
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Notes to the financial statements
For the financial year ended 2 September 2017
continued
21 BANK OVERDRAFT AND BORROWINGS CONTINUED
Finance lease obligations
Finance lease obligations relate mainly to software, leased under hire purchase contracts.
The minimum lease payments under finance leases fall due as follows:
Not later than one year
Later than one year but not later than five years
Interest element of future instalments
Present value of finance lease obligations
The present value of finance lease obligations may be analysed as:
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:
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
Interest rates
The effective interest rates at the balance sheet dates were:
Bank overdraft
Revolving credit facility
Senior notes
Lease obligations
2 September
2017
£m
3 September
2016
£m
1.7
1.6
3.3
(0.1)
3.2
1.3
2.6
3.9
(0.3)
3.6
2 September
2017
£m
3 September
2016
£m
1.6
1.6
3.2
1.2
2.4
3.6
2 September
2017
£m
3 September
2016
£m
116.4
1.6
197.9
315.9
135.6
1.1
198.6
335.3
2 September
2017
%
3 September
2016
%
1.63
1.74
5.25
2.25
1.88
1.77
5.25
2.30
Borrowing facilities
The Group has the following undrawn committed facilities available at 2 September 2017, in respect of which all conditions
precedent had been met as at that date:
Expiring between two and five years
2 September
2017
£m
3 September
2016
£m
225.0
200.0
116
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
21 BANK OVERDRAFT AND BORROWINGS CONTINUED
Finance lease obligations
Finance lease obligations relate mainly to software, leased under hire purchase contracts.
The minimum lease payments under finance leases fall due as follows:
Not later than one year
Later than one year but not later than five years
Interest element of future instalments
Present value of finance lease obligations
The present value of finance lease obligations may be analysed as:
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:
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
Interest rates
The effective interest rates at the balance sheet dates were:
Bank overdraft
Revolving credit facility
Senior notes
Lease obligations
Borrowing facilities
Expiring between two and five years
2 September
3 September
2016
£m
1.3
2.6
3.9
(0.3)
3.6
2016
£m
1.2
2.4
3.6
2016
£m
135.6
1.1
198.6
335.3
2016
%
1.88
1.77
5.25
2.30
2017
£m
1.7
1.6
3.3
(0.1)
3.2
2017
£m
1.6
1.6
3.2
2017
£m
116.4
1.6
197.9
315.9
2017
%
1.63
1.74
5.25
2.25
2 September
3 September
2 September
3 September
2 September
3 September
2017
£m
225.0
2016
£m
200.0
The Group has the following undrawn committed facilities available at 2 September 2017, in respect of which all conditions
precedent had been met as at that date:
22 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 currency risk arising from the Group’s operations and interest
rate risks associated with the Group’s financing. The derivatives used are mainly forward currency contracts and interest rate
swaps. The Group did not have any interest rate swaps in place at 2 September 2017.
2 September
3 September
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 is transferred
to Group treasury. Group treasury invests surplus cash in interest bearing current accounts and term deposits, choosing
instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-
mentioned forecasts.
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117
117
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
22 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.
At 2 September 2017
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
Forward foreign currency contracts
Gross settled derivative contracts – receipts
Gross settled derivative contracts – payments
Total
At 3 September 2016
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
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
(115.3)
(10.5)
(1.7)
(451.5)
402.4
(409.7)
(586.3)
–
(10.5)
(1.6)
–
190.1
(194.8)
(16.8)
(200.0)
(21.0)
–
–
–
–
(221.0)
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
(135.5)
(10.5)
(1.3)
(477.3)
–
(10.5)
(1.3)
–
(0.2)
–
472.4
(439.0)
(591.4)
171.7
(162.6)
(2.7)
(200.0)
(31.5)
(1.3)
–
–
–
–
(232.8)
ii) Credit risk
Credit risk is the risk that the Group may suffer financial loss through default by customers or financial institutions. The Group
has no significant concentrations of credit risk. Sales to retail customers are made in cash or by credit and debit cards.
Wholesale sales of products 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 Audit Committee approval.
The Group considers its maximum credit risk at 2 September 2017 to be £95.4 million (2016: £155.3 million) being the Group’s
total financial assets.
118
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
22 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.
At 2 September 2017
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
Forward foreign currency contracts
Gross settled derivative contracts – receipts
Gross settled derivative contracts – payments
Total
At 3 September 2016
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
ii) Credit risk
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
Less than
one year
£m
One to
two years
£m
Two to
five years
£m
(115.3)
(10.5)
(1.7)
(451.5)
402.4
(409.7)
(586.3)
(135.5)
(10.5)
(1.3)
(477.3)
(0.2)
472.4
(439.0)
(591.4)
(10.5)
(1.6)
–
–
190.1
(194.8)
(16.8)
(10.5)
(1.3)
–
–
–
171.7
(162.6)
(2.7)
(200.0)
(21.0)
(221.0)
–
–
–
–
–
–
–
–
(200.0)
(31.5)
(1.3)
(232.8)
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 Audit Committee approval.
total financial assets.
The Group considers its maximum credit risk at 2 September 2017 to be £95.4 million (2016: £155.3 million) being the Group’s
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 (2016: 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.
During the current and previous financial years, the Group closed out certain forward foreign currency contracts and reset the
contracts to current market rates. As a result of these transactions, cash amounting to £10.1 million (2016: £11.2 million) was
received. Gains on forward foreign currency contracts reset to current market rates are recycled from the hedging reserve as
the contracts reach expiry in accordance with the Group’s cash flow hedging policy.
A gain of £50.4 million (2016: £27.2 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 2 September 2017 was £565.7 million (2016: £547.5 million).
The net fair value losses on open forward foreign currency contracts held in the hedging reserve at 2 September 2017 were
£5.5 million (2016: gains of £38.3 million). This will be recycled and adjusted against the initial measurement of the acquisition
cost of inventory over the next three years.
During the current and prior financial years there were no contracts reclassified to “held for trading” due to cash flow hedges
being ineffective.
iv) Interest rate risk
The Group’s interest rate risk arises from long-term borrowing facilities with debt issued at variable rates that expose the Group
to cash flow interest rate risk. At 2 September 2017, Debenhams plc has in issue £200.0 million (2016: £200.0 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 with fixed rate debt and the use of interest rate swaps. Interest rate
swaps 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
62.8% (2016: 94.4%).
Interest rate swaps
The Group’s interest rate swaps switch interest from floating rates to fixed rates. At 2 September 2017 the Group had no
interest rate swaps in place. The notional principal amount of interest rate swaps at 3 September 2016 was £120.0 million.
The net gains and losses on these swaps, which were deferred in equity, reversed through interest in the income statement
over the life of the swaps. During the financial year a loss of £0.2 million (2016: £0.8 million) was reclassified and reported in
the income statement in respect of interest rate swaps.
118
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119
119
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
22 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:
Sterling1
Fixed
£m
(203.2)
2 September 2017
Total
£m
Floating
£m
(115.3)
(318.5)
Fixed
£m
(323.6)
Floating
£m
(15.5)
3 September 2016
Total
£m
(339.1)
1 Unamortised debt issue costs of £4.0 million (2016: £5.3 million) are excluded from the borrowings above.
Fixed sterling borrowings comprise the hedged portion of the debt facility of £nil (2016: £120.0 million), senior notes of
£200.0 million (2016: £200.0 million) and finance lease liabilities of £3.2 million (2016: £3.6 million) at 2 September 2017.
The weighted average interest rate on the fixed rate borrowings as at 2 September 2017 was 4.1% (2016: 4.2%), with the
weighted average time for which rates are fixed being 3.8 years (2016: 3.1 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 exposure.
The interest rate profiles of cash and cash equivalents were:
2 September 2017
3 September 2016
Fixed
£m
Floating
£m
Non-interest
bearing
£m
Total
£m
Fixed
£m
Floating
£m
Non-interest
bearing
£m
–
–
–
–
0.2
0.8
1.0
0.1
–
0.5
0.9
–
0.9
2.4
24.3
6.4
1.6
3.0
0.1
1.2
36.6
24.4
6.4
2.1
3.9
0.3
2.9
40.0
–
–
–
–
–
–
–
3.4
0.3
10.7
2.8
1.5
–
18.7
29.5
4.6
2.2
–
–
1.3
37.6
Total
£m
32.9
4.9
12.9
2.8
1.5
1.3
56.3
Financial assets
Sterling
Euro
US dollar
Danish krone
Chinese yuan
Other
Total financial assets
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:
The income statement would have been unaffected as the equity investments were classified as available-for-sale investments
Other reserves would increase/decrease by £0.1 million (2016: £0.1 million) for the Group as a result of the changes in the
fair value of available-for-sale investments
The above movement in rates is considered to represent reasonable possible changes. Larger or smaller changes are also possible.
120
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
22 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:
Sterling1
2 September 2017
3 September 2016
Fixed
£m
(203.2)
Floating
£m
(115.3)
Total
£m
(318.5)
Fixed
£m
(323.6)
Floating
£m
(15.5)
Total
£m
(339.1)
1 Unamortised debt issue costs of £4.0 million (2016: £5.3 million) are excluded from the borrowings above.
Fixed sterling borrowings comprise the hedged portion of the debt facility of £nil (2016: £120.0 million), senior notes of
£200.0 million (2016: £200.0 million) and finance lease liabilities of £3.2 million (2016: £3.6 million) at 2 September 2017.
The weighted average interest rate on the fixed rate borrowings as at 2 September 2017 was 4.1% (2016: 4.2%), with the
weighted average time for which rates are fixed being 3.8 years (2016: 3.1 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 exposure.
The interest rate profiles of cash and cash equivalents were:
2 September 2017
3 September 2016
Non-interest
Floating
bearing
Total
£m
Fixed
£m
Floating
£m
Non-interest
bearing
£m
Fixed
£m
–
–
–
–
0.2
0.8
1.0
£m
0.1
–
0.5
0.9
–
0.9
2.4
£m
6.4
1.6
3.0
0.1
1.2
24.3
24.4
6.4
2.1
3.9
0.3
2.9
36.6
40.0
–
–
–
–
–
–
–
3.4
0.3
10.7
2.8
1.5
–
18.7
29.5
4.6
2.2
–
–
1.3
37.6
Total
£m
32.9
4.9
12.9
2.8
1.5
1.3
56.3
Financial assets
Sterling
Euro
US dollar
Danish krone
Chinese yuan
Other
Total financial assets
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:
The income statement would have been unaffected as the equity investments were classified as available-for-sale investments
Other reserves would increase/decrease by £0.1 million (2016: £0.1 million) for the Group as a result of the changes in the
fair value of available-for-sale investments
The above movement in rates is considered to represent reasonable possible changes. 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.
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 forward foreign currency contracts has been determined based on discounted market forward currency
exchange rates at the balance sheet date. The fair value of interest rate swaps is calculated as the present value of the
estimated future cash flows.
The fair value of short-term deposits, loans and overdrafts with a maturity of less than one year are assumed to approximate to
their book value. 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 23 shows the carrying value and fair value of financial assets and liabilities.
d) Sensitivity analysis
The Group monitors foreign exchange risk and interest rate risk by determining the effect on profit and equity of a range
of possible changes in foreign exchange rates and interest rates. The range of sensitivities chosen, being a 10% movement
in sterling when compared to the US dollar, Euro, Chinese yuan and Danish krone or 1% movement in the interest rate,
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 foreign exchange rates in
relation to all the Group’s financial instruments.
10% weakening in sterling compared to US dollar
10% weakening in sterling compared to Euro
10% weakening in sterling compared to Chinese yuan
10% weakening in sterling compared to Danish krone
2 September 2017
3 September 2016
Income
statement
gain/(loss)
£m
(0.1)
–
–
1.7
Equity
gain/(loss)
£m
27.5
(10.6)
2.9
–
Income
statement
gain/(loss)
£m
–
–
–
1.4
Equity
gain/(loss)
£m
29.6
(11.5)
4.2
–
A 10% 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.
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
2 September 2017
3 September 2016
Income
statement
loss
£m
(1.1)
Equity
gain
£m
–
Income
statement
loss
£m
(0.2)
Equity
gain
£m
0.2
A 1% decrease in interest rate would result in an equal and opposite change in the income statement.
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121
121
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
23 FINANCIAL INSTRUMENTS
Financial assets and liabilities by category
Information regarding the Group’s financial risk management policies has been disclosed in note 22. 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
Forward foreign currency contracts – cash flow hedges
2 September 2017
Liabilities
£m
Assets
£m
3 September 2016
Liabilities
£m
Assets
£m
–
4.7
0.1
4.8
1.2
0.5
1.7
–
(12.0)
–
(12.0)
–
(5.3)
(5.3)
–
37.8
1.3
39.1
1.3
10.7
12.0
(0.2)
(6.9)
(0.5)
(7.6)
–
(3.7)
(3.7)
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 lease obligations and their fair values at the balance sheet date.
The carrying value of the Group’s senior notes debt was £199.3 million (2016: £198.8 million) and the fair value of this debt was
£205.4 million (2016: £210.2 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
None of the Group’s financial assets and liabilities are classed as Level 3 within the fair value hierarchy.
122
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
23 FINANCIAL INSTRUMENTS
Financial assets and liabilities by category
Information regarding the Group’s financial risk management policies has been disclosed in note 22. 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
Forward foreign currency contracts – cash flow hedges
2 September 2017
Assets
£m
Liabilities
£m
3 September 2016
Assets
£m
Liabilities
£m
–
4.7
0.1
4.8
1.2
0.5
1.7
(12.0)
–
–
(12.0)
–
(5.3)
(5.3)
–
37.8
1.3
39.1
1.3
10.7
12.0
(0.2)
(6.9)
(0.5)
(7.6)
–
(3.7)
(3.7)
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 lease obligations and their fair values at the balance sheet date.
The carrying value of the Group’s senior notes debt was £199.3 million (2016: £198.8 million) and the fair value of this debt was
£205.4 million (2016: £210.2 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
None of the Group’s financial assets and liabilities are classed as Level 3 within the fair value hierarchy.
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 2 September 2017
Assets
Available-for-sale financial investments
Derivative financial instruments:
Forward foreign currency contracts held as cash flow hedges
Other forward foreign currency contracts
Total assets
Liabilities
Derivative financial instruments:
Forward foreign currency contracts held as cash flow hedges
Total liabilities
At 3 September 2016
Assets
Available-for-sale financial investments
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
1.2
–
–
1.2
–
–
–
5.2
0.1
5.3
(17.3)
(17.3)
Level 1
£m
Level 2
£m
1.3
–
–
1.3
–
–
–
–
–
48.5
1.3
49.8
(0.2)
(10.6)
(0.5)
(11.3)
1.2
5.2
0.1
6.5
(17.3)
(17.3)
Total
£m
1.3
48.5
1.3
51.1
(0.2)
(10.6)
(0.5)
(11.3)
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.
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www.debenhams.com
123
123
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
24 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 £16.0 million (2016: £15.5 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
scheme 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.
At 2 September 2017, the most recent completed actuarial valuation of the Company’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 “Employee
benefits” revised valuation at 2 September 2017.
On 6 October 2017, the actuarial valuation of the Group’s pension schemes at 31 March 2017 was completed, concluding that
DEPP was fully funded on a technical provisions basis and on a technical provisions basis DRS had improved since the previous
actuarial valuation, but remained in deficit. Therefore the Group agreed a recovery plan for DRS which was intended to restore
the scheme to a fully funded position on an ongoing basis. Under that agreement, the Group agreed to contribute £5.0 million
per annum to the pension schemes for the period from 1 September 2017 to 31 March 2022. The agreement replaced an
agreement made in 2015 under which 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. Additionally during October 2017, 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 2 September 2017, most of the schemes’ assets were invested in a hedging component or a
growth component.
The weighted average duration of the defined benefit obligation is 22 years (2016: 22 years).
The contributions expected to be paid during the financial year ending 1 September 2018 amount to £6.4 million.
124
124
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017 Notes to the financial statements
For the financial year ended 2 September 2017
continued
24 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 £16.0 million (2016: £15.5 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
scheme 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.
At 2 September 2017, the most recent completed actuarial valuation of the Company’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 “Employee
benefits” revised valuation at 2 September 2017.
On 6 October 2017, the actuarial valuation of the Group’s pension schemes at 31 March 2017 was completed, concluding that
DEPP was fully funded on a technical provisions basis and on a technical provisions basis DRS had improved since the previous
actuarial valuation, but remained in deficit. Therefore the Group agreed a recovery plan for DRS which was intended to restore
the scheme to a fully funded position on an ongoing basis. Under that agreement, the Group agreed to contribute £5.0 million
per annum to the pension schemes for the period from 1 September 2017 to 31 March 2022. The agreement replaced an
agreement made in 2015 under which 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. Additionally during October 2017, 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 2 September 2017, most of the schemes’ assets were invested in a hedging component or a
growth component.
The weighted average duration of the defined benefit obligation is 22 years (2016: 22 years).
The contributions expected to be paid during the financial year ending 1 September 2018 amount to £6.4 million.
124
Debenhams plc Annual Report & Accounts 2017
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
2 September
2017 per annum
%
3 September 2016
per annum
%
3.2
3.2
3.2
3.1
2.4
2.9
2.9
2.9
2.8
2.1
The inflation assumption is based on the RPI rate because 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:
Assets
Hedging component
Growth component
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)
Quoted
£m
188.5
671.3
25.8
885.6
Unquoted
£m
2 September 2017
Total
£m
–
237.8
–
237.8
188.5
909.1
25.8
1,123.4
(1,042.5)
80.9
22.3
58.6
Quoted
£m
215.5
614.2
37.9
867.6
Unquoted
£m
3 September 2016
Total
£m
–
190.0
–
190.0
215.5
804.2
37.9
1,057.6
(1,061.7)
(4.1)
6.4
(10.5)
At 2 September 2017, 78.8% (2016: 82.0%) 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 Trust Deeds and Rules provide the Group with an unconditional right to a refund of surplus assets assuming the full
settlement of plan liabilities in the event of a plan wind up. Furthermore, in the ordinary course of business the Trustees
have no right to unilaterally wind up, or otherwise augment the benefits due to members of the schemes. Based on these
rights any net surplus in the schemes is recognised in full.
The current life expectancies of a pensioner retiring aged 65 underlying the mortality tables for each of the schemes above are:
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
2 September 2017
Years
Female
Years
Male
3 September 2016
Years
Female
Years
Male
22.2
23.6
24.5
25.9
22.1
23.5
24.4
25.8
2 September 2017
Years
Female
Years
Male
3 September 2016
Years
Female
Years
Male
24.2
25.6
26.4
27.8
24.1
25.5
26.3
27.7
www.debenhams.com
125
125
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
24 RETIREMENT BENEFIT SCHEMES CONTINUED
Changes in the present value of the defined benefit obligations are:
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
Remeasurements:
(Gains)/losses from changes in financial assumptions
Experience gains
Present value of obligations at end of the financial year
Changes in the fair value of plan assets are:
Fair value of pension scheme assets at start of the financial year
Interest income on plan assets
Benefit payments from plan assets
Company contributions
Remeasurements:
Return on plan assets, excluding amounts included in finance costs
Fair value of pension scheme assets at end of the financial year
Movement in the net surplus/(deficit) during the financial year is:
Net (deficit)/surplus in the schemes at start of the financial year
Movement in the financial year:
Company contributions
Current service cost (including expenses)
Net interest on net defined benefit asset/liability
Remeasurements of pension schemes
Net surplus/(deficit) in the schemes at end of the financial year
2 September
2017
£m
3 September
2016
£m
1,061.7
1.5
21.4
(40.2)
(0.8)
(1.1)
1,042.5
769.6
1.5
28.7
(30.6)
312.4
(19.9)
1,061.7
2 September
2017
£m
3 September
2016
£m
1,057.6
21.4
(40.2)
9.8
74.8
1,123.4
795.8
29.8
(30.6)
11.2
251.4
1,057.6
2 September
2017
£m
3 September
2016
£m
(4.1)
26.2
9.8
(1.5)
–
76.7
80.9
11.2
(1.5)
1.1
(41.1)
(4.1)
126
126
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
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
Remeasurements:
Experience gains
(Gains)/losses from changes in financial assumptions
Present value of obligations at end of the financial year
Changes in the fair value of plan assets are:
Fair value of pension scheme assets at start of the financial year
Interest income on plan assets
Benefit payments from plan assets
Company contributions
Remeasurements:
Return on plan assets, excluding amounts included in finance costs
Fair value of pension scheme assets at end of the financial year
Movement in the net surplus/(deficit) during the financial year is:
Net (deficit)/surplus in the schemes at start of the financial year
Movement in the financial year:
Company contributions
Current service cost (including expenses)
Net interest on net defined benefit asset/liability
Remeasurements of pension schemes
Net surplus/(deficit) in the schemes at end of the financial year
24 RETIREMENT BENEFIT SCHEMES CONTINUED
Changes in the present value of the defined benefit obligations are:
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.
2 September
3 September
2 September
3 September
2017
£m
1,061.7
1.5
21.4
(40.2)
(0.8)
(1.1)
1,042.5
2017
£m
1,057.6
21.4
(40.2)
9.8
74.8
1,123.4
2017
£m
(4.1)
9.8
(1.5)
–
76.7
80.9
2016
£m
769.6
1.5
28.7
(30.6)
312.4
(19.9)
1,061.7
2016
£m
795.8
29.8
(30.6)
11.2
251.4
1,057.6
2016
£m
26.2
11.2
(1.5)
1.1
(41.1)
(4.1)
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
2 September
2017
£m
3 September
2016
£m
113.2
123.3
27.3
117.8
128.4
28.4
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 sensitivities
relate purely to liabilities. Inflation and discount rate movements may be mitigated by a similar offsetting movement in the
schemes’ assets.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant.
In practice, this is unlikely to occur, and changes in some of the assumptions may be accumulated. When calculating the
sensitivity of the schemes’ liabilities to significant actuarial assumptions, the same method has been applied as when
calculating the retirement benefit obligations/surplus recognised within the balance sheet.
25 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19.0% for the UK
differences (2016: 20.0%). Local tax rates have been used for overseas differences.
Non-current
Deferred tax assets
Deferred tax liabilities
2 September
3 September
Deferred tax expected to be reversed within 12 months of the balance sheet date:
Deferred tax assets
Deferred tax liabilities
2 September
2017
£m
3 September
2016
£m
15.3
(54.0)
(38.7)
20.1
(50.5)
(30.4)
2 September
2017
£m
3 September
2016
£m
4.4
(6.0)
(1.6)
5.3
(17.1)
(11.8)
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.
126
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
127
127
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
25 DEFERRED TAX ASSETS AND LIABILITIES CONTINUED
The movement on the deferred tax account is as shown below:
Assets
At 29 August 2015
(Charged)/credited to the income statement
Transfer from deferred tax liabilities
Result of change in the rate of corporation
tax charged to the income statement
Credited to the statement of
comprehensive income
Exchange differences credited to the
statement of comprehensive income
At 3 September 2016
Charged to the income statement
Transfer from deferred tax liabilities
Prior year adjustment to the income statement
Result of change in the rate of corporation
tax charged to the income statement
Credited to the statement of
comprehensive income
Exchange differences credited to the
statement of comprehensive income
Taxation recognised directly in equity
At 2 September 2017
Developers’
contributions
received
£m
Accelerated
tax
depreciation
£m
Fair value
losses
£m
Other
provisions
£m
Retirement
benefit
obligation
£m
14.2
(1.3)
–
(1.0)
–
–
11.9
(1.2)
–
0.2
(0.8)
–
–
–
10.1
–
(1.7)
3.5
–
–
–
1.8
(1.6)
–
–
–
–
0.2
–
0.4
–
–
(0.2)
–
1.6
–
1.4
(0.3)
(7.8)
–
–
8.2
–
–
1.5
6.6
(0.9)
(3.5)
(0.1)
–
1.0
3.1
(0.3)
–
–
(0.3)
–
0.2
0.6
3.3
–
0.1
(2.6)
–
4.4
–
1.9
–
(1.9)
–
–
–
–
–
–
Liabilities
At 29 August 2015
Credited to the income statement
Transfer to deferred tax assets
Prior year adjustment to the income statement
Result of change in the rate of corporation tax credited
to the income statement
(Charged)/credited to the statement of comprehensive income
Exchange differences charged to the statement of comprehensive income
At 3 September 2016
Credited to the income statement
Transfer to deferred tax assets
Prior year adjustment to the income statement
Result of change in the rate of corporation tax credited
to the income statement
Charged to the statement of comprehensive income
Exchange differences charged to the statement of comprehensive income
At 2 September 2017
Accelerated
tax
depreciation
£m
Fair value
gains
£m
Retirement
benefit
surplus
£m
(45.2)
0.5
–
(0.1)
3.4
–
(0.2)
(41.6)
1.6
–
2.9
2.1
–
(0.1)
(35.1)
(4.4)
0.2
0.2
–
–
(3.8)
–
(7.8)
–
7.8
–
–
–
–
–
(5.2)
–
2.6
0.1
–
1.4
–
(1.1)
0.3
1.9
–
–
(20.0)
–
(18.9)
Total
£m
20.8
(3.8)
(2.8)
(1.1)
6.0
1.0
20.1
(3.4)
(9.7)
0.2
(1.1)
8.2
0.4
0.6
15.3
Total
£m
(54.8)
0.7
2.8
–
3.4
(2.4)
(0.2)
(50.5)
1.9
9.7
2.9
2.1
(20.0)
(0.1)
(54.0)
Within other provisions is a deferred tax asset of £0.6 million (2016: £3.3 million) in relation to overseas operations which has
been recognised.
128
128
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
25 DEFERRED TAX ASSETS AND LIABILITIES CONTINUED
The movement on the deferred tax account is as shown below:
Developers’
Accelerated
contributions
tax
Fair value
Other
received
depreciation
losses
provisions
obligation
Retirement
benefit
Assets
At 29 August 2015
(Charged)/credited to the income statement
Transfer from deferred tax liabilities
Result of change in the rate of corporation
tax charged to the income statement
Credited to the statement of
comprehensive income
Exchange differences credited to the
statement of comprehensive income
At 3 September 2016
Charged to the income statement
Transfer from deferred tax liabilities
Prior year adjustment to the income statement
Result of change in the rate of corporation
tax charged to the income statement
Credited to the statement of
comprehensive income
Exchange differences credited to the
statement of comprehensive income
Taxation recognised directly in equity
At 2 September 2017
£m
14.2
(1.3)
–
(1.0)
–
–
11.9
(1.2)
–
0.2
(0.8)
–
–
–
10.1
£m
–
(1.7)
3.5
1.8
(1.6)
–
–
–
–
–
–
–
0.2
–
0.4
Liabilities
At 29 August 2015
Credited to the income statement
Transfer to deferred tax assets
Prior year adjustment to the income statement
Result of change in the rate of corporation tax credited
to the income statement
(Charged)/credited to the statement of comprehensive income
Exchange differences charged to the statement of comprehensive income
At 3 September 2016
Credited to the income statement
Transfer to deferred tax assets
Prior year adjustment to the income statement
Result of change in the rate of corporation tax credited
to the income statement
Charged to the statement of comprehensive income
Exchange differences charged to the statement of comprehensive income
At 2 September 2017
been recognised.
128
Debenhams plc Annual Report & Accounts 2017
£m
–
–
–
(0.2)
1.6
–
1.4
(0.3)
(7.8)
–
–
8.2
–
–
1.5
£m
(45.2)
0.5
–
(0.1)
3.4
–
(0.2)
(41.6)
1.6
–
2.9
2.1
–
(0.1)
(35.1)
£m
6.6
(0.9)
(3.5)
(0.1)
1.0
3.1
(0.3)
–
–
–
–
(0.3)
0.2
0.6
3.3
gains
£m
(4.4)
0.2
0.2
–
–
–
(3.8)
(7.8)
7.8
–
–
–
–
–
–
£m
–
0.1
(2.6)
–
4.4
1.9
(1.9)
–
–
–
–
–
–
–
–
benefit
surplus
£m
(5.2)
–
2.6
0.1
1.4
–
–
(1.1)
0.3
1.9
–
–
–
(20.0)
(18.9)
Total
£m
20.8
(3.8)
(2.8)
(1.1)
6.0
1.0
20.1
(3.4)
(9.7)
0.2
(1.1)
8.2
0.4
0.6
15.3
Total
£m
(54.8)
0.7
2.8
–
3.4
(2.4)
(0.2)
(50.5)
1.9
9.7
2.9
2.1
(20.0)
(0.1)
(54.0)
Accelerated
Retirement
tax
Fair value
depreciation
Within other provisions is a deferred tax asset of £0.6 million (2016: £3.3 million) in relation to overseas operations which has
No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries of £37.4 million (2016: £40.9 million)
on the basis that the timing of any distribution out of these earnings can be controlled by the Group.
26 OTHER NON-CURRENT LIABILITIES
Property lease incentives
2 September
2017
£m
3 September
2016
£m
351.7
354.5
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.
27 PROVISIONS
At 3 September 2016
Charged to the income statement
Utilised during the financial year
At 2 September 2017
Analysis of total provisions:
Non-current
Current
Total
Promotional
activities
£m
6.1
18.4
(18.5)
6.0
Property
£m
Restructuring
£m
1.2
10.2
(1.2)
10.2
6.7
5.2
(8.2)
3.7
Total
£m
14.0
33.8
(27.9)
19.9
2 September
2017
£m
3 September
2016
£m
9.7
10.2
19.9
–
14.0
14.0
Promotional activities provision
Provisions for promotional activities represent deferred income relating to the internal beauty and cardholder loyalty schemes
in the UK and the reward scheme in the Republic of Ireland. They are expected to be utilised during the next 12 months and
have been analysed as current.
Property provisions
Property provisions comprise onerous lease provisions and dilapidations provisions.
The Group has recognised a net onerous property provision charge in the year of £5.9 million (2016: £nil) which has been
recognised as an exceptional item within strategic review and restructuring and strategic warehouse restructuring (note 7).
Onerous lease provisions are based on the lower of the net cost of fulfilling or exiting the contract. The cost of exiting lease
contracts is estimated as the present value of expected surrender premiums or deficits from subletting at market rents,
assuming that the Group can sublet properties at market rents, based on discounting at the Group’s risk-free rate of 1.8%.
Onerous lease provisions will be utilised over the relevant lease terms, predominantly within the next ten years.
Dilapidations provisions relate to dilapidations on properties in the UK and the Republic of Ireland based on the best estimate
of the Group’s future liability and are expected to be utilised over the next five years.
Restructuring provision
The restructuring provision relates to redundancy and other restructuring costs in the UK and the Republic of Ireland. The
£5.2 million charge for the financial year principally relates to the support centre and closure of the Group’s distribution
centre at Northampton. The provision is expected to be utilised over the next five years.
www.debenhams.com
129
129
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
28 SHARE CAPITAL AND RESERVES
Issued and fully paid – ordinary shares of £0.0001 each
At start of year
Allotted under share option schemes
At end of year
2 September 2017
3 September 2016
£
Number
£
Number
128,686 1,286,862,247
1,134
–
128,685
1
1,286,852,540
9,707
128,686 1,286,863,381
128,686
1,286,862,247
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
2 September
2017
Ordinary
shares
Number
1,673,537
3 September
2016
Ordinary
shares
Number
273,537
The market value of the shares on 2 September 2017 was £0.7 million for the DRET (2016: £0.2 million). DRET purchased
1,400,000 shares on 3 November 2016 at a cost of 54.9 pence per share. The cost of the shares held at the year end was
£1.0 million (2016: £0.2 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 forward foreign currency contracts and interest rate swaps 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 16) and
exchange differences arising as part of a reporting entity’s net investment in a foreign operation. Other reserves may be
analysed as follows:
Change in
fair value
of available-
for-sale
investments
£m
Translation
reserve
£m
(14.4)
7.4
0.6
–
(6.4)
5.9
–
(0.5)
(2.1)
–
–
(0.8)
(2.9)
–
(0.1)
(3.0)
Total
£m
(16.5)
7.4
0.6
(0.8)
(9.3)
5.9
(0.1)
(3.5)
At 29 August 2015
Currency translation differences
Currency translation differences – taxation
Change in the fair value of available-for-sale investments
At 3 September 2016
Currency translation differences
Change in the fair value of available-for-sale investments
At 2 September 2017
130
130
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
28 SHARE CAPITAL AND RESERVES
Issued and fully paid – ordinary shares of £0.0001 each
Allotted under share option schemes
At start of year
At end of year
Employee share trust – interest in share capital
2 September 2017
£
Number
3 September 2016
Number
128,686 1,286,862,247
128,685
1,286,852,540
–
1,134
9,707
128,686 1,286,863,381
128,686
1,286,862,247
£
1
The number of ordinary shares in the Company held by the Debenhams Retail Employee Trust 2004 (“DRET”) was as follows:
2 September
3 September
2017
Ordinary
shares
Number
1,673,537
2016
Ordinary
shares
Number
273,537
Debenhams Retail Employee Trust 2004
The market value of the shares on 2 September 2017 was £0.7 million for the DRET (2016: £0.2 million). DRET purchased
1,400,000 shares on 3 November 2016 at a cost of 54.9 pence per share. The cost of the shares held at the year end was
£1.0 million (2016: £0.2 million).
Merger reserve
Reverse acquisition reserve
Hedging reserve
The merger reserve of £1,200.9 million exists as a result of the 2005 Group reconstruction.
The reverse acquisition reserve exists as a result of the method of accounting for the 2005 Group reconstruction.
The hedging reserve represents the change in fair value of all forward foreign currency contracts and interest rate swaps 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
analysed as follows:
The other reserves represent the change in fair value in respect of the Group’s available-for-sale investments (note 16) and
exchange differences arising as part of a reporting entity’s net investment in a foreign operation. Other reserves may be
At 29 August 2015
Currency translation differences
Currency translation differences – taxation
Change in the fair value of available-for-sale investments
At 3 September 2016
Currency translation differences
Change in the fair value of available-for-sale investments
At 2 September 2017
Change in
fair value
of available-
for-sale
Translation
reserve
investments
£m
(14.4)
7.4
0.6
–
(6.4)
5.9
–
(0.5)
£m
(2.1)
–
–
(0.8)
(2.9)
–
(0.1)
(3.0)
Total
£m
(16.5)
7.4
0.6
(0.8)
(9.3)
5.9
(0.1)
(3.5)
29 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”)
Charge/(credit) for the financial year
2 September
2017
£m
3 September
2016
£m
–
0.5
0.5
(0.8)
–
(0.8)
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 and SIP all comprise a right to acquire shares for no or
nominal consideration.
PSP Number
SIP Number
Number
WAEP Pence
ESOP
Outstanding at 29 August 2015
Granted
Exercised
Lapsed
Forfeited
Outstanding at 3 September 2016
Granted
Exercised
Lapsed
Forfeited
12,835,130
6,112,804
(654,203)
(4,684,756)
(222,026)
13,386,949
11,284,301
(1,134)
(277,954)
(1,011,657)
–
150,000
–
–
–
150,000
3,714,684
–
–
–
643,650
–
–
–
–
643,650
–
–
–
–
Outstanding at 2 September 2017
23,380,505
3,864,684
643,650
Exercisable
At 2 September 2017
At 3 September 2016
Weighted average remaining contractual life (years)
At 2 September 2017
At 3 September 2016
–
–
–
–
–
–
–
–
643,650
643,650
2.25
3.25
85.5
N/A
N/A
N/A
N/A
85.5
N/A
N/A
N/A
N/A
85.5
85.5
85.5
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 2014, 1 May 2015, 3 November 2015, 3 May 2016 and 13 May 2016
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 are 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%.
130
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
131
131
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
29 SHARE-BASED PAYMENTS CONTINUED
a) Performance Share Plan continued
i) Awards granted on 1 November 2014, 1 May 2015, 3 November 2015, 3 May 2016 and 13 May 2016 continued
The remaining 30% of the awards are dependent upon the performance of the four strategic measures (each with a maximum
vesting of 7.5%). The strategic measures are: Group gross margin improvement, online EBITDA growth rate, UK gross
transaction value growth and International EBITDA growth rate. 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.
At 2 September 2017, the awards granted on 1 November 2014 and 1 May 2015 had not met their performance conditions
and the awards will therefore lapse in full on 1 November 2017 and 1 May 2018 respectively.
ii) Awards granted on 31 May 2017
The vesting of the shares granted under these awards is dependent upon a combination of EPS targets and strategic
performance measures with strategic performance measures being subject to meeting a ROCE underpin.
70% of the awards are based upon the EPS value for the financial year ending 31 August 2019. Where the EPS value is 5.6
pence, 25% of the shares awarded vest. Where the EPS value is 6.0 pence, 50% of the shares awarded vest. Where the EPS
value is 8.0 pence, the award vests in full. Between these values the awards vest on a straight-line basis.
The remaining 30% of the awards are dependent upon beauty gross transaction value growth, food gross transaction value
growth, mobile gross transaction value growth and online cost per unit improvement. Each strategic measure is subject to
a performance test at the end of the performance period which will result in vesting on a straight-line basis between the entry
point, the target point and the maximum point. If the Group’s ROCE at the end of the applicable performance period is not
greater than a target percentage, 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)
31 May 2017
11,284,301
3.0
50.1
–
0.0%
100.0%
6.8%
40.9
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.
132
132
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
29 SHARE-BASED PAYMENTS CONTINUED
a) Performance Share Plan continued
i) Awards granted on 1 November 2014, 1 May 2015, 3 November 2015, 3 May 2016 and 13 May 2016 continued
The remaining 30% of the awards are dependent upon the performance of the four strategic measures (each with a maximum
vesting of 7.5%). The strategic measures are: Group gross margin improvement, online EBITDA growth rate, UK gross
transaction value growth and International EBITDA growth rate. 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.
At 2 September 2017, the awards granted on 1 November 2014 and 1 May 2015 had not met their performance conditions
and the awards will therefore lapse in full on 1 November 2017 and 1 May 2018 respectively.
ii) Awards granted on 31 May 2017
The vesting of the shares granted under these awards is dependent upon a combination of EPS targets and strategic
performance measures with strategic performance measures being subject to meeting a ROCE underpin.
70% of the awards are based upon the EPS value for the financial year ending 31 August 2019. Where the EPS value is 5.6
pence, 25% of the shares awarded vest. Where the EPS value is 6.0 pence, 50% of the shares awarded vest. Where the EPS
value is 8.0 pence, the award vests in full. Between these values the awards vest on a straight-line basis.
The remaining 30% of the awards are dependent upon beauty gross transaction value growth, food gross transaction value
growth, mobile gross transaction value growth and online cost per unit improvement. Each strategic measure is subject to
a performance test at the end of the performance period which will result in vesting on a straight-line basis between the entry
point, the target point and the maximum point. If the Group’s ROCE at the end of the applicable performance period is not
greater than a target percentage, 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)
31 May 2017
11,284,301
3.0
50.1
–
0.0%
100.0%
6.8%
40.9
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.
b) 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 them.
i) Options granted on 2 December 2015
The options granted on 2 December 2015 over 150,000 shares have a 24-month vesting period based on the employee’s
continued employment and performance targets specific to the employee’s role within the business and were granted with
no exercise price.
ii) Options granted on 5 December 2016 and 2 May 2017
Options granted on 5 December 2016 over 451,263 and 180,505 shares have 12- and 24-month vesting periods respectively
based on the employee’s continued employment within the business and were granted with no exercise price.
Options granted on 2 May 2017 over 3,082,916 shares have a 30-month vesting period based on the employee’s continued
employment within the business and were granted with no exercise price.
In accordance with IFRS 2 “Share-based payments”, the vesting conditions attached to the SIPs 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 the SIP 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)
2 May
2017
5 December
2016
5 December
2016
3,082,916
2.5
51.3
–
0.0%
0.0%
4.4%
46.8
451,263
1.0
55.4
–
0.0%
0.0%
6.1%
49.0
180,505
2.0
55.4
–
0.0%
0.0%
6.1%
49.0
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.
c) Executive Share Option Plan
The ESOP allowed the Company to grant options to acquire shares to eligible employees. These options would normally
become exercisable following a three-year performance period, only if and to the extent that the performance conditions to
which they were subject had been satisfied. Once the options had vested, the employees had a seven-year period in which to
exercise. Options were 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 rules of this plan expired in 2016.
132
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com
133
133
www.debenhams.comFinancial Statements
Notes to the financial statements
For the financial year ended 2 September 2017
continued
30 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
2 September 2017
3 September 2016
Land and
buildings
£m
Other
£m
Land and
buildings
£m
223.9
905.8
1,056.3
1,463.1
896.1
4,545.2
1.3
1.3
–
–
–
2.6
216.9
868.0
1,020.1
1,500.3
974.4
4,579.7
Other
£m
1.5
1.5
–
–
–
3.0
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.
31 CASH GENERATED FROM OPERATIONS
2 September
2017
£m
3 September
2016
£m
Profit before taxation
Depreciation (note 15)
Amortisation (note 14)
Impairment of intangible assets (note 14)
Impairment of property, plant and equipment (note 15)
Loss on disposal and write off of intangible assets
Loss on disposal and write off of property, plant and equipment
Share-based payment charge/(credit) (note 29)
Fair value gains on derivative instruments
Net movements in provisions (note 27)
Finance income
Finance costs
Net movement in close out of forward foreign currency contracts (note 22)
Pension current service cost
Cash contributions to pension schemes (note 24)
Net movement in other long-term receivables
Net movement in other non-current liabilities
Changes in working capital
Decrease in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Cash generated from operations
134
134
Debenhams plc Annual Report & Accounts 2017
59.0
89.5
20.0
–
7.2
4.6
1.2
0.5
6.4
5.9
(0.1)
12.4
(1.6)
1.5
(9.8)
(0.1)
(2.8)
8.8
(1.4)
(0.8)
200.4
105.8
89.4
19.2
2.2
–
–
0.1
(0.8)
(7.0)
7.6
(1.4)
14.2
11.2
1.5
(11.2)
(0.1)
13.7
5.0
(1.9)
(7.3)
240.2
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the financial statements
For the financial year ended 2 September 2017
continued
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
2 September 2017
3 September 2016
Land and
buildings
£m
Other
£m
Land and
buildings
£m
223.9
905.8
1,056.3
1,463.1
896.1
4,545.2
1.3
1.3
–
–
–
2.6
216.9
868.0
1,020.1
1,500.3
974.4
4,579.7
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.
31 CASH GENERATED FROM OPERATIONS
2 September
3 September
Profit before taxation
Depreciation (note 15)
Amortisation (note 14)
Impairment of intangible assets (note 14)
Impairment of property, plant and equipment (note 15)
Loss on disposal and write off of intangible assets
Loss on disposal and write off of property, plant and equipment
Share-based payment charge/(credit) (note 29)
Fair value gains on derivative instruments
Net movements in provisions (note 27)
Finance income
Finance costs
Net movement in close out of forward foreign currency contracts (note 22)
Pension current service cost
Cash contributions to pension schemes (note 24)
Net movement in other long-term receivables
Net movement in other non-current liabilities
Changes in working capital
Decrease in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Cash generated from operations
Other
£m
1.5
1.5
–
–
–
3.0
2016
£m
105.8
89.4
19.2
2.2
–
–
0.1
(0.8)
(7.0)
7.6
(1.4)
14.2
11.2
1.5
(11.2)
(0.1)
13.7
5.0
(1.9)
(7.3)
240.2
2017
£m
59.0
89.5
20.0
–
7.2
4.6
1.2
0.5
6.4
5.9
(0.1)
12.4
(1.6)
1.5
(9.8)
(0.1)
(2.8)
8.8
(1.4)
(0.8)
200.4
30 OPERATING LEASE COMMITMENTS
Cash payments in relation to exceptional items were as follows:
Exceptional items for the year ended 2 September 2017
Exceptional items for the year ended 3 September 2016
Total cash payments in relation to exceptional items
32 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
Other non-cash movements comprise:
2 September
2017
£m
3 September
2016
£m
8.5
7.4
15.9
–
3.3
3.3
3 September
2016
£m
Cash flow
£m
Foreign
exchange
gains
£m
Other
non-cash
movements
£m
2 September
2017
£m
56.3
(15.5)
40.8
(118.9)
(197.3)
(1.2)
(2.4)
(279.0)
(16.4)
(4.8)
(21.2)
25.0
–
1.6
–
5.4
0.1
–
0.1
–
–
–
–
0.1
–
–
–
(0.6)
(0.6)
(2.0)
0.8
(2.4)
40.0
(20.3)
19.7
(94.5)
(197.9)
(1.6)
(1.6)
(275.9)
Amortisation of issue costs relating to revolving credit facilities
Amortisation of issue costs relating to senior notes
Non-cash movements associated with finance lease obligations
Non-cash movements associated with senior notes
Other non-cash transactions
2 September
2017
£m
3 September
2016
£m
0.7
0.6
1.2
(0.1)
2.4
0.8
0.5
3.3
(0.2)
4.4
33 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.
34 POST BALANCE SHEET EVENT
On 5 September 2017, the Group acquired a minority stake in blow LTD. for a cash consideration of £7.5 million. blow LTD.
provides beauty services and is registered in the UK.
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135
www.debenhams.comFinancial Statements
Five year record income statements
Gross transaction value
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit before exceptional items
Exceptional items
Operating profit
Net recurring finance costs
Non-recurring finance costs
Profit before taxation
Taxation
Profit for the financial year attributable
to owners of the parent
52 weeks
2017
£m
2,954.1
2,335.0
(2,046.1)
288.9
(124.5)
(56.9)
107.5
(36.2)
71.3
(12.3)
–
59.0
(10.2)
53 weeks
2016
£m
2,938.5
2,341.7
(2,039.8)
301.9
(115.4)
(55.5)
131.0
(12.4)
118.6
(12.8)
–
105.8
(19.9)
52 weeks
2015
£m
2,860.1
2,322.7
(2,023.5)
299.2
(111.1)
(54.0)
134.1
–
134.1
(20.6)
–
113.5
(20.0)
52 weeks
2014
£m
2,823.9
2,312.7
(2,033.4)
279.3
(98.5)
(52.2)
128.6
–
128.6
(18.3)
(4.5)
105.8
(18.6)
52 weeks
2013
£m
2,776.8
2,282.2
(1,982.6)
299.6
(97.5)
(46.7)
155.4
–
155.4
(16.4)
–
139.0
(23.1)
48.8
85.9
93.5
87.2
115.9
136
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Five year record income statements
Five year record balance sheets
Gross transaction value
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Exceptional items
Operating profit
Net recurring finance costs
Non-recurring finance costs
Profit before taxation
Taxation
Operating profit before exceptional items
52 weeks
53 weeks
52 weeks
52 weeks
52 weeks
2017
£m
2,954.1
2,335.0
(2,046.1)
288.9
(124.5)
(56.9)
107.5
(36.2)
71.3
(12.3)
–
59.0
(10.2)
2016
£m
2,938.5
2,341.7
(2,039.8)
301.9
(115.4)
(55.5)
131.0
(12.4)
118.6
(12.8)
–
105.8
(19.9)
2015
£m
2,860.1
2,322.7
(2,023.5)
299.2
(111.1)
(54.0)
134.1
134.1
(20.6)
–
–
113.5
(20.0)
2014
£m
2,823.9
2,312.7
(2,033.4)
279.3
(98.5)
(52.2)
128.6
–
128.6
(18.3)
(4.5)
105.8
(18.6)
2013
£m
2,776.8
2,282.2
(1,982.6)
299.6
(97.5)
(46.7)
155.4
155.4
(16.4)
–
–
139.0
(23.1)
Profit for the financial year attributable
to owners of the parent
48.8
85.9
93.5
87.2
115.9
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
Total equity
2017
£m
2016
£m
2015
£m
2014
£m
2013
£m
991.9
654.9
1.7
19.3
80.9
15.3
1,764.0
(226.2)
(620.2)
917.6
0.1
682.9
(8.7)
243.3
917.6
962.1
670.2
12.0
17.4
6.4
20.1
1,688.2
(185.4)
(618.9)
883.9
0.1
682.9
22.9
178.0
883.9
931.5
675.3
14.2
14.9
26.2
20.8
1,682.9
(236.0)
(593.6)
853.3
0.1
682.9
2.4
167.9
853.3
892.8
689.2
6.6
15.6
6.9
51.0
1,662.1
(271.7)
(623.0)
767.4
0.1
682.9
(16.3)
100.7
767.4
876.5
692.1
3.0
16.8
4.6
69.3
1,662.3
(271.4)
(646.5)
744.4
0.1
682.9
(3.5)
64.9
744.4
136
Debenhams plc Annual Report & Accounts 2017
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137
www.debenhams.comFinancial Statements
Independent auditors’ report to
the members of Debenhams plc (Company)
REPORT ON THE AUDIT OF THE COMPANY FINANCIAL STATEMENTS
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 2 September 2017;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
have been prepared in accordance with the requirements of the Companies Act 2006
We have audited the financial statements, included within the Annual Report & Accounts (the “Annual Report”), which
comprise: the Company Balance Sheet as at 2 September 2017; the Company Statement of Changes in Equity for the year
then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the group or the company.
Other than those disclosed in note 6 to the financial statements, we have provided no non-audit services to the group and its
subsidiaries in the period from 4 September 2016 to 2 September 2017.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
Overall materiality: £4.8 million (2016: £5.9 million), based on 5% of profit before tax and
exceptional items
The company consists of investments held in group companies, borrowing and
intercompany balances
Assessment of carrying value of the investments
138
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Financial StatementsDebenhams plc Annual Report & Accounts 2017
Independent auditors’ report to
the members of Debenhams plc (Company)
REPORT ON THE AUDIT OF THE COMPANY FINANCIAL STATEMENTS
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 2 September 2017;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
have been prepared in accordance with the requirements of the Companies Act 2006
We have audited the financial statements, included within the Annual Report & Accounts (the “Annual Report”), which
comprise: the Company Balance Sheet as at 2 September 2017; the Company Statement of Changes in Equity for the year
then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the group or the company.
Other than those disclosed in note 6 to the financial statements, we have provided no non-audit services to the group and its
subsidiaries in the period from 4 September 2016 to 2 September 2017.
Our audit approach
Overview
Overall materiality: £4.8 million (2016: £5.9 million), based on 5% of profit before tax and
exceptional items
The company consists of investments held in group companies, borrowing and
intercompany balances
Assessment of carrying value of the investments
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed 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 company’s principal activity is that of a holding company as stated in note 1 of the group financial statements and is
structured as one operating segment.
Our audit approach was based on the materiality of the company covering 100% of the company’s ledger and related disclosure notes.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
Risk of impairment of investments held
in subsidiaries.
See note 1 to the financial statements for
the directors' disclosures of the related
impairment policy.
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 subsidiaries and in turn
impact the value of investments held in the subsidiaries.
How our audit addressed the key audit matter
We tested that the impairment models used by management 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 (2.0%) to 4.0%), are driven by the implementation of the new
Debenhams Redesigned strategy. We have agreed the growth rates
to management’s five year plan and assessed the components of
that five year plan. The growth rates used are in line with the five
year plan;
The directors’ key assumptions for long-term sales growth rates of
1.0%, 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 of 7.3%), 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
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. We note that the calculations
are most sensitive to changes in short-term growth rates, however,
consider there to be sufficient headroom to support the carrying value
of the investments.
We found, based on our audit work, that the key assumptions used by
management were supportable.
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 structure of the company, the accounting processes and controls, and the
industry in which it operates.
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Independent auditors’ report to
the members of Debenhams plc (Company)
continued
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 in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the stand-alone company financial statements as
a whole as follows:
Overall materiality
£4.8 million (2016: £5.9 million).
How we determined it
5% of profit before tax and exceptional items.
Rationale for benchmark applied Whilst the company is a holding company and therefore an asset measure would be
a generally accepted auditing benchmark, we have restricted the level of materiality
applied to be the same level as applied to the group financial statements and
therefore used group profit before tax and exceptional items as the benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.5 million
(2016: £0.5 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to
in respect of the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’ identification of any material
uncertainties to the company’s ability to continue as a going concern over a period
of at least twelve months from the date of approval of the financial statements.
Outcome
We have nothing material to add or to
draw attention to. However, because
not all future events or conditions can
be predicted, this statement is not a
guarantee as to the company’s ability
to continue as a going concern.
We are required to report if the directors’ statement relating to Going Concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
We have nothing to report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006,
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless otherwise stated).
140
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Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017 Independent auditors’ report to
the members of Debenhams plc (Company)
continued
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 in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the stand-alone company financial statements as
a whole as follows:
Overall materiality
£4.8 million (2016: £5.9 million).
How we determined it
5% of profit before tax and exceptional items.
Rationale for benchmark applied Whilst the company is a holding company and therefore an asset measure would be
a generally accepted auditing benchmark, we have restricted the level of materiality
applied to be the same level as applied to the group financial statements and
therefore used group profit before tax and exceptional items as the benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.5 million
(2016: £0.5 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to
We have nothing material to add or to
in respect of the directors’ statement in the financial statements about whether the
draw attention to. However, because
directors considered it appropriate to adopt the going concern basis of accounting
not all future events or conditions can
in preparing the financial statements and the directors’ identification of any material
be predicted, this statement is not a
uncertainties to the company’s ability to continue as a going concern over a period
guarantee as to the company’s ability
of at least twelve months from the date of approval of the financial statements.
to continue as a going concern.
We are required to report if the directors’ statement relating to Going Concern in
We have nothing to report.
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006,
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 2 September 2017 is consistent with the financial statements and has been prepared
in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the company and of the principal risks that would threaten the
solvency or liquidity of the company
We have nothing material to add or draw attention to regarding:
The directors’ confirmation on page 27 of the Annual Report that they have carried out a robust assessment of the principal
risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity
The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated
The directors’ explanation on page 79 of the Annual Report as to how they have assessed the prospects of the company,
over what period they have done so and why they consider that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust
assessment of the principal risks facing the company and statement in relation to the longer-term viability of the company.
Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’
process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK
Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and
understanding of the company and its environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
The statement given by the directors, on page 80, that they consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information necessary for the members to assess the company’s position
and performance, business model and strategy is materially inconsistent with our knowledge of the company obtained in
the course of performing our audit
The section of the Annual Report on page 52 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee
The directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified, under the Listing Rules, for review by the auditors
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
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Debenhams plc Annual Report & Accounts 2017
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141
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Independent auditors’ report to
the members of Debenhams plc (Company)
continued
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 80, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a
true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
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
certain disclosures of directors’ remuneration specified by law are not made; 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.
Appointment
Following the recommendation of the audit committee, we were appointed by the members of Debenhams plc to audit the
financial statements for its first year after incorporation for the year ended 3 September 2005 and subsequent financial periods.
The period of total uninterrupted engagement is 13 years, covering the years ended 3 September 2005 to 2 September 2017.
Before 2005, we were auditors of other entities within the Debenhams plc group. The audit committee have set out details of
their planned audit tender timetable on page 53 of the annual report and accounts.
OTHER MATTER
We have reported separately on the group financial statements of Debenhams plc for the year ended 2 September 2017.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
26 October 2017
142
142
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Independent auditors’ report to
the members of Debenhams plc (Company)
continued
Company balance sheet
Company number 5448421
As at 2 September 2017
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 80, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a
true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
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
certain disclosures of directors’ remuneration specified by law are not made; 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.
Appointment
Following the recommendation of the audit committee, we were appointed by the members of Debenhams plc to audit the
financial statements for its first year after incorporation for the year ended 3 September 2005 and subsequent financial periods.
The period of total uninterrupted engagement is 13 years, covering the years ended 3 September 2005 to 2 September 2017.
Before 2005, we were auditors of other entities within the Debenhams plc group. The audit committee have set out details of
their planned audit tender timetable on page 53 of the annual report and accounts.
OTHER MATTER
We have reported separately on the group financial statements of Debenhams plc for the year ended 2 September 2017.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
26 October 2017
142
Debenhams plc Annual Report & Accounts 2017
Fixed assets
Investments
Trade and other receivables
Current assets
Trade and other receivables
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
Net assets
Equity
Called up share capital
Share premium account
Hedging reserve
Retained earnings (including loss for the year of £24.7 million (2016: £21.9 million))
2 September
2017
£m
3 September
2016
£m
Note
4
5
5
6
7
8
10
2,248.0
0.6
2,248.6
165.2
165.2
(1,116.0)
–
(1,116.0)
(950.8)
1,297.8
(197.9)
(197.9)
1,099.9
0.1
682.9
–
416.9
2,248.0
0.6
2,248.6
152.2
152.2
(1,036.5)
(0.2)
(1,036.7)
(884.5)
1,364.1
(197.3)
(197.3)
1,166.8
0.1
682.9
(0.1)
483.9
Total shareholders’ funds
1,099.9
1,166.8
The financial statements on pages 143 to 150 were approved by the board on 26 October 2017 and were signed on its behalf by:
Matt Smith
Chief Financial Officer
www.debenhams.com 143
143
www.debenhams.comFinancial Statements
Company statement of changes in equity
For the financial year ended 2 September 2017
Balance at 29 August 2015
Loss for the financial year
Other comprehensive income for
the financial year
Total comprehensive income/
(expense) for the financial year
Share-based payment credit
Dividends paid
Total transactions with owners
Balance at 3 September 2016
Loss for the financial year
Other comprehensive income for
the financial year
Total comprehensive
income/(expense) for the
financial year
Share-based payment charge
Dividends paid
Purchase of shares by Debenhams
Retail Employment Trust 2004
Total transactions with owners
Balance at 2 September 2017
Note
Called up
share capital
£m
Share premium
account
£m
0.1
682.9
–
–
–
–
–
–
–
–
–
–
–
–
0.1
682.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
682.9
3
3
Hedging
reserve
£m
(0.6)
–
0.5
0.5
–
–
–
(0.1)
–
0.1
0.1
–
–
–
–
–
Retained
earnings
£m
548.6
(21.9)
–
(21.9)
(0.8)
(42.0)
(42.8)
483.9
(24.7)
Total
equity
£m
1,231.0
(21.9)
0.5
(21.4)
(0.8)
(42.0)
(42.8)
1,166.8
(24.7)
–
0.1
(24.7)
0.5
(42.0)
(0.8)
(42.3)
416.9
(24.6)
0.5
(42.0)
(0.8)
(42.3)
1,099.9
The hedging reserve represents the change in fair value of the interest rate swaps which have been designated as cash flow
hedges. Information relating to the hedging reserve is shown in note 28 to the Debenhams Group financial statements.
144
144
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Company statement of changes in equity
For the financial year ended 2 September 2017
Notes to the Company financial statements
For the financial year ended 2 September 2017
Balance at 29 August 2015
Loss for the financial year
Other comprehensive income for
the financial year
Total comprehensive income/
(expense) for the financial year
Share-based payment credit
Dividends paid
Total transactions with owners
Balance at 3 September 2016
Loss for the financial year
Other comprehensive income for
the financial year
Total comprehensive
income/(expense) for the
financial year
Share-based payment charge
Dividends paid
Purchase of shares by Debenhams
Retail Employment Trust 2004
Total transactions with owners
Balance at 2 September 2017
3
3
Called up
Share premium
share capital
Hedging
reserve
Retained
earnings
Note
£m
0.1
account
£m
682.9
0.1
682.9
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£m
(0.6)
–
0.5
0.5
0.1
0.1
–
–
–
–
–
–
–
–
–
£m
548.6
(21.9)
–
(21.9)
(0.8)
(42.0)
(42.8)
483.9
(24.7)
(24.7)
0.5
(42.0)
(0.8)
(42.3)
416.9
Total
equity
£m
1,231.0
(21.9)
0.5
(21.4)
(0.8)
(42.0)
(42.8)
1,166.8
(24.7)
(24.6)
0.5
(42.0)
(0.8)
(42.3)
1,099.9
–
0.1
The hedging reserve represents the change in fair value of the interest rate swaps which have been designated as cash flow
hedges. Information relating to the hedging reserve is shown in note 28 to the Debenhams Group financial statements.
0.1
682.9
1 ACCOUNTING POLICIES
Basis of preparation
These financial statements are for the 52 weeks ended
2 September 2017. The comparative financial year is the
53 weeks ended 3 September 2016.
The financial statements have been prepared in accordance
FRS 101 “Reduced disclosure framework” (FRS 101). The
accounting policies as described below have been consistently
applied to all financial years presented. The financial statements
have been prepared on a going concern basis under the
historical cost convention (as modified by the revaluation of
derivative financial assets and financial liabilities measured at
fair value through profit and loss) and in accordance with the
Companies Act 2006. Historical cost is generally based on the
fair value of the consideration given in exchange for the assets.
FRS 101 enables the financial statements of the parent
company to be prepared in accordance with EU-adopted IFRS
but with certain disclosure exemptions. The main areas of
reduced disclosure are in respect of equity-settled share-
based payments, financial instruments, the cash flow
statement and related party transactions with Group
companies. When required, equivalent disclosures are given
in the consolidated financial statements of Debenhams plc.
As permitted by section 408 of the Companies Act 2006, the
income statement for the Company has not been presented.
The principal accounting policies, which have been applied
consistently for each financial year unless stated otherwise,
are set out below.
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
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
Company has an unconditional right to defer settlement of
the liability for at least 12 months after the balance sheet date.
Transaction costs associated with borrowings 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.
Property related income and costs
Property related income and costs are recognised in the
period to which they relate.
Interest recognition
Finance income and finance costs are recognised in the period
to which they relate using the effective interest method.
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.
144
Debenhams plc Annual Report & Accounts 2017
www.debenhams.com 145
145
www.debenhams.comFinancial Statements
Notes to the Company financial statements
For the financial year ended 2 September 2017
continued
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. The Company 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 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
146
146
Debenhams plc Annual Report & Accounts 2017
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 income statement 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 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.
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.
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the Company financial statements
For the financial year ended 2 September 2017
continued
Notes to the Company financial statements
For the financial year ended 2 September 2017
1 ACCOUNTING POLICIES CONTINUED
Dividend distribution
of the item being hedged. The Company designates certain
derivatives as hedges of highly probable forecast transactions
A final dividend distribution to the Company’s shareholders
(cash flow hedges).
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 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
The Company issues equity-settled share-based payments to
an ongoing basis, of whether the derivatives that are used in
certain employees. A fair value for the equity-settled share
hedging transactions are highly effective in offsetting changes
awards is measured at the date of grant. The Company
in cash flows of hedged items.
measures the fair value of each award using the Black-Scholes
model where appropriate.
a) Cash flow hedges
The fair value determined at the grant date is expensed on
that are designated and qualify as cash flow hedges is
a straight-line basis over the vesting period, based on the
recognised in equity. The gain or loss relating to the
Company’s estimate of the shares that will eventually vest
ineffective portion is recognised immediately in the relevant
and adjusted for the effect of non-market-based vesting
line of the income statement which will be affected by the
conditions. At each balance sheet date, the Company revises
underlying hedged item.
The effective portion of the changes in fair value of derivatives
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. The Company 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 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.
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
Where the Company has granted options over the Company’s
have been affected by the forecast transaction.
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.
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
Foreign exchange
in the income statement.
Transactions denominated in foreign currencies are translated
into the respective functional currency at the exchange rates
Share capital
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.
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
Derivatives are initially recognised at fair value on the date
are subsequently reissued, any consideration received, net of
a derivative contract is entered into and are subsequently
any directly attributable incremental transaction costs
remeasured at fair value. The method of recognising the
together with the related income tax effects, is included in
resulting gain or loss depends on whether the derivative is
equity attributable to the Company’s equity holders.
designated as an effective hedging instrument and the nature
146
Debenhams plc Annual Report & Accounts 2017
2 INCOME STATEMENT
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 54 to
76, which forms part of these financial statements.
Auditors’ remuneration relating to the audit of the Company financial statements of £0.1 million (2016: £0.1 million) is borne by
another Group undertaking.
3 DIVIDENDS
Final paid 2.4 pence (2016: 2.4 pence) per £0.0001 share
Settled in cash
Interim paid 1.025 pence (2016: 1.025 pence) per £0.0001 share
Settled in cash
2 September
2017
£m
3 September
2016
£m
29.4
12.6
42.0
29.5
12.5
42.0
A final dividend of 2.4 pence per share (2016: 2.4 pence per share) was paid during the year in respect of the financial year
ended 3 September 2016, together with an interim dividend of 1.025 pence per share (2016: 1.025 pence per share) in respect
of the financial year ended 2 September 2017. The directors are recommending a final dividend in respect of the financial
year ended 2 September 2017 of 2.4 pence per share (2016: 2.4 pence per share), which will absorb an estimated £29.5 million
(2016: £29.4 million) of shareholders’ funds. It will be paid on 19 January 2018 to shareholders who are on the register of
members at close of business on 8 December 2017. 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 3 September 2016 and 2 September 2017
Provision for impairment
At 3 September 2016 and 2 September 2017
Net book value
At 3 September 2016 and 2 September 2017
Investments in
subsidiary
undertakings
£m
3,375.9
1,127.9
2,248.0
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 (2016: £nil). The discount rate used in the
calculation to arrive at the valuation was 7.3% (2016: 7.1%) 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 discount rate was 8.4% (2016: 8.3%).
www.debenhams.com 147
147
www.debenhams.comFinancial Statements
Notes to the Company financial statements
For the financial year ended 2 September 2017
continued
4 INVESTMENTS CONTINUED
At 2 September 2017, the Company held, either directly or indirectly, 20% or more of the allotted share capital of the following companies:
Company
Debenhams Retail plc1
Debenhams Group Holdings Limited1, 7
Debenhams Retail (Ireland) Limited2
Aktieselskabet Th. Wessel & Vett. Magasin du Nord3
Debenhams Properties Limited1
Debenhams Hong Kong Limited4
Debenhams Business Consulting (Shanghai) Company Limited5
Baroness Group Holdings Limited6, 7
BF III Limited1, 7
BF Properties (No. 2) Ltd1
BF Properties (No. 3) Ltd1
Debenhams Finance Holdings Limited1, 7
Baroness Retail Limited1
Jerimain Investments Limited1, 7
Debenhams Pension Trust Limited1
Debenhams (No. 2) Pension Trust Limited1
Debenhams Card Handling Services Limited1
Debenhams Direct Limited1
Debenhams Principles Limited1
debenhams.com ltd1
1 Registered address is 10 Brock Street, Regent’s Place, London, NW1 3FG.
2 Registered address is Ireland Region Office, 54-62 Henry Street, Dublin 1, Ireland.
3 Registered address is Kongens Nytorv 13, 1095 Copenhagen K,, Denmark.
4 Registered address is 6th Floor, Wincome Centre, 39 Des Voeux Road, Central, Hong Kong.
5 Registered address is Unit 2, 18/F Tower B Central Towers, 567 Lan Gao Road, Putuo, Shanghai, China.
6 Registered address is Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST.
7 Denotes investments held by the Company. All other investments are held by subsidiary undertakings.
5 TRADE AND OTHER RECEIVABLES
Non-current
Other receivables
Current
Amounts owed by Group undertakings
Other receivables
Prepayments and accrued income
Share of issued
ordinary share
capital and
Country
voting rights
UK
100%
100%
UK
100% Republic of Ireland
Denmark
100%
UK
100%
Hong Kong
100%
China
100%
Jersey
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
UK
100%
2 September
2017
£m
3 September
2016
£m
0.6
0.6
2 September
2017
£m
3 September
2016
£m
163.4
–
1.8
165.2
147.6
0.3
4.3
152.2
Amounts owed by Group undertakings are unsecured, repayable on demand and carry an average rate of interest of 2.0%
(2016: 2.3%).
148
148
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the Company financial statements
For the financial year ended 2 September 2017
continued
Company
Debenhams Retail plc1
Debenhams Group Holdings Limited1, 7
Debenhams Retail (Ireland) Limited2
Aktieselskabet Th. Wessel & Vett. Magasin du Nord3
Debenhams Properties Limited1
Debenhams Hong Kong Limited4
Debenhams Business Consulting (Shanghai) Company Limited5
Baroness Group Holdings Limited6, 7
BF III Limited1, 7
BF Properties (No. 2) Ltd1
BF Properties (No. 3) Ltd1
Debenhams Finance Holdings Limited1, 7
Baroness Retail Limited1
Jerimain Investments Limited1, 7
Debenhams Pension Trust Limited1
Debenhams (No. 2) Pension Trust Limited1
Debenhams Card Handling Services Limited1
Debenhams Direct Limited1
Debenhams Principles Limited1
debenhams.com ltd1
1 Registered address is 10 Brock Street, Regent’s Place, London, NW1 3FG.
2 Registered address is Ireland Region Office, 54-62 Henry Street, Dublin 1, Ireland.
3 Registered address is Kongens Nytorv 13, 1095 Copenhagen K,, Denmark.
4 Registered address is 6th Floor, Wincome Centre, 39 Des Voeux Road, Central, Hong Kong.
5 Registered address is Unit 2, 18/F Tower B Central Towers, 567 Lan Gao Road, Putuo, Shanghai, China.
6 Registered address is Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST.
7 Denotes investments held by the Company. All other investments are held by subsidiary undertakings.
5 TRADE AND OTHER RECEIVABLES
Non-current
Other receivables
Current
Amounts owed by Group undertakings
Other receivables
Prepayments and accrued income
Share of issued
ordinary share
capital and
voting rights
100% Republic of Ireland
Country
UK
UK
Denmark
UK
Hong Kong
China
Jersey
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
2016
£m
0.6
2016
£m
147.6
0.3
4.3
152.2
2 September
3 September
2 September
3 September
2017
£m
0.6
2017
£m
163.4
–
1.8
165.2
4 INVESTMENTS CONTINUED
At 2 September 2017, the Company held, either directly or indirectly, 20% or more of the allotted share capital of the following companies:
6 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loans and overdrafts (note 9)
Amounts owed to Group undertakings
Other payables
Accruals and deferred income
2 September
2017
£m
94.5
1,020.7
0.5
0.3
1,116.0
3 September
2016
£m
118.9
917.3
–
0.3
1,036.5
Amounts owed to Group undertakings are unsecured, have no fixed date of redemption and either carry an average interest
rate of 2.0% (2016: 2.3%) or are interest free.
7 DERIVATIVE FINANCIAL INSTRUMENTS
Current liabilities
Interest rate swaps – cash flow hedges
2 September
2017
£m
3 September
2016
£m
–
(0.2)
Information relating to the derivatives held by the Company is shown in note 23 to the Debenhams Group financial statements.
8 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Bank and other borrowings (note 9)
9 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
Maturity of debt
Amounts falling due:
In one year or less or on demand
In more than two years but not more than five years
2 September
2017
£m
3 September
2016
£m
197.9
197.3
2 September
2017
£m
3 September
2016
£m
95.0
(1.9)
1.4
94.5
200.0
(2.1)
197.9
120.0
(2.6)
1.5
118.9
200.0
(2.7)
197.3
2 September
2017
£m
3 September
2016
£m
95.0
200.0
295.0
120.0
200.0
320.0
Amounts owed by Group undertakings are unsecured, repayable on demand and carry an average rate of interest of 2.0%
(2016: 2.3%).
148
Debenhams plc Annual Report & Accounts 2017
Information relating to the borrowings of the Company is shown in note 21 to the Debenhams Group financial statements.
At 2 September 2017, the Company’s drawings under credit facilities outstanding comprised revolving credit facility drawings
of £95.0 million (2016: £120.0 million). During the year ended 3 September 2016, the Company refinanced its £350.0 million
revolving credit facility, choosing to reduce the facility size to £320.0 million in the process and extending the maturity from
October 2018 to June 2020. The amended revolving credit facility contains an option to request an extension to June 2021.
www.debenhams.com 149
149
www.debenhams.comFinancial Statements
Notes to the Company financial statements
For the financial year ended 2 September 2017
continued
9 BORROWINGS CONTINUED
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 £0.7 million for the year ended
2 September 2017 (2016: £0.8 million). The amortisation charge relating to the issue costs of the senior notes was
£0.6 million for the year ended 2 September 2017 (2016: £0.5 million).
10 CALLED UP SHARE CAPITAL
Issued and fully paid – ordinary shares of £0.0001 each
At start of year
Allotted under share option schemes
At end of year
2 September 2017
3 September 2016
£
Number
£
Number
128,686 1,286,862,247
1,134
–
128,685
1
1,286,852,540
9,707
128,686 1,286,863,381
128,686
1,286,862,247
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
2 September 2017
Ordinary shares
Number
3 September 2016
Ordinary shares
Number
1,673,537
273,537
The market value of the shares at 2 September 2017 was £0.7 million for the DRET (2016: £0.2 million). DRET purchased
1,400,000 shares on 3 November 2016 at a cost of 54.9 pence per share. The cost of the shares held at the year end was
£1.0 million (2016: £0.2 million).
Share option schemes
At 2 September 2017, the Group had three (2016: three) schemes in operation: the Performance Share Plan (“PSP”),
the Executive Share Option Plan (“ESOP”) and the Share Incentive Plan (“SIP”) (2016: the PSP, the ESOP and the SIP).
For further information on these schemes please see note 29 to the Debenhams Group financial statements.
11 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
2 September 2017
Land and buildings
£m
3 September 2016
Land and buildings
£m
20.8
83.5
101.9
79.5
285.7
19.1
76.8
94.6
91.2
281.7
The Company leases department stores under non-cancellable operating leases. These leases have various terms including in
some cases contingent turnover rent clauses. A subsidiary undertaking continues to occupy and trade from these properties
under a letting arrangement with the Company.
12 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
150
Debenhams plc Annual Report & Accounts 2017
Financial StatementsDebenhams plc Annual Report & Accounts 2017
Notes to the Company financial statements
For the financial year ended 2 September 2017
continued
9 BORROWINGS CONTINUED
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 £0.7 million for the year ended
2 September 2017 (2016: £0.8 million). The amortisation charge relating to the issue costs of the senior notes was
£0.6 million for the year ended 2 September 2017 (2016: £0.5 million).
10 CALLED UP SHARE CAPITAL
Issued and fully paid – ordinary shares of £0.0001 each
Allotted under share option schemes
At start of year
At end of year
2 September 2017
£
Number
3 September 2016
Number
128,686 1,286,862,247
128,685
1,286,852,540
–
1,134
9,707
128,686 1,286,863,381
128,686
1,286,862,247
£
1
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:
2 September 2017
3 September 2016
Ordinary shares
Ordinary shares
Number
1,673,537
Number
273,537
The market value of the shares at 2 September 2017 was £0.7 million for the DRET (2016: £0.2 million). DRET purchased
1,400,000 shares on 3 November 2016 at a cost of 54.9 pence per share. The cost of the shares held at the year end was
Debenhams Retail Employee Trust 2004
£1.0 million (2016: £0.2 million).
Share option schemes
At 2 September 2017, the Group had three (2016: three) schemes in operation: the Performance Share Plan (“PSP”),
the Executive Share Option Plan (“ESOP”) and the Share Incentive Plan (“SIP”) (2016: the PSP, the ESOP and the SIP).
For further information on these schemes please see note 29 to the Debenhams Group financial statements.
11 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
2 September 2017
3 September 2016
Land and buildings
Land and buildings
£m
£m
20.8
83.5
101.9
79.5
285.7
19.1
76.8
94.6
91.2
281.7
The Company leases department stores under non-cancellable operating leases. These leases have various terms including in
some cases contingent turnover rent clauses. A subsidiary undertaking continues to occupy and trade from these properties
under a letting arrangement with the Company.
12 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.
Store list
UK
Aberdeen
Altrincham
Ashford
Ayr
Ballymena
Banbury
Bangor
Barrow
Basildon
Basingstoke
Bath
Bedford
Belfast
Beverley
Birmingham
Birmingham Fort
Blackburn
Blackpool
Bolton
Borehamwood
Bournemouth
Bradford
Brighton
Bristol
Bromley
Bury
Bury St Edmunds
Cambridge
Canterbury
Cardiff
Carlisle
Carmarthen
Chatham
Chelmsford
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
Newport
Newry
Northampton
Norwich
Nottingham
Nuneaton
Oldham
Orpington
Oxford
Perth
Plymouth
Portsmouth
Preston
Reading
Redditch
Romford
Rugby
Rushmere
Salisbury
Scarborough
Scunthorpe
Sheffield
Sheffield –
Meadowhall
Slough
Southampton
Southend
Southport
Southsea
South Shields
Staines
Stevenage
Stirling
Stockport
Stockton
Stratford-upon-Avon
Sunderland
Sutton
Swansea
Swindon
Taunton
Telford
Torquay
Truro
Uxbridge
Wakefield
Walsall
Walton
Wandsworth
Warrington
Welwyn Garden City
Westwood Cross
Weymouth
Wigan
Wimbledon
Winchester
Witney
Woking
Wolverhampton
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
Australia
Melbourne
Bahrain
Manama
Bulgaria
Sofia – Bulgaria Mall
Cyprus
Apollon
Central
Engomi
Korivos
Nicosia
Olympia
Zenon
Egypt
Alexandria
Cairo, Festival City
Estonia
Tallinn
Gibraltar
Indonesia
Jakarta – Senayan City
Iran
Isfahan
Mashad
Shiraz
Tehran
Tehran – Jame Jam
Jordan
Amman
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.
Stores as at Report Date.
150
Debenhams plc Annual Report & Accounts 2017
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
Manila – ECC
Manila – Glorieta
Manila – Shangri La
Manila – Trinoma
Paeso Santa Rosa
Qatar
Doha
Mall of Qatar
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
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
www.debenhams.comAdditional Information
Glossary and References
ALTERNATIVE PERFORMANCE MEASURES
In reporting financial information, the Group presents alternative performance measures, “APMs”, which are not defined
or specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional useful information on the underlying trends, performance and position of the
Group and are consistent with how business performance is measured internally. The APMs are not defined by IFRS
and therefore may not be directly comparable with other companies’ APMs including those in the Group’s industry.
The key APMs that the Group uses are outlined below.
APM
Closest
equivalent
IFRS measure
Reconciling
items to
IFRS measure
Definition
and purpose
Income statement measures
Gross
transaction
value (GTV)
Like-for-
like sales
movement
No direct
equivalent
Refer to
definition
No direct
equivalent
Refer to
definition
Gross transaction value is calculated as sales (excluding VAT) on a
gross basis before adjusting for concessions, consignments and staff
discounts. Management believe that gross transaction value represents
a good guide to the overall activity of the Group. The calculation of this
measure is outlined in note 3.
Like-for-like sales movement relates to sales from stores which have
been open for more than 12 months plus digital sales. It is a widely
used indicator of a retailer’s current trading performance and is
important when comparing growth between retailers that have
different profiles of expansion, disposals and closures. A reconciliation
of these percentages is shown below:
UK stores
UK digital
International
Like-for-like-sales – constant currency1
Exchange rate impact
Like-for-like sales movement – reported
(1.5%)
+1.4%
(0.1%)
(0.2%)
+2.3%
+2.1%)
1 Constant exchange rates are the average actual periodic exchange rates for the
previous financial period and are used to eliminate the effects of exchange rate
fluctuations in assessing performance. Actual exchange rates are the average
actual periodic exchange rates for that financial period.
No direct
equivalent
Refer to
definition
Digital like-for-like sales movement measures the movement in online
GTV. This measure is used in tracking Group digital sales performance.
Digital
like-for-
like sales
movement
Online
mobile mix
No direct
equivalent
Refer to
definition
Online mobile mix is calculated as GTV generated from smartphone
and tablet devices as a percentage of total online GTV and is used to
track Group digital sales performance.
152
Additional InformationDebenhams plc Annual Report & Accounts 2017 APM
Closest
equivalent
IFRS measure
Reconciling
items to
IFRS measure
Definition
and purpose
Income statement measures continued
Full price
sell-through
No direct
equivalent
Refer to
definition
Gross margin Not defined
within IFRS.
Refer to
definition
Underlying
Group
EBITDA
Not defined
within IFRS.
Refer to
definition
Full price sell-through is the number of units sold in store or online
at the original selling price, as a percentage of the total units sold.
This measure is used in tracking Group sales performance and in
managing inventory turn.
Gross margin is calculated as GTV less the value of cost of goods sold,
as a percentage of GTV. The gross profit used in this calculation is
based on an internal measure of margin and is a key internal
management metric for assessing division performance.
Underlying Group EBITDA is calculated as profit before interest, tax,
depreciation, amortisation and profit/loss on disposal of assets, asset
write offs and exceptional items. Underlying Group EBITDA is used
as an operating performance measure and is used in calculating
financial leverage targets (net debt to underlying Group EBITDA).
A reconciliation of underlying Group EBITDA to operating profit
before exceptional items is shown below:
Operating profit before exceptional items
Add: non-exceptional depreciation and amortisation
Add: non-exceptional loss on disposal of assets
and asset write offs
Underlying Group EBITDA
£m
107.5
109.3
0.2
217.0
Underlying
profit before
tax
Profit before
tax
Exceptional
items (see
note 7)
Underlying
earnings
per share
Earnings per
share
Exceptional
items (see
note 7)
Underlying
diluted
earnings
per share
Diluted
earnings per
share
Exceptional
items (see
note 7)
Profit before the impact of exceptional items and tax. The Group
considers this to be an important measure of Group performance
and is consistent with how business performance is reported to and
assessed by the board and executive committee.
Profit after tax attributable to the owners of the parent and before the
impact of exceptional items, divided by the weighted average number
of ordinary shares in issue during the financial year. A reconciliation of
earnings per share before the impact of exceptional items is provided
in note 13.
Profit after tax attributable to the owners of the parent and before the
impact of exceptional items, divided by the weighted average number
of ordinary shares in issue during the financial year adjusted for the
effects of any potentially dilutive options. A reconciliation of diluted
earnings per share before the impact of exceptional items is provided
in note 13.
153
www.debenhams.comAdditional Information Glossary and References continued
APM
Closest
equivalent
IFRS measure
Reconciling
items to
IFRS measure
Definition
and purpose
Income statement measures continued
No direct
equivalent
Refer to
definition
52 weeks
ended 2
September
2017
Balance sheet measures
Net debt
None
Refer to
definition
The Group prepares its financial statements for the financial year
ending on the nearest Saturday to 31 August of a given calendar year.
Consequently the year ended 2 September 2017 is a 52 week year, with
the comparative year ended 3 September 2016 being a 53 week year.
In order to provide a meaningful comparison with this year’s 52 week
period, all financial movements in commentary relative to the prior
year are provided on a 52 week basis and exclude the 53rd week,
unless otherwise noted. The Group considers that presentation of
comparatives on this basis enables stakeholders to more appropriately
compare the performance of the business year on year.
Net debt comprises cash and cash equivalents and total borrowings
(bank, bond and finance lease liabilities) net of unamortised fees.
This measure is a good indication of the strength of the Group’s
balance sheet position and is widely used by credit rating agencies.
A reconciliation of net debt is provided in note 32.
Tax measures
Effective tax
rate before
exceptional
items
Effective tax
rate
Exceptional
items and
their tax
impact (see
note 7)
The effective tax rate before exceptional items is calculated as the total
tax charge for the year excluding the tax impact of exceptional items
divided by profit before tax before exceptional items. This provides an
indication of the ongoing tax rate across the Group. The tax effect of
exceptional items is provided in note 7.
Other measures
Capital
employed
Net assets
Refer to
definition
Not defined
within IFRS
Refer to
definition
Underlying
return on
capital
employed
Net promoter
score
Not defined
in IFRS
Refer to
definition
Capital employed is calculated as the net total of assets and liabilities
reported in the financial statements excluding net debt and including a
capitalised value of future store rental payments at an eight times multiple.
This measure is used in the calculation of return on capital employed.
Return on capital employed (“ROCE”) is calculated as profit before rent
expenses, interest, tax and before exceptional items divided by the
average of opening and closing capital employed (excluding rent)
then adjusted for the capitalised value of future store rental payments
at an eight times multiple. This measure is used within the Group’s
remuneration targets and measures the profitability of the Group
relative to the size of the assets used to generate returns.
The Group’s net promoter score measures the willingness of customers
to recommend the Group’s products or services to others. This measure
is used for remuneration incentive purposes.
154
Additional InformationDebenhams plc Annual Report & Accounts 2017 REFERENCES
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.
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.
Exceptional items in FY2017
Costs associated with a) the Strategic
review and restructure and b) the
Strategic warehouse restructuring.
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.
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 digital sales to
addresses outside of the UK.
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 digital and in-store ordering as
well as those which include more than
one channel in a single shopping
journey such as click & collect.
Own bought brands
Brands for which Debenhams owns
the stock. They include core brands,
Designers at Debenhams and
international brands.
Own brands
Debenhams’ exclusive brands,
comprising core brands and
Designers at Debenhams.
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.
155
www.debenhams.comAdditional Information 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
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
156
Additional InformationDebenhams plc Annual Report & Accounts 2017 Designed and produced by Luminous
www.luminous.co.uk
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10 Brock Street
Regent’s Place
London
NW1 3FG
www.debenhams.com