TIDMDEB
RNS Number : 7853C
Debenhams plc
20 April 2017
This announcement contains inside information
20 April 2017
DEBENHAMS PLC
Interim Results and Strategy Review
Debenhams plc today is pleased to announce a new strategy,
Debenhams Redesigned, together with interim results that are in
line with expectations for the 26 weeks to 4 March 2017.
Financial and Operational Headlines of the half year
-- Group gross transaction value ("GTV") up 2.9% to GBP1,676.5m
(H1 2016: GBP1,628.7m), with UK LFL up 0.5%, reflecting further
progress in growing non-clothing categories and strong online
momentum
-- Group gross margin rate down 30 bps, with further 50 bps
markdown improvement on last year offset by sales mix dilution.
Full price sales mix grew 2%
-- Group EBITDA down 2.5% to GBP149.1m (H1 2016: GBP153.0m),
with UK EBITDA down 6.0% and International EBITDA up 13.1%
-- UK online performance driven by mobile orders up 64%
-- Underlying international performance remains mixed. Magasin
du Nord in Denmark saw a tougher trading environment whilst our
business in ROI has benefited from restructuring under
examinership
-- Group profit before tax in line with market expectations,
down 6.4% to GBP87.8m (H1 2016: GBP93.8m). Earnings per share of
5.8p (H1 2016: 6.2p)
-- Net debt reduced to GBP216.9m (H1 2016: GBP224.2m) delivering
net debt/EBITDA at 0.9x. Continued cash generation supports
maintained interim dividend per share of 1.025p.
Highlights of Strategy Review
-- New strategy, Debenhams Redesigned, to deliver Growth by
becoming a Destination, Digital and Different; and to drive
Efficiency by simplifying and focusing our business.
-- Objective to define clearly what Debenhams stands for and
simplify the way we operate to benefit customers today and
therefore shareholders in the future.
-- Aim to drive frequency of visit both on and offline as well
as leveraging existing assets, including good stores in strong
locations; leading market positions in key product categories; and
profitable and growing international business.
-- Leisure is increasing share of consumer spending. For
Debenhams customers, the leisure experience is an important part of
shopping and mobile interaction growing fast. Opportunity for
Debenhams to lead in what we define as "Social Shopping".
-- Delivering Growth by becoming:
o Destination for "Social Shopping", offering exciting new
products, services and experiences, as well as building on category
strengths;
o Digital-driven with mobile unifying channels and interaction
with customers, broadening our reach both in UK and
internationally; and
o Different in how we create and manage brands, supported by a
more innovative culture.
-- Driving Efficiency by:
o removing barriers to shopping both online and instore;
o simplifying and focusing store estate and operating model;
and
o making more effective use of people, inventory and
infrastructure.
-- "Fix the Basics" Plan already under way to:
o switch c2,000 more staff to customer-facing roles;
o declutter store environment with c10% reduction in stock
options;
o replenish stock faster;
o begin consultation on the closure of one central distribution
centre and around 10 smaller regional warehousing facilities;
o test new concepts and formats for stronger and more relevant
brand and category presentation; and
o evaluate store and brand portfolio: review up to 10 UK stores
for closure over the next 5 years, and exit some brands and
non-core international markets.
-- Additional investment required to upgrade mobile systems,
supply chain and invest in evolving store estate. Annual capex of
cGBP150m between FY2018 and FY2020 vs current annual capex of
GBP130m. Expected total exceptional costs over FY2017-FY2020 of
cGBP50m, of which approximately half will be cash.
Sergio Bucher, Chief Executive of Debenhams, said:
"Our customers are changing the way they shop and we are
changing too. Shopping with Debenhams should be effortless,
reliable and fun whichever channel our customers use. We will be a
destination for "Social Shopping" with mobile the unifying platform
for interacting with our customers. If we deliver differentiated
and distinctive brands, services and experiences both online and in
stores, our customers will visit us more frequently and, having
simplified our operations to make us more efficient, we will be
able to serve them better and make better use of our resources.
"I'd like to thank the executive team and all our colleagues,
who made sure that we were able to deliver a great experience for
our customers over the peak trading period, and who are now working
hard to implement our new strategy. This will set Debenhams on
course for a successful and profitable future."
Presentation
A meeting for analysts and investors will be held at 9.00am
today at Deutsche Bank Winchester House, 75 London Wall, London,
EC2N 2DB.
The presentation will also be webcast live at
http://edge.media-server.com/m/p/7uwqso4m
Enquiries:
Analysts and investors
Debenhams PLC Matt Smith, Chief Financial Officer
Katharine Wynne, Director of Investor
Relations
020 3549 6304
Media
Brunswick Group Tim Danaher/Helen Smith
020 7404 5959
STRATEGY REVIEW
Our customers, competition and technology are changing and
Debenhams needs to change too. By putting our customers first and
simplifying the way we operate we can refocus our attention on what
makes a difference to our customers today and therefore delivers
value for our shareholders in the future.
We have completed a comprehensive review of our strategy and
operations. We have conducted quantitative research with 16,000
shoppers (both Debenhams customers and non-customers} and
undertaken qualitative research on our proposition, stores,
products and brands. We have undertaken a detailed, bottom-up
analysis of profitability by category, by brand and by store.
Following this analysis we are clear that Debenhams has many
strengths we can leverage, as well as things that we need to fix.
Our 19 million UK customers acknowledge our great beauty halls and
well-located stores; our significantly improved online service; our
choice of products and brands; and our value for money. However,
they tell us we sometimes make it hard work for them to shop with
us and we need to serve them better.
Changing customers and growth in leisure
We have a plan to transform the shopping experience at
Debenhams. Shopping for fashion and beauty is about buying
something that will make our customers look good and feel great,
but it is also about enjoying the whole process.
Our customer research shows that two-thirds of the women
surveyed regard leisure to be as important or more important than
convenience when shopping. The same is true of more than half of
the men. Debenhams scores highly for both, but over-indexes in
leisure. The trend towards growth in leisure spending is well
established. The trend towards online growth in discretionary
retail sales is also well established. Shopping via mobile phones
is currently driving all the growth in retail sales.
Mobile phones are being used in all channels, not just online,
as they become an integral part of everyday life. Our survey data
shows that the most frequent use of smartphones is to engage (write
reviews, seek opinions, comment on social media) or check logistics
(store location, product availability).
Opportunity for Debenhams in "Social Shopping"
Looking at the way our customers are shopping for fashion and
beauty and interacting via their mobile phones, we see an
opportunity for Debenhams to be the leader in what we define as the
new "Social Shopping": shopping as a fun leisure activity enjoyed
with friends and family and shared via social media.
We will give our customers more reasons to come to Debenhams,
whether they are at home, on the train or in the high street, and
build a stronger relationship with them, centred around mobile
interaction. We score well on many metrics compared with
competitors but can do better to encourage frequency of visit.
We will create an environment both online and offline that is
engaging and inspiring, with great service, and a shopping journey
that is convenient and reliable so they will want to come back to
us more often.
We want them to share the experience, whether by visiting stores
with friends and family to shop, use our services, eat and drink or
attend events - or via social media.
The mobile phone is front and centre of how our customers
interact with each other and it is the enabler for Social Shopping.
We will invest in an upgraded mobile platform that will help us
unite channels and connect better with our customer.
DEBENHAMS REDESIGNED: 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 3 years and beyond
and create value for our shareholders.
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.
Growth by becoming more of a Destination
-- Beauty and Beauty Services: We are already the market leader
in premium make-up and the No 2 in premium beauty overall. We have
the ambition to build a GBP1 billion business in this category,
becoming the preferred destination in all channels. In addition, we
will grow our share in the GBP4bn beauty services market, which is
highly fragmented, but where we have the opportunity to build a
differentiated proposition.
-- Fashion via Accessories: We see the opportunity to improve
our customer consideration in a broader range of categories. With
an inspiring environment, much better service and great products we
will accelerate our performance in accessories, in particular
footwear and lingerie.
-- Meet me @Debenhams: We will create exciting store
environments where customers can spend time with family and friends
- exploring our products and services; enjoying VIP access to
in-store events; and sampling a step-changed food and drink offer,
both our own and with new and exciting partners.
Growth by being Digital-Driven
-- Digital is the engine of growth in the UK and a significant
opportunity overseas. In order to give us the capability to deliver
our strategy, we intend to invest in upgrading our technology
platform. We will unify our business via mobile, "mobile
@everywhere", to connect with our customers via the device they
always have with them.
-- Innovative new services: Click & Collect has become an
important part of our business, with over 30% of online
transactions picked up in store. We see an opportunity to evolve
this experience from being functional and reliable to make it also
engaging and sociable, linking it with other services, such as
personal shopping, to reinforce our ambition in Social
Shopping.
-- Broaden our reach: Digital distribution allows us to reach a
different customer demographic, for example, that might not
otherwise shop with us. We have had good success in selling via
other online partners both in the UK and internationally. There are
obvious opportunities to increase our digital distribution both
through our own infrastructure and via strategic partnerships. For
example we are launching on Amazon.de next month.
Growth by being Different
-- We will reinvent Designers@Debenhams, making the proposition
more relevant and by managing the brand portfolio more robustly. We
will invest in full price marketing to support our ambition to
build brands with their own brand equity and also with
international appeal.
-- Brand creation and distribution: We want to create and
distribute our brands in a different way.
In the future we will build brand ranges for our online
customers first. We will then edit our store ranges based on
insight from customer segmentation and online catchment
profiles.
-- Innovation and culture: Our culture has been process driven
and head-office led, resulting in risk-averse decision making and
stifling innovation. We have already changed our head office to a
support centre, to encourage a different mind-set with a focus on
our customers and encouraging creativity.
Simplify and Focus to drive Efficiency
-- Store estate strategy: We have no tail of loss-makers in our
176 store estate, and many are highly profitable, but we want to
ensure they are fit for the future. Based on future projections and
having set a clear strategy for each location, we will review up to
10 stores for closure over five years should these stores not meet
our required return thresholds. We will invest in our stores in
major shopping destinations where we see the greatest opportunity
to earn a good return and we will refresh and remerchandise the
rest.
-- Operating model: 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 are half way through replacing our
legacy systems and we will need to complete this programme to give
us the capabilities we require to deliver our strategy. We are
investing in automation within our warehouses.
-- Better use of resources: We will aim to make more effective
use of our people, 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 will manage our
stock more efficiently this will help to improve full price sales
and stock turn.
International plans to be detailed later in the year
We will discuss our plans for our International business in more
detail at our preliminary results in October. All of the elements
of our approach in Debenhams Redesigned will be applied as
appropriate to our international business. We are developing a plan
of which the key components are: Simplify (review for closure low
profit, low-scale partners), Leverage & Grow (our existing
successful partnerships), and Amplify (new markets, online growth
in marketplaces and wholesale).
Magasin du Nord, our largest international business, has an
opportunity to extend beyond its domestic borders through an
expanded digital offer.
Short term self-help through Fix the Basics plan
In January we embarked on a "Fix the Basics" plan to identify
and implement self-help opportunities. This programme is already
delivering change, and a number of initiatives are under way, for
example:
-- We are switching c2,000 store colleagues from back-of-house
activities to customer-facing roles;
-- We are including improvement in net promoter scores as part of our colleague incentives;
-- We are decluttering stores by reducing options and changing the flow of product;
-- We will speed up replenishment times from an average eight days to two days; and
-- As a result of more efficient stock flows combined with the
transition to a single warehouse management system, consultation
has begun on the closure of one central distribution centre and
around 10 smaller regional warehousing facilities.
In addition we have a number of trials already under way with
further initiatives landing this Autumn/Winter:
-- In two lingerie departments we are piloting a 30% reduction
in options supporting significantly improved visual merchandising,
with a view to trialling in more stores this autumn;
-- We will remerchandise two stores across a number of brands, including Designer departments;
-- We will trial some Click, Collect & Play departments,
linking with personal shopping services, this autumn; and
-- We will identify stores with potential to convert them to Outlets
Impact and timeframe of change
We will report back at our preliminary results in October with
progress on these trials and on further new initiatives, together
with more detail on our store estate and international plans.
The timeframe for delivery of the majority of the strategy is
expected to be over the next three years. The key components of the
strategy that will have cost and capex implications are as
follows:
-- Supply chain: we are consulting on the closure of one of our
three central distribution centres, and around 10 smaller regional
warehouses. We will continue with our automation programme, which
is expected to complete in FY2020.
-- Digital: in order to deliver the capability to execute our
Social Shopping strategy in full, we will move to a new mobile
platform that will unify our channels and our interaction with
customers.
-- Store estate: Over the next five years we will review for
closure up to 10 UK stores should they not meet our return
objectives and will also exit some non-core international markets.
We intend to test the conversion of some smaller UK stores into
Outlets, and will invest in upgrading those stores in major
shopping destinations and remerchandising the remainder of the
store estate.
In summary, the impact of the plan on costs and capital
expenditure between FY2017 and FY2020 is as follows:
-- Total capital expenditure of cGBP150 million per annum in the
three years to FY2020, represents an incremental spend of GBP100m,
compared with our original plan to spend approximately GBP350
million in total over the period.
-- The investment will be used primarily to accelerate some of
our automation plans; upgrade our digital platform to a fully
flexible mobile-led system; and disciplined investment in our
evolving store estate.
-- Total expected exceptional costs of cGBP50 million during the
three years to FY2020, with approximately half being cash
costs.
OPERATIONAL AND FINANCIAL REVIEW
We delivered a strong trading performance over peak in the UK
and a mixed performance in International on a constant currency
basis. We highlight below a brief summary of a solid operational
performance in the first half of the year, the financial review,
followed by the trading outlook.
OPERATIONAL HIGHLIGHTS OF THE HALF YEAR
-- In line with our stated aim to grow our non-clothing mix, we
delivered strong progress in Beauty and Gifting categories,
especially over peak trading. Our non-clothing sales mix
represented 56% of GTV in H1 2017, up 1% year-on-year.
-- Full price sales mix grew 2% and, as planned, stock levels
continued to reduce, down 4.2% like-for-like in H1 2017. Terminal
stocks were in line with expectations at 2.8%. As a result we saw
markdowns improve for the sixth season in a row, leading to a gross
margin improvement of 50bps, alongside an improvement in intake
margin of 10bps. Sales mix dilution from growth in Beauty, Gift and
Concessions was 90bps, so that overall gross margin was down 30bps
in the first half.
-- We delivered strong momentum in online sales with year on
year growth strengthening over peak trading. Online sales grew
14.6% for the half year, with the UK up 12%, driven by mobile
orders up 64%. We delivered a particularly strong performance in
Beauty, and growth in concessions as more of our partners were able
to meet our premium delivery promises. Premium delivery options
grew by 64%.
-- As planned, we completed 75% of our space optimisation
programme in time for peak trading. This has been supported by the
introduction of over 300 new offers across brands, products and
services, including 48 new third party casual dining offers. The
existing programme is on track to be completed by Autumn/Winter
2017. We also completed the modernisation of our Lakeside and
Chelmsford stores.
-- On a local currency basis, international performance was
mixed: economic headwinds continue to weigh on Middle Eastern
markets which held back franchise performance. Magasin du Nord in
Denmark saw a tougher trading environment although online growth
remained strong. Performance in the Republic of Ireland has
benefited from the restructuring achieved under examinership.
-- In connection with the sourcing of own bought goods
denominated in US dollars, we are fully hedged for FY2017 at an
average dollar rate c5% lower than FY2016. We are currently hedged
for the majority of FY2018 at an average rate c.13% below FY2017.
We continue to invest in supply chain improvements which should
help 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.
FINANCIAL SUMMARY
26 weeks to 26 weeks to % change
4 March 27 February
2017 2016
-------------------------------- -------------- -------------- ---------
Gross transaction value(1,2) GBP1,344.7m GBP1,336.5m +0.6%
UK GBP331.8m GBP292.2m +13.6%
International GBP1,676.5m GBP1,628.7m +2.9%
Group
-------------------------------- -------------- -------------- ---------
Statutory revenue(1,2) GBP1,106.3m GBP1,109.7m (0.3%)
UK GBP244.8m GBP217.5m +12.6%
International GBP1,351.1m GBP1,327.2m +1.8%
Group
-------------------------------- -------------- -------------- ---------
Group like-for-like sales
movement(3) +3.0%
-------------------------------- -------------- -------------- ---------
Group gross margin movement(4) (30bps)
-------------------------------- -------------- -------------- ---------
EBITDA(1,5) GBP118.0m GBP125.5m (6.0%)
UK GBP31.1m GBP27.5m +13.1%
International GBP149.1m GBP153.0m (2.5%)
Group
-------------------------------- -------------- -------------- ---------
Operating profit(1) GBP67.5m GBP76.1m (11.3%)
UK GBP26.4m GBP23.5m +12.3%
International GBP93.9m GBP99.6m (5.7%)
Group
-------------------------------- -------------- -------------- ---------
Profit before tax GBP87.8m GBP93.8m (6.4%)
-------------------------------- -------------- -------------- ---------
Basic earnings per share 5.8p 6.2p (6.5%)
-------------------------------- -------------- -------------- ---------
Dividend per share 1.025p 1.025p -
-------------------------------- -------------- -------------- ---------
4 March 27 February
2017 2016
-------------------------------- -------------- -------------- ---------
Net debt GBP216.9m GBP224.2m
-------------------------------- -------------- -------------- ---------
Net debt : EBITDA (last 12
months) 0.9x 0.9x
-------------------------------- -------------- -------------- ---------
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 property, plant and
equipment).
SEGMENTAL PERFORMANCE
UK
Gross transaction value (GTV) for the UK segment increased by
0.6% to GBP1,344.7 million and reported revenue reduced by (0.3%)
to GBP1,106.3 million. The GTV growth was a result of continued
online sales growth which contributed to a strong Christmas period.
As we have seen in previous years the sales growth slowed in the
latter period of the half as a result of the beauty and gifting
categories representing a lower proportion of sales.
As expected, growth in beauty, gifting and concession sales has
led to a sales mix dilution in gross margin rate, partly offset by
a further reduction in markdown.
EBITDA decreased by (6.0%) to GBP118.0 million driven by the
change in the gross margin rate and the net impact of store cost
increases in rent and National Living Wage. Operating profit for
the year decreased by (11.3%) to GBP67.5 million.
International
In the International segment gross transaction value of GBP331.8
million was 13.6% higher than last year and reported revenue
increased by 12.6% to GBP244.8 million. Both metrics have been
supported by stronger Euro and Danish Kroner exchange rates,
boosting Group LFL by 2.9%. On a constant currency basis,
International gross transaction value reduced by (2.1%).
International operating profit increased by 12.3% to GBP26.4
million as a result of the translation benefits on profit generated
in Magasin du Nord and savings achieved through the Irish
examinership process.
GROUP SALES AND PROFITS
Sales and revenue
Group gross transaction value increased by 2.9% to GBP1,676.5
million whilst Group revenue increased by 1.8% to GBP1,351.1
million. Group like-for-like sales increased by 0.1% on a constant
currency basis and 3.0% on a reported basis.
The constant currency like--for--like sales growth reflects the
mix from stores to online, with online sales growth of 14.6%,
representing 16.8% of group gross transaction value (2016: 15.1%).
The components of the gross transaction value increase of 2.9% and
like--for--like sales growth of 3.0% are shown below
UK stores (1.3%)
UK online +1.7%
International (0.3%)
Like-for-like sales - constant +0.1%
currency
Exchange rate impact +2.9%
-------
Like-for-like sales - reported +3.0%
New UK space (0.1%)
Franchise/Wholesale -
-------
GTV movement +2.9%
-------
Group own bought mix decreased from 76.3% in 2016 to 74.5%
mainly as a result of the movement in the UK mix, with the sales
growth from concessions increasing at a faster rate.
Operating profit
As expected, growth in 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. The programme of markdown reduction has continued
through a combination of tighter stock control and a reduced depth
of promotions. As a result, the gross margin rate has reduced
overall by (30bps).
Costs increased by 3.6% driven by the impact of foreign exchange
rates and the growth of online, although efficiencies are being
realised in this channel. On a constant currency basis, total costs
increased by 1.3%.
Depreciation and amortisation (including losses on disposals)
increased by 3.4% to GBP55.2 million, reflecting investment in
capital expenditure over the last few years.
As a result of the above, Group operating profit of GBP93.9
million was (5.7%) below last year for the 26 weeks to 4 March
2017.
Net finance costs
Net finance costs increased by 5.2% to GBP6.1 million reflecting
a foreign exchange cost of GBP0.1 million (2016: GBP1.2 million
benefit) from the translation of Euro balances over the half year.
This has been offset by lower average debt levels throughout the
half.
Profit before tax
Reported profit before tax decreased by 6.4% to GBP87.8 million
(2016: GBP93.8 million).
Taxation
Taxation decreased from GBP17.4 million in the first half of
last year to GBP16.2 million, mainly due to the effect of the lower
reported profit before tax combined with this year's staged
reduction in the main rate of UK corporation tax. This represents
an effective tax rate of 18.5% based on the full year forecast (H1
2016: 18.6%).
Profit after tax
Profit after tax decreased by 6.3% to GBP71.6 million.
Earnings per share
Both basic and diluted earnings per share were 5.8 pence. The
basic weighted average number of shares in issue reduced slightly
from 1,227.2 million last year to 1,227.1 million and diluted
weighted average number of shares reduced slightly from 1,230.2
million to 1,227.3 million.
CASH FLOW, USES OF CASH AND MOVEMENT IN NET DEBT
Debenhams is cash generative and has clear priorities for the
uses of cash. The first priority is to invest in our strategy;
second, we pay our shareholders a dividend; third, we have a
medium--term target for net debt to EBITDA of 0.5 times.
Operating cash flow before financing and taxation was GBP108.7
million compared with GBP133.5 million last year. Last year's
working capital position benefited from a number of timing benefits
that have not arisen this year.
Cash flow generation, the uses of cash and the movement in net
debt are summarised below.
GBPm 26 weeks 26 weeks
to 4 March to 27 February
2017 2016
EBITDA 149.1 153.0
Working capital 7.1 34.0
------------ ----------------
Cash generated from operations 156.2 187.0
Capital expenditure (47.5) (53.5)
------------ ----------------
Operating cash flow before financing
& taxation 108.7 133.5
Taxation (8.7) (1.5)
Financing (6.7) (6.2)
Dividends paid (29.4) (29.5)
Other movements (1.8) (0.7)
------------ ----------------
Change in net debt 62.1 95.6
Opening net debt 279.0 319.8
Closing net debt 216.9 224.2
Net debt : EBITDA (last 12 months) x0.9 x0.9
Capital expenditure
Capital expenditure was GBP47.5 million during the half compared
to the spend of GBP53.5 million in the same period last year. The
decrease is primarily due to the cost of the new store openings in
the first half of last year, offset by an increased investment in
systems for the period. Guidance for capital expenditure for the
year remains in the region of GBP130 million.
Inventory
Stock levels were managed tightly during the first half,
reflecting the continued plan to reduce the depth of markdown
requirement. Total stock value decreased by 3.4% to GBP318.0
million (like-for-like reduction 4.2%). Terminal stock of 2.8% was
in line with our historical range of 2.5% to 3.5%.
Dividends
Total cash paid in dividends of GBP29.4 million related to the
2016 final dividend of 2.4 pence per share that was paid to
shareholders on 24 January 2017.
The directors have resolved to pay an interim dividend in
respect of the 26 weeks ended 4 March 2017 of 1.025 pence per share
(27 February 2016: 1.025 pence) which will absorb an estimated
GBP12.6 million of shareholders' funds (27 February 2016: GBP12.5
million). It will be paid on 7 July 2017 to shareholders who are on
the register of members at close of business on 2 June 2017.
Net debt
The Group's net debt position as at 4 March 2017 of GBP216.9
million was GBP7.3 million lower than the same point in the prior
year (2016: GBP224.2 million), as a result of a reduction in
working capital, increased taxation payments offset by a reduction
in capital investment.
The ratio of net debt to EBITDA of 0.9 times is in line with the
previous year.
The Group's Revolving Credit Facility ('RCF') of GBP320 million
is in place until June 2020, with an option to extend until June
2021. In addition, the Group also has a GBP200 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 and the
Debenhams Executive Pension Plan (together "the Group's pension
schemes") which both closed for future service accrual from 31
October 2006.
Under IAS 19 "Employee benefits" revised, the net surplus on the
Group's pension schemes as at 4 March 2017 was GBP46.8 million (27
February 2016: surplus of GBP51.8 million).
During June 2015, a triennial valuation was completed and a new
agreement was concluded under which the Group agreed to contribute
GBP9.5 million per annum to the pension schemes for the period from
1 April 2014 to 31 March 2022 increasing by the percentage increase
in RPI over the year to the previous December. The Group agreed to
continue to cover the non-investment expenses and levies of the
pension schemes, including those payable to the Pension Protection
Fund.
Current pension arrangements for Debenhams' employees are
provided by defined contribution pension schemes.
GUIDANCE FOR 2017
Guidance for 2017, shown below, remains broadly unchanged except
for an update on full year gross margin, which we expect to be
approximately (25bps) for the full year, and cost guidance which is
tightened to +3% to +4% on a reported currency basis, or +1% to +2%
on a constant currency basis.
Group gross margin c.(25bps)
Total cost growth +3% to +4%*
Depreciation & amortisation c.GBP110 million
Net finance costs GBP13-GBP15 million
Taxation c.20%
Capital expenditure c.GBP130 million
Net debt c.GBP260 million
*+1% to +2% on constant currency basis
OUTLOOK
We have delivered a solid performance in the first half of the
year, and have delivered results in line with market expectations.
Our diversified business model means that Debenhams is in good
shape to withstand a market background that remains uncertain.
We believe our new strategy will set Debenhams on course for a
successful and profitable future.
NOTES TO EDITORS
Debenhams is a leading international, multi-channel brand with a
proud British heritage which trades from 247 stores across 27
countries. Debenhams gives its customers around the world a unique,
differentiated and exclusive mix of own brands, international
brands and concessions.
In the UK, Debenhams has a top five market share in womenswear
and menswear and a top ten share in childrenswear. It is a market
leader in premium health and beauty.
Debenhams has been investing in British design for over 20 years
through its exclusive Designers at Debenhams portfolio of brands.
Current designers include Abigail Ahern, Jasper Conran, Giles
Deacon, FrostFrench, Patrick Grant, Henry Holland, Ben de Lisi,
Julien Macdonald, Savannah Miller, Jenny Packham, Preen, Aliza
Reger, John Rocha, Ashley Thomas and Matthew Williamson.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties which could impact on the
Group's long-term performance have been reviewed and remain those
detailed on pages 22 to 25 of the Group's Annual Report and
Accounts for 2016. These key risks are:
- Economic environment
- Currency and hedging
- Systems availability and cyber security
- Competition for customers
- Business transformation and strategy
- Supply chain and key suppliers
- Legal and regulatory
- Key personnel
The triggering of Article 50 in March 2017, formally confirming
the UK's intention to exit from EU membership, may lead to
increasing economic and political uncertainty as negotiations
progress. Similarly, the effect of a snap general election could
also create increasing economic and political uncertainty in the
short term. Debenhams will continue to monitor the situation,
assess potential impacts and manage exposures according to its
current risk appetite.
GOING CONCERN
After making enquiries, the directors of Debenhams plc consider
that the Group has adequate resources to continue in operation for
the foreseeable future. For this reason, they have adopted the
going concern basis in preparing the Group's financial
statements.
BOARD OF DIRECTORS
Sergio Bucher was appointed Chief Executive Officer and
succeeded Michael Sharp on 17 October 2016. Lisa Myers was
appointed as a non-executive director on 6 September 2016, and
Nicky Kinnaird was appointed as a non-executive director on 15
November 2016. Dennis Millard stepped down as a non-executive
director on 12 January 2017. The board of directors as at 20 April
2017 is as follows: Sir Ian Cheshire (Chairman), Sergio Bucher
(Chief Executive), Matt Smith (Chief Financial Officer), Suzanne
Harlow (Group Trading Director), Terry Duddy (senior independent
director), Peter Fitzgerald (independent non--executive director),
Stephen Ingham (independent non--executive director), Martina King
(independent non--executive director), Mark Rolfe (independent
non--executive director), Lisa Myers (independent non-executive
director) and Nicky Kinnaird (independent non-executive
director).
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that to the best of their knowledge:
-- the condensed consolidated interim financial statements for
the 26 weeks ended 4 March 2017 have been prepared in accordance
with IAS 34 as adopted by the European Union and includes
information required by DTR 4.2.4R (provides a true and fair view
of the assets, liabilities, financial position and profit or loss
of the issuer, or the undertakings included in the
consolidation);
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
and their impact during the first 26 weeks and description of
principal risks and uncertainties for the remaining 26 weeks of the
year); and
-- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
The directors of Debenhams plc are listed above.
By order of the Board
Sergio Bucher Matt Smith
Chief Executive Chief Financial Officer
20 April 2017
Statements made in this announcement that look forward in time
or that express management's beliefs, expectations or estimates
regarding future occurrences and prospects are "forward-looking
statements" within the meaning of the United States federal
securities laws. These forward-looking statements reflect
Debenhams' current expectations concerning future events and actual
results may differ materially from current expectations or
historical results. Neither the content of the Company's website
nor the content of any website accessible from hyperlinks on the
Company's website (or any other website) is (or is deemed to be)
incorporated into or forms (or is deemed to form) part of this
announcement.
Independent review report to Debenhams plc
Report on the interim condensed consolidated financial
statements
Our conclusion
We have reviewed Debenhams plc's interim condensed consolidated
financial statements (the "interim financial statements") in the
half year results of Debenhams plc for the 26 week period ended 4
March 2017. Based on our review, nothing has come to our attention
that causes us to believe that the interim financial statements are
not prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Consolidated Balance Sheet as at 4 March 2017;
-- the Consolidated Income Statement and Consolidated Statement
of Comprehensive Income for the period then ended;
-- the Consolidated Cash Flow Statement for the period then ended;
-- the Consolidated Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half year
results have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Rules and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half year results, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half
year results in accordance with the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half year results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Rules and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the half year
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
20 April 2017
a) The maintenance and integrity of the Debenhams plc website is
the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial statements since
they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Consolidated Income Statement
For the 26 weeks ended 4 March 2017
Unaudited Unaudited
26 weeks 26 weeks
to to
4 March 27 February Audited 53 weeks to 3 September
2017 2016 2016
-----------------------------------------
Before
exceptional Exceptional
Total Total items items (note Total
5)
Note GBPm GBPm GBPm GBPm GBPm
-------------------------- ----- ------------ -------------- ------------- -------------- ----------
2,
Revenue 3 1,351.1 1,327.2 2,341.7 - 2,341.7
Cost of sales (1,158.5) (1,134.8) (2,039.8) (8.5) (2,048.3)
Gross profit 192.6 192.4 301.9 (8.5) 293.4
Distribution costs (68.7) (63.1) (115.4) (1.8) (117.2)
Administrative expenses (30.0) (29.7) (55.5) (2.1) (57.6)
Operating profit 4 93.9 99.6 131.0 (12.4) 118.6
--------------------------- ----- ------------ -------------- ------------- -------------- ----------
Finance income 7 0.1 2.0 1.4 - 1.4
Finance costs 8 (6.2) (7.8) (14.2) - (14.2)
--------------------------- ----- ------------ -------------- ------------- -------------- ----------
Profit before taxation 87.8 93.8 118.2 (12.4) 105.8
Taxation 9 (16.2) (17.4) (22.3) 2.4 (19.9)
Profit for the financial
period
attributable to owners
of the parent 71.6 76.4 95.9 (10.0) 85.9
Earnings per share attributable to the owners of the parent
Pence Pence per Pence per Pence per
per share share share
share
Basic earnings per
share 10 5.8 6.2 7.8 7.0
Diluted earnings
per share 10 5.8 6.2 7.8 7.0
The notes on pages 21-29 form an integral part of this condensed
consolidated interim financial information.
Consolidated Statement of Comprehensive Income
For the 26 weeks ended 4 March 2017
Note
Unaudited Unaudited Audited
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------------------------- ----- ------------ -------------- --------------
Profit for the financial period 71.6 76.4 85.9
Other comprehensive income/(expense)
Items that will not be reclassified
to the income statement
Remeasurements of pension schemes 15 46.1 20.3 (41.1)
Taxation relating to items that will
not be reclassified (10.0) (4.9) 8.1
36.1 15.4 (33.0)
Items that may be reclassified to the
income statement
Change in value of available-for-sale
investments (0.1) (0.2) (0.8)
Currency translation differences:
* retranslation of overseas subsidiaries 1.0 4.5 7.4
Foreign currency cash flow hedges:
* fair value gains 25.0 38.6 41.8
* recycled and adjusted against cost of inventory (30.0) (12.6) (27.2)
Cash flow hedges reclassified and reported
in the income statement 0.2 0.4 0.8
Taxation relating to items that may be reclassified (0.2) (6.4) (1.5)
(4.1) 24.3 20.5
Total other comprehensive income/(expense) 32.0 39.7 (12.5)
Total comprehensive income for the financial
period 103.6 116.1 73.4
The notes on pages 21-29 form an integral part of this condensed
consolidated interim financial information.
Consolidated Balance Sheet
As at 4 March 2017
Unaudited Unaudited Audited
4 March 27 February 3 September
Note 2017 2016 2016
GBPm GBPm GBPm
---------------------------------- ------- ------------- --------------- --------------
Assets
Non-current assets
Intangible assets 12 978.3 940.5 962.1
Property, plant and equipment 12 646.6 667.9 670.2
Available-for-sale investments 14 1.2 1.9 1.3
Derivative financial instruments 14 8.8 12.3 10.7
Trade and other receivables 18.4 15.8 17.4
Retirement benefit surplus 15 46.8 51.8 6.4
Deferred tax assets 16.8 12.3 20.1
1,716.9 1,702.5 1,688.2
---------------------------------- ------- ------------- --------------- --------------
Current assets
Inventories 318.0 329.1 326.3
Trade and other receivables 78.4 75.6 81.1
Derivative financial instruments 14 40.8 33.6 39.1
Cash and cash equivalents 19 40.0 35.8 56.3
477.2 474.1 502.8
---------------------------------- ------- ------------- --------------- --------------
Liabilities
Current liabilities
13,
Bank overdraft and borrowings 19 (57.2) (63.0) (135.6)
Derivative financial instruments 14 (7.3) (3.8) (7.6)
Trade and other payables (533.0) (531.7) (516.3)
Current tax liabilities (24.0) (23.1) (14.7)
Provisions (7.5) (6.3) (14.0)
(629.0) (627.9) (688.2)
---------------------------------- ------- ------------- --------------- --------------
Net current liabilities (151.8) (153.8) (185.4)
----------------------------------- ------- ------------- --------------- --------------
Non-current liabilities
13,
Bank overdraft and borrowings 19 (199.7) (197.0) (199.7)
Derivative financial instruments 14 (0.9) (1.9) (3.7)
Deferred tax liabilities (55.5) (59.2) (50.5)
Other non-current liabilities 16 (351.9) (349.9) (354.5)
Retirement benefit obligations 15 - - (10.5)
(608.0) (608.0) (618.9)
---------------------------------- ------- ------------- --------------- --------------
Net assets 957.1 940.7 883.9
Equity
Share capital 17 0.1 0.1 0.1
Share premium account 682.9 682.9 682.9
Merger reserve 1,200.9 1,200.9 1,200.9
Reverse acquisition reserve (1,199.9) (1,199.9) (1,199.9)
Hedging reserve 26.2 37.9 31.2
Other reserves (8.4) (12.2) (9.3)
Retained earnings 255.3 231.0 178.0
Total equity 957.1 940.7 883.9
The notes on pages 21-29 form an integral part of this condensed
consolidated interim financial information.
Consolidated Statement of Changes in Equity
For the 26 weeks ended 4 March 2017
Share
capital
and Reverse
share Merger acquisition Hedging Other Retained Total
premium reserve reserve reserve reserves earnings equity
account GBPm GBPm GBPm GBPm GBPm GBPm
GBPm
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 3 September 2016 683.0 1,200.9 (1,199.9) 31.2 (9.3) 178.0 883.9
Profit for the financial
period - - - - - 71.6 71.6
Other comprehensive
(expense)/income
for the financial period - - - (5.0) 0.9 36.1 32.0
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Total comprehensive
(expense)/income
for the financial period - - - (5.0) 0.9 107.7 103.6
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Share-based payment credit - - - - - (0.2) (0.2)
Dividends paid - - - - - (29.4) (29.4)
Purchase of shares by
Debenhams
Retail Employee Trust 2004 - - - - - (0.8) (0.8)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Total transactions with
owners - - - - - (30.4) (30.4)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 4 March 2017 683.0 1,200.9 (1,199.9) 26.2 (8.4) 255.3 957.1
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 29 August 2015 683.0 1,200.9 (1,199.9) 17.9 (16.5) 167.9 853.3
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Profit for the financial
period - - - - - 76.4 76.4
Other comprehensive income
for the financial period - - - 20.0 4.3 15.4 39.7
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Total comprehensive income
for the financial period - - - 20.0 4.3 91.8 116.1
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Share-based payment charge - - - - - 0.8 0.8
Dividends paid - - - - - (29.5) (29.5)
Total transactions with
owners - - - - - (28.7) (28.7)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 27 February 2016 683.0 1,200.9 (1,199.9) 37.9 (12.2) 231.0 940.7
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 29 August 2015 683.0 1,200.9 (1,199.9) 17.9 (16.5) 167.9 853.3
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Profit for the financial
year - - - - - 85.9 85.9
Other comprehensive
income/(expense)
for the financial year - - - 13.3 7.2 (33.0) (12.5)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Total comprehensive income
for the financial year - - - 13.3 7.2 52.9 73.4
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Share-based payment credit - - - - - (0.8) (0.8)
Dividends paid - - - - - (42.0) (42.0)
Total transactions with
owners - - - - - (42.8) (42.8)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 3 September 2016 683.0 1,200.9 (1,199.9) 31.2 (9.3) 178.0 883.9
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
The notes on pages 21-29 form an integral part of this condensed
consolidated interim financial information.
Consolidated Cash Flow Statement
For the 26 weeks ended 4 March 2017
Unaudited Unaudited Audited
26 weeks 26 weeks 53 weeks
to to to
Note 4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
--------------------------------------------- ------- ---------- ------------- -------------
Cash flows from operating activities
Cash generated from operations 18 156.2 187.0 240.2
Finance income - 1.7 0.3
Finance costs (6.7) (7.9) (15.6)
Tax paid (8.7) (1.5) (11.0)
Net cash generated from operating
activities 140.8 179.3 213.9
Cash flows from investing activities
Purchase of property, plant and equipment (22.9) (35.8) (79.3)
Purchase of intangible assets (24.6) (17.7) (47.2)
-
--------------------------------------------- ------- ---------- ------------- -------------
Net cash used in investing activities (47.5) (53.5) (126.5)
Cash flows from financing activities
Repayment of revolving credit facility (75.0) (104.0) (15.0)
Dividends paid (29.4) (29.5) (42.0)
Purchase of shares by Debenhams Retail (0.8) - -
Employee Trust 2004
Finance lease payments (0.6) (1.9) (2.9)
Debt issue costs - (1.1) (1.3)
Net cash used in financing activities (105.8) (136.5) (61.2)
Net (decrease)/increase in cash and cash
equivalents 19 (12.5) (10.7) 26.2
Net cash and cash equivalents at beginning
of financial period 40.8 14.4 14.4
Foreign exchange (losses)/gains on cash
and cash equivalents - (0.3) 0.2
Net cash and cash equivalents at end
of financial period 19 28.3 3.4 40.8
The notes on pages 21-29 form an integral part of this condensed
consolidated interim financial information.
Notes to the financial statements
1 Basis of preparation
This interim report has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 "Interim Financial Reporting" as adopted by
the European Union. The condensed consolidated financial statements
for the 26 weeks ended 4 March 2017 should be read in conjunction
with the annual financial statements for the 53 weeks ended 3
September 2016 which have been prepared in accordance with
International Financial Reporting Standards (IFRSs) including
International Accounting Standards ("IAS") and IFRS Interpretations
Committee ("IFRS IC") interpretations as adopted by the European
Union.
The Group's principal accounting policies used in preparing this
information are as stated in the financial statements for the 53
weeks ended 3 September 2016, which are available on our website
www.debenhamsplc.com. The report of the auditors for the financial
statements for the 53 weeks ended 3 September 2016 was unqualified,
did not contain an emphasis of matter paragraph and did not include
a statement under Section 498 of the Companies Act 2006. The full
financial statements for those 53 weeks have been filed with the
Registrar of Companies.
The Group's interim condensed consolidated financial information
is not audited and does not constitute statutory financial
statements as defined in Section 434 of the Companies Act 2006. The
comparative figures for the 53 weeks ended 3 September 2016 and the
26 weeks ended 27 February 2016 are consistent with the Group's
2016 annual report and financial statements and interim financial
statements respectively.
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 quantitative impact of IFRS 16 on the Group's net assets and
results is being assessed and it is not yet practicable to quantify
the effect on these consolidated financial statements. 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. Other standards and interpretations in
issue, but not yet effective, are not expected to have a material
effect on the Group's net assets or results.
The critical accounting estimates and judgements made by
management in applying the Group's accounting policies are
consistent with those detailed on page 94 of the annual report and
financial statements for the 53 weeks ended 3 September 2016 except
for taxes on income in the interim periods which are accrued using
the tax rate that would be applicable to the expected total annual
profit or loss. The principal risks and uncertainties are set out
on page 13 of this interim report.
2 Gross transaction value
Revenue from concession and consignment sales is required to be
shown on a net basis, being the commission receivable rather than
the gross value achievable 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.
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
------------------------- --------- ------------- -------------
Gross transaction value 1,676.5 1,628.7 2,938.5
A reconciliation of GTV to external revenue is included in note
3.
3 Segmental information
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 within 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.
Segmental analysis of results UK International Total
GBPm GBPm GBPm
26 weeks ended 4 March 2017
Gross transaction value 1,344.7 331.8 1,676.5
Concessions, consignments and staff
discounts (238.4) (87.0) (325.4)
-------------------------------------- -------- -------------- --------
External revenue 1,106.3 244.8 1,351.1
-------------------------------------- -------- -------------- --------
Operating profit 67.5 26.4 93.9
26 weeks ended 27 February 2016
Gross transaction value 1,336.5 292.2 1,628.7
Concessions, consignments and staff
discounts (226.8) (74.7) (301.5)
-------------------------------------- -------- -------------- --------
External revenue 1,109.7 217.5 1,327.2
-------------------------------------- -------- -------------- --------
Operating profit 76.1 23.5 99.6
53 weeks ended 3 September 2016
Gross transaction value 2,386.2 552.3 2,938.5
Concessions, consignments and staff
discounts (454.3) (142.5) (596.8)
-------------------------------------- -------- -------------- --------
External revenue 1,931.9 409.8 2,341.7
-------------------------------------- -------- -------------- --------
Operating profit before exceptional
items 98.0 33.0 131.0
Exceptional items (5.4) (7.0) (12.4)
-------------------------------------- -------- -------------- --------
Operating profit after exceptional
items 92.6 26.0 118.6
Total segmental operating profit may be reconciled to total
profit before taxation as follows:
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
Total operating profit 93.9 99.6 118.6
Finance income 0.1 2.0 1.4
Finance costs (6.2) (7.8) (14.2)
Total profit before taxation 87.8 93.8 105.8
4 Operating profit
The following items have been included in arriving at operating
profit:
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
Amounts of inventory written down during
the financial period 5.3 4.7 7.5
Cost of inventory recognised as an
expense 680.3 676.2 1,153.7
Depreciation and amortisation 55.0 53.3 108.6
Impairment of intangible assets (note
12) - - 2.2
Loss on disposal of property, plant
and equipment 0.2 0.1 0.1
Operating lease rentals 112.3 107.9 220.7
Foreign exchange gains (23.8) (11.1) (24.1)
5 Exceptional items
There were no exceptional items in the 26 weeks ended 4 March
2017 or 26 weeks ended 27 February 2016.
Exceptional items for the 53 weeks ended 3 September 2016
comprise the following:
Irish examinership(1) UK International
GBPm restructuring(2) website(3) Total
GBPm GBPm GBPm
Exceptional cost of
sales 1.9 3.9 2.7 8.5
Exceptional distribution
costs 0.7 1.1 - 1.8
Exceptional administrative
expenses 1.4 0.7 - 2.1
Exceptional items before
taxation 4.0 5.7 2.7 12.4
----------------------------- ---------------------- ------------------ -------------- --------
Taxation on exceptional
items (1.3) (1.1) - (2.4)
----------------------------- ---------------------- ------------------ -------------- --------
Exceptional items after
taxation 2.7 4.6 2.7 10.0
----------------------------- ---------------------- ------------------ -------------- --------
1) The Irish business 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. The Irish business has been restructured resulting in
costs directly related to examinership. These costs included legal
and professional fees, a limited number of redundancy costs and
warehouse dilapidation costs offset by a GBP2.3 million reduction
in the balance of accounts payable at the end of examinership.
2) UK restructuring costs represented the amount incurred for
redundancies and fees within head office.
3) This is the write off of the old International website
intangible asset following the launch of the new International
website in the 2016 financial year.
6 Employment costs
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
--------- -------------
Wages and salaries including restructuring
costs and other termination benefits 188.5 186.5 357.4
Social security cost 11.5 11.5 22.4
Other pension costs 8.5 8.3 17.0
Share-based payments (0.2) 0.8 (0.8)
208.3 207.1 396.0
7 Finance income
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
Interest on bank deposits 0.1 1.4 0.3
Net interest on net defined benefit
pension schemes' liability/asset - 0.6 1.1
0.1 2.0 1.4
8 Finance costs
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
--------- -------------
Interest payable on bank loans and overdrafts 1.4 2.1 3.3
Interest payable on senior notes 5.2 5.2 10.6
Cash flow hedges reclassified and reported
in the income statement 0.2 0.4 0.8
Amortisation of issue costs on loans
and senior notes 0.6 0.7 1.3
Interest payable on finance leases 0.1 - 0.1
Other financing costs - 0.3 -
Capitalised finance costs - qualifying
assets (1.3) (0.9) (1.9)
6.2 7.8 14.2
9 Taxation
The taxation charge for the 26 weeks ended 4 March 2017 is based
on an estimated effective tax rate for the full year of 18.5% (53
weeks ended 3 September 2016: 18.8%), which is lower than the
blended standard rate of corporation tax (19.6%). The difference is
due to the reduction in the future corporation tax rate to 17.0%
(implemented in Finance Act 2016) and other movements in deferred
tax balances.
10 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 period,
excluding any shares purchased by the Company and held as treasury
shares.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The Group has one class of
dilutive potential ordinary shares, those share options granted to
employees where the exercise price is less than the market price of
the Company's ordinary shares during the financial period.
26 weeks to 26 weeks to 53 weeks to
Basic and diluted 4 March 27 February 3 September
earnings 2017 2016 2016
per share
Basic Diluted Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Profit for the
financial
period after taxation 71.6 71.6 76.4 76.4 85.9 85.9
Exceptional items
after
taxation
(note 5) - - - - 10.0 10.0
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Profit for the
financial
period after taxation
- before exceptional
items 71.6 71.6 76.4 76.4 95.9 95.9
Number Number Number Number Number Number
m m m m m m
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Weighted average
number
of shares 1,227.8 1,227.8 1,227.4 1,227.4 1,227.6 1,227.6
Shares held by ESOP
(weighted)
(weighted) (0.7) (0.7) (0.2) (0.2) (0.2) (0.2)
Shares issuable
(weighted) - 0.2 - 3.0 - 0.5
Weighted average
number
of shares used in
calculating
earnings per share 1,227.1 1,227.3 1,227.2 1,230.2 1,227.4 1,227.9
Pence Pence Pence Pence Pence Pence
per share per share per share per share per share per share
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Earnings per share 5.8 5.8 6.2 6.2 7.0 7.0
Earnings per share -
before exceptional
items 5.8 5.8 6.2 6.2 7.8 7.8
11 Dividends
The Company paid a final dividend in respect of the 53 weeks
ended 3 September 2016 of 2.4 pence per share on 24 January 2017.
The directors have resolved to pay an interim dividend in respect
of the 26 weeks ended 4 March 2017 of 1.025 pence per share (27
February 2016: 1.025 pence) which will absorb an estimated GBP12.6
million of shareholders' funds (27 February 2016: GBP12.5 million).
It will be paid on 7 July 2017 to shareholders who are on the
register of members at close of business on 2 June 2017.
12 Intangible assets and property, plant and equipment
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
---------------------------------------- -------- ------------ ------------
Opening net book amount 1,632.3 1,606.8 1,606.8
Additions:
* Intangible assets 26.5 17.6 50.9
* Property, plant and equipment 20.0 34.4 78.8
Foreign currency revaluation 1.3 3.0 6.7
Disposals (0.2) (0.1) (0.1)
Depreciation and amortisation (55.0) (53.3) (108.6)
Impairment loss - - (2.2)
Closing net book amount 1,624.9 1,608.4 1,632.3
Capital commitments contracted but not provided for by the Group
amounted to GBP4.3 million (3 September 2016: GBP6.5 million; 27
February 2016: GBP11.6 million).
13 Bank overdraft and borrowings
On 26 February 2016 the Group refinanced its GBP350.0 million
revolving credit facility, reducing the facility size to GBP320.0
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.
14 Financial risk factors and financial instruments
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 and other price risk. The
condensed interim financial statements do not include all financial
risk management information and disclosures required in the annual
financial statements and they should be read in conjunction with
the Group's annual financial statements as at 3 September 2016.
There have been no changes in risk management procedures and
policies since the year end.
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.
At the end of the reporting period, the Group held the following
financial instruments at fair value:
Level Level Total
1 2
GBPm GBPm GBPm
--------------------------------------------------------------- -------- -------- --------
At 4 March 2017
Assets
Available-for-sale financial investments 1.2 - 1.2
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - 41.5 41.5
* Other forward foreign currency contracts - 8.1 8.1
Total assets 1.2 49.6 50.8
Liabilities
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - (8.2) (8.2)
Total liabilities - (8.2) (8.2)
Level Level Total
1 2
GBPm GBPm GBPm
--------------------------------------------------------------- -------- -------- ----------
At 27 February 2016
Assets
Available-for-sale financial investments 1.9 - 1.9
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - 37.0 37.0
* Other forward foreign currency contracts - 8.9 8.9
Total assets 1.9 45.9 47.8
Liabilities
Derivative financial instruments:
* Interest rate swaps held as cash flow hedges - (0.6) (0.6)
* Forward foreign currency contracts held as cash flow
hedges - (4.7) (4.7)
* Other forward foreign currency contracts - (0.4) (0.4)
Total liabilities - (5.7) (5.7)
At 3 September 2016
Assets
Available-for-sale financial investments 1.3 - 1.3
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - 48.5 48.5
* Other forward foreign currency contracts - 1.3 1.3
Total assets 1.3 49.8 51.1
Liabilities
Derivative financial instruments:
* Interest rate swaps held as cash flow hedges - (0.2) (0.2)
* Forward foreign currency contracts held as cash flow
hedges - (10.6) (10.6)
* Other forward foreign currency contracts - (0.5) (0.5)
---------------------------------------------------------------- ---- ---- ------- -------
Total liabilities - (11.3) (11.3)
The Group's policy is to recognise transfers into and out of
fair value hierarchy levels as of the date of the event or change
in circumstances that caused the transfer. There have been no
transfers of assets or liabilities between levels of the fair value
hierarchy in the current period (26 weeks ended 27 February 2016:
no transfers). None of the Group's financial assets and liabilities
are classed as level 3 within the fair value hierarchy.
During the financial year ended 3 September 2016 the Group
closed out certain forward foreign currency contracts and reset the
contracts to current market rates. As a result of this transaction,
cash amounting to GBP11.2 million was received. The gains on those
forward foreign currency contracts are being recycled from the
hedging reserve as the contracts reach expiry. The Group's
accounting policy for forward foreign currency contracts that
qualify as cash flow hedges is shown on pages 90 and 91 of the
Group's 2016 annual report and financial statements.
Available-for-sale financial investments relate to the Group's
holding at 4 March 2017 of 10% (27 February 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 fair value of Ermes is based on the market price at the
balance sheet date. At 4 March 2017, if the market value of equity
investments had been 10% higher/lower, when all other variables
were held constant:
-- Net profit would have been unaffected as the equity
investments were classified as available-for-sale investments
-- Other reserves would increase/decrease by GBP0.1 million (27
February 2016: GBP0.2 million) for the Group as a result of the
changes in the fair value of available-for-sale investments
The above movement in rates is considered to represent
reasonable possible changes. Other larger or smaller changes are
also possible.
The fair values of any interest rate swaps are calculated as the
present value of the estimated future cash flows. The fair value of
forward foreign currency contracts has been determined based on
discounted market forward currency exchange rates at the balance
sheet date.
There were no material differences between the carrying value of
cash and cash flow equivalents, trade and other receivables, trade
and other payables, current borrowings and lease obligations and
their fair values at the balance sheet date. At 4 March 2017 the
carrying value of the Group's senior notes debt was GBP199.0
million (27 February 2016: GBP198.3 million) and the fair value of
this debt was GBP213.0 million (27 February 2016: GBP197.4
million).
15 Retirement benefit schemes
The Group operates defined contribution pension schemes for its
employees.
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.
In 2015, the Group agreed a recovery plan for the Group's
pension schemes, which was intended to restore the schemes to a
fully funded position on an ongoing basis. Under that agreement,
the Group agreed to contribute GBP9.5 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 2015, the Group agreed to
continue to cover the non-investment expenses and levies of the
pension schemes, including those payable to the Pension Protection
Fund. Employees make no further contributions to the schemes.
Further details of the Group's pension arrangements are set out
in pages 113 to 116 of the annual report and financial statements
for the 53 weeks ended 3 September 2016.
The major assumptions used by the actuary were:
4 March 27 February 3 September
2017 2016 2016
per annum per annum per annum
% % %
-------------------------------------- -------------------- ------------ ------------
Inflation assumption 3.3 3.0 2.9
General salary and wage increase 3.3 3.0 2.9
Rate of increase in pension payments
and deferred payments 3.3 3.0 2.9
Pension increase rate 3.2 2.9 2.8
Discount rate 2.5 3.7 2.1
The amounts recognised in the balance sheet were as follows:
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
-------------------------------------- --- ---------- -------------- --------------
Total market value of assets 1,089.3 809.4 1,057.6
Present value of scheme liabilities (1,042.5) (757.6) (1,061.7)
Net surplus/(deficit) in pension
schemes 46.8 51.8 (4.1)
Analysed as:
DEPP scheme surplus 17.6 19.1 6.4
DRS scheme surplus/(deficit) 29.2 32.7 (10.5)
-------------------------------------------- ---------- -------------- --------------
The movement in the net pension (deficit)/surplus during the
financial period is as follows:
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
------------------------------------- -------- ------------ ------------
Net (deficit)/surplus in the
schemes at the start of the
financial period (4.1) 26.2 26.2
Movement in the financial period:
- Company contributions 5.6 5.5 11.2
- Current service cost (including
expenses) (0.8) (0.8) (1.5)
- Net interest on net defined
benefit asset/liability - 0.6 1.1
- Remeasurements of pension schemes 46.1 20.3 (41.1)
Net surplus/(deficit) in the
schemes at end of the financial
period 46.8 51.8 (4.1)
A retirement benefit surplus is only recognised to the extent
that it is expected to be recoverable in the future.
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.
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
---------------------------------- ------------------- ------------ ------------
Increase in schemes' liabilities
arising from:
- a 0.5% increase in inflation 115.7 84.1 117.8
- a 0.5% reduction in the 126.1 88.0 128.4
discount rate
- a one year increase in 27.9 20.3 28.4
life expectancy
A 0.5% reduction in the inflation assumption, a 0.5% increase in
the discount rate assumption and a one year reduction in the life
expectancy assumption would result in an equal and opposite change
in the schemes' liabilities.
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the
assumptions may be accumulated.
16 Other non-current liabilities
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
Property lease incentives received 351.9 349.9 354.5
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.
17 Share capital
GBP Number
----------------------------------------- -------- --------------
Issued and fully paid - ordinary shares
of GBP0.0001 each
At 27 February 2016 128,685 1,286,852,540
Allotted under share option schemes 1 9,707
At 3 September 2016 128,686 1,286,862,247
Allotted under share option schemes - 1,134
At 4 March 2017 128,686 1,286,863,381
18 Cash generated from operations
26 weeks 26 weeks 53 weeks
to to to
4 March 27 February 3 September
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------------ --------- ------------- -------------
Profit before taxation 87.8 93.8 105.8
Depreciation and amortisation (note
12) 55.0 53.3 108.6
Impairment of intangible assets (note
12) - - 2.2
Loss on disposal of property, plant
and equipment 0.2 0.1 0.1
Share-based payment (credit)/charge (0.2) 0.8 (0.8)
Fair value (gains)/losses on derivative
instruments (7.6) 2.2 (7.0)
Net movements in provisions (6.5) (0.1) 7.6
Finance income (note 7) (0.1) (2.0) (1.4)
Finance costs (note 8) 6.2 7.8 14.2
Cash received on close out of
forward foreign currency contracts (note
14) - 11.2 11.2
Pension current service cost (note 15) 0.8 0.8 1.5
Cash contributions to pension schemes
(note 15) (5.6) (5.5) (11.2)
Net movement in other long-term receivables (0.5) 0.3 (0.1)
Net movement in other non-current liabilities (2.6) 9.2 13.7
Changes in working capital
Decrease in inventories 8.4 2.5 5.0
Decrease/(increase) in trade and other
receivables 2.8 2.5 (1.9)
Increase/(decrease) in trade and other
payables 18.1 10.1 (7.3)
Cash generated from operations 156.2 187.0 240.2
Cash payments in relation to exceptional costs were GBP6.7
million during the 26 weeks ended 4 March 2017
(26 weeks ended 27 February 2016: GBPnil; 53 weeks ended 3
September 2016: GBP3.3 million).
19 Analysis of changes in net debt
At At
3 September Non-cash 4 March
2016 Cash flow movements 2017
GBPm GBPm GBPm GBPm
------------------------------- ------------- ------------ ------------ ---------
Analysis of net debt
Cash and cash equivalents 56.3 (16.3) - 40.0
Bank overdrafts (15.5) 3.8 - (11.7)
------------------------------- ------------- ------------ ------------ ---------
Net cash and cash equivalents 40.8 (12.5) - 28.3
Debt due within one year (118.9) 75.0 (0.3) (44.2)
Debt due after one year (197.3) - (0.3) (197.6)
Finance lease obligations due
within one year (1.2) 0.7 (0.8) (1.3)
Finance lease obligations due
after one year (2.4) (0.1) 0.4 (2.1)
(279.0) 63.1 (1.0) (216.9)
20 Related parties
There have been no significant related party transactions during
the period.
21 Financial information
Copies of the statutory accounts are available from the
Company's registrars, Equiniti Limited, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA (Tel: 0371 384 2766), and at the
Company's registered office, 10 Brock Street, Regent's Place,
London, NW1 3FG.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGUBGCUPMGQB
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