TIDMDEB
RNS Number : 3898L
Debenhams plc
19 April 2018
19 April 2018
DEBENHAMS PLC - INTERIM RESULTS
Accelerating Debenhams Redesigned strategy in a fast-changing
market
Debenhams plc, the international department store destination,
today announces interim results for the 26 weeks to 3 March
2018.
Strategic Update
Accelerating Debenhams Redesigned strategy.
-- Strengthened senior management team with key hires at all
levels including new MD of Fashion & Home
-- Delivered Digital growth ahead of the market, driven by
website improvements and mobile platform acceleration
-- Encouraging results from new store format trials, roll out of
activity to cover c.35% of UK store sales base
-- Established partnerships in furniture with Maisons du Monde
and Swoon, as we continue to test profitable opportunities to
deliver exciting new products and services to our customers
Focusing on five priority actions to mitigate fast-changing
market conditions and drive progress in FY2019:
1. Delivering above-market digital sales growth driven by technological change focused on mobile
2. Sustaining leadership in Beauty through innovative customer
engagement both in-store and online
3. Revitalising fashion product under new leadership, with Designers@Debenhams refresh under way
4. Changing in-store experience for customers both through
redesigned service model and store presentation
5. Accelerating cost-reduction activity to underpin additional
annualised savings of GBP20m identified in January 2018
Financial and Operational Highlights
26 weeks to 3 March 2018
(GBPm) H1 FY18 HI FY17 YOY % change
Group gross transaction
value 1,650.1 1,676.5 (1.6%)
Group EBITDA* 103.5 149.1 (30.6%)
Underlying profit before
tax* 42.2 87.8 (51.9%)
Reported profit before tax 13.5 87.8 (84.6%)
Underlying EPS* (p) 2.8 5.8 (51.7%}
Dividend per share (p) 0.50p 1.025p (51.2%)
Net Debt 248.2 216.9 14.4%
---------------------------- -------- -------- -------------
*before exceptional charges of GBP28.7m
-- Like-for-like sales ("LFL") declined 2.2% with constant
currency LFL at (2.8%), against a challenging UK market background.
The final trading week was disrupted by extreme weather conditions,
temporarily closing almost 100 stores during our New Season
Spectacular. This is estimated to have reduced LFL by c.1.0% for
the half
-- Digital growth of +9.7% continued to outpace the overall
market, driven by further strong growth in mobile and improved
conversion rates. Our Destination categories of Beauty and Food
also delivered positive growth, whilst we have held share in a weak
Clothing market
-- A disappointing Christmas season saw an increase in
competitor discounting. Group gross margin rate declined 160 bps
reflecting clearance of Gift ranges and management of seasonal
stocks in reaction to this environment
-- This has impacted UK EBITDA, which declined 39.3% whilst
International EBITDA grew by 2.6%, with Magasin du Nord in Denmark
delivering further progress
-- Underlying profit before tax of GBP42.2m is stated before
exceptional charges in relation to Debenhams Redesigned strategy of
GBP28.7m but after higher depreciation costs associated with
investment in the strategy
-- Net debt was GBP248.2m and the Group had headroom of
GBP271.8m on its committed GBP520m financing facilities
-- The Board has decided, in line with our stated priorities for
capital and targeted earnings cover of around 2x, that the interim
dividend will be rebased to 0.50p per share
-- Based on our current view of the second half of the financial
year, FY2018 PBT is expected to be at the lower end of the current
range of broker forecasts of GBP50m to GBP61m[1]
Sergio Bucher, CEO, commented:
"The UK retail environment is undergoing profound change, and
with the help of some important new senior hires, we are moving
faster and working harder than ever to ensure Debenhams is
well-placed to outperform in this new retail world. We expect no
help from the external environment, so we are focused on delivering
our Debenhams Redesigned strategy, aiming to mitigate difficult
trading conditions through self-help initiatives.
"It has not been an easy first half and the extreme weather in
the final week of the half had a material impact on our results.
But I am hugely encouraged by the progress we are making to
transform Debenhams for our customers. Our digital growth continues
to outpace the market while our store in Stevenage was recently
named best new store at the Retail Week Awards. We are holding
share in a difficult fashion market, and in other categories such
as furniture, exciting new partnerships have the potential to
transform our offer. We approach the remainder of the year mindful
of the very challenging market conditions, but with confidence that
we have a strong team and the right plan to navigate them and
return Debenhams to profitable growth."
Presentation
A presentation for analysts and investors will be held today
(Thursday 19 April 2018) at 8.45am UK time at Deutsche Bank,
Winchester House, 75 London Wall, London, EC2N 2DB.
The presentation will be webcast live at
https://edge.media-server.com/m6/p/ddkmumqe
Enquiries
Analysts and Investors
Debenhams plc
Matt Smith, Debenhams plc
Katharine Wynne, Debenhams plc 020 3549 6304
Media
Brunswick Group
Tim Danaher, Brunswick Group 020 7404 5959
Helen Smith, Brunswick Group 020 7404 5959
STRATEGIC AND OPERATIONAL REVIEW OF THE HALF YEAR
Debenhams announced a new strategy in April 2017, Debenhams
Redesigned, which is transforming our business to fit the way our
customers' shopping habits are changing. The pace of change in
retail has quickened and in response we have accelerated our plans,
while focusing on measures to mitigate the difficult trading
environment.
Debenhams Redesigned is defined by leadership in Social Shopping
- shopping as a fun leisure activity centred around mobile
interaction with our customers. We aim to drive Growth by becoming
a Destination, Digital and Different, and Efficiency by simplifying
and focusing our operations.
Below we briefly outline progress and plans within the framework
of our strategy, particularly focusing on how we can deliver five
key priorities identified for the coming year:
-- Deliver above-market growth in digital sales, as a result of
investment in mobile, digital marketing and improved customer
experience
-- Drive growth in Beauty through a new strategy that will build
closer interaction with our customers via innovative digital and
social activity, including the next generation Beauty Club
-- Focus on improving our fashion product, revitalising our
Designer portfolio and offering exciting brands and relevant
product with more frequent newness in our ranges
-- Change the in-store experience for our customers; both
through "Service Redesigned" and upgraded presentation of our
fashion and accessories departments
-- Deliver cost reduction activity including restructuring in
stores and at our support centre, to underpin the additional GBP20
million net cost savings announced in January 2018, and to create a
more flexible operating model
DIGITAL
What we have done
-- Digital sales grew 9.7% in the half, which was above current
market growth[2], with EBITDA growth of 10.3%. Digital sales
accounted for 21% of our UK business in the first half, with strong
growth in Beauty, up 16% year on year. Confidence in our improved
service supported an acceleration in digital sales over the
Christmas peak, with two year growth of c30% in the key period.
-- Our mobile site is our largest and fastest-growing 'store'
now attracting more than 150 million visits and with annualised
revenues approaching GBP250 million. Mobile demand has continued to
drive performance, with orders via smartphones growing 35% in H1,
and now accounting for 33% of digital sales. Our partnership with
Mobify to implement progressive web application technology -
focusing initially on the speed of our mobile website - has helped
to drive a 16% improvement in smartphone conversion rates. We have
also launched it on our Irish and International websites with an
even more positive response.
-- We have upgraded photography and presentation in product
categories including lingerie, swimwear, menswear and womenswear.
Separately, our online analytics, multi-variant testing and agile
development teams have identified and driven >300 small
enhancements to our mobile shopping experience.
What we are going to do
-- One of our priorities is to deliver above-market growth in
digital sales. Alongside the roll-out across categories of better
photography and clear, complete product information, we have just
launched Mobify on tablets, which account for c.25% of digital
sales, delivering a similar improvement in download speed. Early
results show a similar positive response from customers. Later this
year, we will be able to offer the same benefits to desktop
users.
-- The next area of focus is on our search engine, with more
flexibility embedded into the function to deliver faster "get to
product" results. Currently only 60% of browsing customers reach
this point in the transaction and each percentage improvement
should deliver a meaningful sales contribution.
-- To support this we plan to take a more aggressive approach in
digital marketing, particularly where there is an opportunity to
drive store traffic. Already one third of digital transactions
include a store as part of the journey. The ability to interact
with mobile customers - via push notifications, for example - will
support our ambition to drive faster digital growth as well as to
personalise customer relationships.
DESTINATION AND DIFFERENT
BEAUTY PRODUCTS AND SERVICES
What we have done
-- In a competitive and promotional beauty market, we delivered
positive growth in the first half.
-- The successful relaunch of our Beauty Club loyalty programme
last year has delivered an increased base of engaged customers, at
1.3 million.
-- We have also launched our first three blow LTD. in-store
departments, offering a suite of beauty services as the first stage
of our plan to deliver a differentiated and disruptive proposition
in this large and fragmented market.
What we are going to do
-- We are a leader in the Premium Beauty market, with an
ambition to grow our sales to GBP1 billion, and have identified
categories where we can extend our offer: for example, bringing a
wider choice of brands in smaller markets and expanding in the
growing male grooming sector.
-- An important part of our future plans is to increase digital
and social interaction with our customers. To this end, we plan to
launch the next generation interactive Beauty Club, building on our
improved mobile capabilities, later this year. Meanwhile, six
beauty brand pages are launching online this month with enhanced
search visibility.
-- Additionally, we are working on the concept for our Beauty
Hall of the future, which will be an innovative, interactive and
digitally-integrated format, including beauty services and an
events space, launching in two stores this autumn. Elements of this
will be rolled across a further 20 stores in time for the Christmas
peak.
FASHION & HOME
What we have done
-- We have strengthened the senior management team in Fashion
and Home with key hires, including Steven Cook as MD of this
business unit, who was previously at Canadian department store
retailer Holt Renfrew.
-- Our focus on reducing overlap between brands has supported
maintained market share in womenswear[3] in the first half, which
we aim to build on with progressive product improvements this
season and next.
-- In particular, we have seen a strong performance this season
in certain brands where we have delivered a clear product point of
view and a tighter brand focus. This includes Star by Julien
Macdonald - one of our more long-term Designer collaborations - and
Mantaray, which is a core brand but with a clearly differentiated
handwriting, where we have extended more fashion-led product
further down the chain.
What we are going to do
-- One of our five priority actions is to improve our fashion
product offer. Under the new team, we will deliver progressive
improvement in our fashion ranges, with a significant step forward
next season. Our ongoing investment to deliver a more flexible and
speedy supply chain will deliver more frequent newness in season -
which will encourage our customers to visit more frequently - and
importantly, more opportunity to repeat our best sellers. As an
example of fast turnaround of new product, this season we are
testing a curated collection of European brands, Brand MRKT,
available online and in 45 stores, which has had a very positive
early response.
-- A refresh of Designers@Debenhams is under way. In line with
our plans to adopt a more robust approach to brand management, we
will be phasing out our long-standing collaborations with designers
John Rocha and Jeff Banks. Our new season Studio by Preen ranges
will offer upgraded premium fabrics whilst maintaining affordable
price points and in May we will launch a capsule Designer range
online and in flagship stores with award-winning London Fashion
Week designer, Richard Quinn.
-- Currently, our own bought furniture business is loss making
and sub-scale. We intend progressively to phase out this category,
focusing on our core strength in home accessories and soft
furnishings, whilst developing a series of partnerships with
successful furniture retailers such as Maisons du Monde and online
pure-player Swoon. The first trial locations have opened in
Westfield White City, Manchester and Birmingham.
MEETME@DEBENHAMS
What we have done
-- Food has grown 10% in H1 driven by further roll-out of new
offers and operational improvements driven by our new food services
team.
-- We have tested a new food concept, Loaf & Bloom, in two
locations and also continued the roll-out of third party formats
with seven new offers.
-- With four food offers now open at our Stevenage store,
including our first Nando's, this category has outperformed
expectations even more than our fashion and home offer and
currently accounts for c.30% of sales in this location, well ahead
of our target company penetration of c10%.
What we are going to do
-- We are continuing to refine the trial of Loaf & Bloom,
which is now out-performing the previous food service offer it has
replaced.
-- We are scoping the potential for roll-out of this format, in
the context of the broader opportunity we see in health and
wellbeing categories.
-- We are also testing a new own bought format that has
potential in locations with a more traditional catchment, which
will offer a fresh spin on some classic British dishes. We will
continue to roll out third party food brands, with a further 10 new
offers in H2.
SIMPLIFY AND FOCUS TO DELIVER EFFICIENCY
OPERATING MODEL
What we have done
-- We have begun to implement a new operating model to simplify
processes and introduce a flatter management structure which will
support faster decision-making. In the first phase, we have removed
320 store management roles, and plan to reinvest some of the
savings in customer-facing staff. We have reduced the number of
staff grades in our UK support centres from 17 to nine, and
consolidated our London office from five floors to four, reducing
occupancy costs in the building by approximately 20%.
-- Following the successful roll-out of Direct-to-Floor
distribution, we have also activated the first stage of the
automation of our distribution centres. Certain stores are now
receiving their deliveries fully sorted by division, making
processing and floor replenishment in stores much more
effective.
-- Alongside reducing tasks to allow store colleagues to be more
customer-facing, we have launched a 'Service Redesigned' programme
with dedicated training and incentives and a mystery shopping
programme. As a result we have maintained the double digit
improvement in net promoter scores as reported in October.
What we are going to do
-- As announced in January, this restructuring activity, which
is continuing, is expected to underpin the additional annualised
savings of GBP20 million, of which GBP10 million will be delivered
in H2, and the balance next year.
-- We launched a new Central Planning function in February 2018
which is focusing on the way we merchandise and plan ranges more
closely to the customer.
-- This is an important part of our plan to build our ranges
online first, using data analytics.
REAL ESTATE STRATEGY
What we have done
-- We announced a year ago that we had undertaken a review of
our UK real estate and that as a result we had identified up to 10
stores that could become unprofitable over time and would be
reviewed for closure. We have closed the first two of these, in
Farnborough and Eltham, in January 2018. We also opened one new
store at Wolverhampton.
-- For our continuing estate we have learnt some important
lessons from our newest "test lab" store at Stevenage where we have
adopted an operating model that is cheaper and more flexible than
our traditional store model.
-- At our Uxbridge store, we have reduced the store footprint by
20% with a commensurate reduction in rent, and refitted the
continuing store along similar lines to Stevenage. Since its
relaunch in November the store is tracking ahead of target, with
store EBITDA outperforming the chain average by approximately
20%.
What we are going to do
-- Our average store lease length stands at 18 years with low
average rents per square foot. We continue to look forward, taking
into account channel shifts, to assess the future profitability of
certain more marginal stores. Currently, we do not see any material
change to our existing store closure plans. However, we will keep
this under review and in the meantime approximately 25 stores will
come up for lease renewal in the next five years, providing an
opportunity to mitigate future rental commitments.
-- We are also in consultation with landlords about further
opportunities to right-size a number of stores, following the
successful model at Uxbridge. We see potential for a total of at
least 30 stores to be right-sized under this approach, with
Wimbledon the next location to proceed. At the same time, we
continue to develop partnership opportunities, such as the existing
trial with Sweat! Gyms, that will allow us to make more effective
use of low density footage.
-- We plan to modernise a further four stores this year, as well
as opening a new store containing the prototype for our Beauty Hall
of the Future at Watford early in FY2019. We have conducted
remerchandising trials in some existing stores based on the fashion
layout tested in our Stevenage store. For a small capital outlay we
have seen a mid-single digit uplift in the departments affected. We
plan to apply these principles across all fashion and home
departments in three stores this season, with a further 15-20 ready
for autumn/winter 18. These initiatives will be delivered within
our current capex plans.
INTERNATIONAL UPDATE
Debenhams' International business accounted for c.20% of Group
GTV and over 30% of EBITDA in H1 2018.
What we have done
-- Our largest international profit centre, Magasin du Nord in
Denmark, grew GTV by 4% and EBITDA by 6% to GBP20.1 million,
building on its consistent track record of good sales and profit
improvement. This performance was supported by a new food hall in
the Copenhagen flagship as well as further upgrading of the beauty
hall, and very strong digital growth.
-- Our Irish stores have suffered some of the same market
pressures as the UK but nevertheless continue to benefit from the
restructuring achieved in 2016.
-- Our core Middle Eastern franchise markets have continued to
suffer a difficult geo-political climate but remain an important
part of our future strategy. We launched our first Southern
Hemisphere store with our franchise partner in Australia in
Melbourne last September.
-- We are continuing to exit low-profit, low-growth activities
and markets - three in this half - as we focus on improving the
profitability of our International operations.
What we are going to do
-- Magasin du Nord plans to become the destination for the best
Scandinavian brands to the world online, leveraging its fulfilment
and operating model. As well as opening a new Danish store at
Aalborg later this year, Magasin will launch click and collect
across its chain. New digital market entries in both Sweden and
Norway are planned over the next two years.
-- We are cementing our franchise focus on strategic markets in
the Middle East, SE Asia and Australia where we have strong long
term partnerships and see multi-channel opportunity. Our new
franchise service model offers our continuing partners better
visibility of product and improved seasonal and continuity ranges.
We have just opened our largest international store at the Avenues,
Kuwait, applying some of the lessons from our UK "test lab" at
Stevenage.
-- We have seen rapid growth in our emerging brand
representation on third party sites, particularly for Faith shoes
and B by Ted Baker lingerie. Our Baker lingerie and childrenswear
ranges will soon be available on Ted Baker's own website. We intend
to build on these differentiated brands with international appeal
that can leverage our resource and infrastructure to be marketed
both inside Debenhams and via selected external partners.
FINANCIAL REVIEW OF THE HALF YEAR
FINANCIAL SUMMARY
26 weeks to 26 weeks to % change
3 March 4 March
2018 2017
---------------------------------- -------------- -------------- ----------
Gross transaction value(1,2) GBP1,303.3m GBP1,344.7m (3.1%)
UK GBP346.8m GBP331.8m +4.5%
International (1.6%)
Group GBP1,650.1m GBP1,676.5m
---------------------------------- -------------- -------------- ----------
Statutory revenue(1,2) GBP1,065.9m GBP1,106.3m (3.7%)
UK GBP253.3m GBP244.8m +3.5%
International (2.4%)
Group GBP1,319.2m GBP1,351.1m
---------------------------------- -------------- -------------- ----------
Group like-for-like sales
movement(3) (2.2%)
---------------------------------- -------------- -------------- ----------
Group gross margin movement(4) (160bps)
---------------------------------- -------------- -------------- ----------
EBITDA(1,5,6) GBP71.6m GBP118.0m (39.3%)
UK GBP31.9m GBP31.1m +2.6%
International
Group GBP103.5m GBP149.1m (30.6%)
---------------------------------- -------------- -------------- ----------
Operating profit(1,6) GBP19.7m GBP67.5m (70.8%)
UK GBP26.8m GBP26.4m +1.5%
International
Group GBP46.5m GBP93.9m (50.5%)
---------------------------------- -------------- -------------- ----------
Underlying Profit before tax(6) GBP42.2m GBP87.8m (51.9%)
---------------------------------- -------------- -------------- ----------
Exceptional items(6) (GBP28.7m) - (100.0%)
---------------------------------- -------------- -------------- ----------
Reported Profit before tax GBP13.5m GBP87.8m (84.6%)
---------------------------------- -------------- -------------- ----------
Underlying earnings per share(6) 2.8p 5.8p (51.7%)
---------------------------------- -------------- -------------- ----------
Basic earnings per share 0.9p 5.8p (84.5%)
---------------------------------- -------------- -------------- ----------
Dividend per share 0.50p 1.025p (51.2%)
---------------------------------- -------------- -------------- ----------
3 March 4 March
2018 2017
---------------------------------- -------------- -------------- ----------
Net debt GBP248.2m GBP216.9m
---------------------------------- -------------- -------------- ----------
Net debt : EBITDA (last 12
months) 1.4x 0.9x
---------------------------------- -------------- -------------- ----------
Notes to the above table and to all references in this
statement:
1. UK operating segment comprises stores in the UK and digital
sales to UK addresses. International operating segment comprises
the international franchise stores, the owned stores in Denmark and
the Republic of Ireland and digital 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 digital
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).
6. Before exceptional items, comprising costs associated with
the Strategic review and the restructure of Warehouses and
Logistics.
SEGMENTAL PERFORMANCE
UK
Gross transaction value (GTV) for the UK segment decreased by
3.1% to GBP1,303.3 million and reported revenue reduced by 3.7% to
GBP1,065.9 million. The GTV decline was a result of a volatile and
highly competitive market throughout the period, particularly seen
through weaker demand in areas of more discretionary spend. This
was exacerbated by extreme weather conditions at the tail end of
the half during a key promotional final week, where heavy snow
temporarily closed almost 100 stores (including those in Ireland).
This had a c.1% negative impact on the first half like-for-like
sales performance. Despite the difficult backdrop, we have managed
to grow sales in our Destination categories, with growth in food
and beauty categories over last year of 10% and 1%
respectively.
In response to competitor discounting, we have managed inventory
tightly through additional tactical promotional activity. However,
the first week of post-Christmas Sale was below expectations
despite further markdown investment, particularly in the highly
seasonal Gift category. This has been reflected in weaker gross
margins, but as a result we have exited the season with a clean
stock position, and in line with last year.
EBITDA before exceptional charges decreased by 39.3% to GBP71.6
million as a result of the disappointing sales, and additional
markdown required. Operating profit before exceptional costs for
the year, after increased depreciation costs arising from capital
expenditure as we invested in our Debenhams Redesigned strategy,
decreased by 70.8% to GBP19.7 million.
International
In the International segment gross transaction value of GBP346.8
million was 4.5% higher than last year and reported revenue
increased by 3.5% to GBP253.3 million. This has been driven by an
improvement in performance from Magasin du Nord, which has
benefited from strong digital growth, and together with the
Republic of Ireland, was supported by stronger Euro and Danish
Kroner exchange rates. On a constant currency basis, International
gross transaction value increased by 1.8%.
International EBITDA grew by 2.6% to GBP31.9 million, with
operating profit increasing by 1.5% to GBP26.8 million as a result
of the sales growth.
GROUP SALES AND PROFITS
Sales and revenue
Group gross transaction value decreased by 1.6% to GBP1,650.1
million whilst Group revenue decreased by 2.4% to GBP1,319.2
million. Group like--for--like sales decreased by 2.8% on a
constant currency basis and 2.2% as reported.
The constant currency like--for--like sales growth reflects the
mix from stores to digital, with like-for-like digital growth of
9.7%, with overall digital representing 18.4% of group gross
transaction value (2017: 16.6%). The components of the gross
transaction value decrease of 1.6% and like--for--like sales
decline of 2.2% are shown below:
UK stores (4.1%)
UK digital +1.1%
International +0.2%
Like-for-like sales - constant (2.8%)
currency
Exchange rate impact
+0.6%
--------
Like-for-like sales - reported (2.2%)
New UK space +0.3%
Franchise/Wholesale +0.3%
--------
GTV movement (1.6%)
--------
Group own bought mix decreased from 74.5% in 2017 to 72.5%
mainly as a result of the movement in the UK mix, with the sales
growth from Concessions, especially in food, increasing at a faster
rate.
Operating profit
Group margin rate has been significantly impacted by the
additional markdown in response to competitive discounting and to
ensure a clean stock position for the new season. This mitigates
some of the momentum we have achieved over the past three years
where 240 bps of markdown savings were delivered. The 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 and combined with the
additional markdown this has resulted in a gross margin rate
reduction of 160 bps.
Costs increased by 1.5% driven by the impact of foreign exchange
rates and growth in digital, although efficiencies continue to be
realised in this channel. On a constant currency basis, total costs
increased by 1.0%. As part of our plan to simplify and focus our
operations, we have been working on a new, more flexible operating
model that will result in reorganisation and restructuring activity
both in our stores and in our support centre. As identified in
January 2018, as a result of this and a review of central costs, we
expect to generate further annualised savings of cGBP20 million, of
which cGBP10 million will be realised in H2 FY2018.
Depreciation and amortisation increased by 3.3% to GBP57.0
million, reflecting investment in capital expenditure over the last
few years.
As a result of the above, Group operating profit before
exceptional costs of GBP46.5 million was 50.5% below last year for
the 26 weeks to 3 March 2018.
Net finance costs
Net finance costs decreased by 29.5% to GBP4.3 million,
benefiting from a GBP1.0 million pension valuation credit
associated with the pension surplus in accordance with IAS 19
revised "Employee benefits" (2017: GBPnil).
Exceptional items
Total exceptional items before taxation recognised during the 26
weeks ended 3 March 2018 in relation to the strategic review and
restructuring were GBP28.7 million (26 weeks ended 4 March 2017:
GBPnil; 52 weeks ended 2 September 2017: GBP36.2 million).
During 2017, the Group announced a new strategy, Debenhams
Redesigned, and embarked on a period of significant change,
investment and innovation. During the 26 weeks ended 3 March 2018,
the following exceptional costs were incurred relating to that
change:
GBPm
Strategic review and restructuring 15.1
Strategic review of operating
model 7.1
Strategic warehouse restructuring 6.5
Total exceptional charges 28.7
a) Strategic review and restructuring
Given the significant changes that are taking place across the
retail sector and aligned to the Debenhams Redesigned strategy the
Group is reviewing all of its operations, focusing on improving
productivity and restructuring to ensure we are well positioned for
the future. Following this review the Group has recognised non-cash
exceptional costs of GBP15.1 million in relation to impairment of
property, plant and equipment, onerous lease commitments and
write-off legacy IT system assets.
b) Strategic review of the operating model
During the 26 weeks ended 3 March 2018, as part of the Debenhams
Redesigned strategy to simplify and focus the business, the Group
developed a new, more flexible operating model resulting in
reorganisation and restructuring activity both in stores and the
support centres. Exceptional costs of GBP5.2 million relating to
redundancies, recruitment, professional fees and directly
attributable Human Resources staff time were recognised. This
activity will continue into the second half of the year and as a
result, in order to encourage more collaborative working the fifth
floor of the London support centre will no longer be required. In
January 2018 we agreed to sublet that space and as a result
incurred a GBP1.9 million charge relating to the write-off of
assets no longer required and associated legal fees.
c) Strategic warehouse restructuring
During 2017 the Group embarked on a strategic warehouse
restructuring which included warehouse automation and the closure
of its distribution centre at Northampton and certain regional
warehousing facilities. Total exceptional items before taxation
recognised during the 26 weeks ended 3 March 2018 in relation to
the strategic warehouse restructuring were GBP6.5 million (26 weeks
ended 4 March 2017: GBPnil; 52 weeks ended 2 September 2017:
GBP12.7 million).
Profit before tax
Underlying profit before tax before exceptional items decreased
by 51.9% to GBP42.2 million (2017: GBP87.8 million). Reported
profit before tax after exceptional items decreased by 84.6% to
GBP13.5 million (2017: GBP87.8 million).
Taxation
Taxation excluding the impact of exceptional items decreased
from GBP16.2 million last year to GBP7.7 million, principally due
to a decrease in reported profits. The effective tax rate excluding
the impact of exceptional items of 18.2% was broadly level with
last year.
Profit after tax
Profit after tax but before exceptional items decreased by 52.5%
to GBP34.0 million. Profit after tax after accounting for
exceptional items decreased by 84.9%.
Share of loss of non-integral associate
On 5 September 2017, the Group acquired a stake in blow LTD. for
a cash consideration of GBP7.5 million. For the period from
acquisition to 3 March 2018, the Group incurred a GBP0.5m charge
relating to the share of losses of blow LTD.
Earnings per share
Underlying basic and diluted earnings per share, before
exceptional items, decreased by 51.7% to 2.8 pence. The basic
weighted average number of shares in issue increased from 1,227.1
million last year to 1,227.8 million and the diluted weighted
average number of shares increased from 1,227.3 million to 1,232.4
million. Reported basic and diluted earnings per share decreased by
84.5% to 0.9 pence.
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 Debenhams
Redesigned strategy. Then, we pay our shareholders a dividend,
whilst as we communicated in October 2015, we continue to have a
medium--term financial leverage target to reduce net debt.
Operating cash flow before financing and taxation decreased from
GBP108.7 million to GBP63.1 million, driven by a reduction in
EBITDA and increased capital spend, partly offset by timing
benefits in working capital which are expected to reverse in the
remainder of the year.
Cash flow generation, the uses of cash and the movement in net
debt are summarised below.
GBPm 26 weeks 26 weeks
to 3 Mar to 4 Mar
2018 2017
EBITDA 103.5 149.1
Working capital 38.2 7.1
---------- ----------
Cash generated from operations 141.7 156.2
Capital expenditure (60.3) (47.5)
Exceptional items (10.8) -
Investment in associate (7.5) -
---------- ----------
Operating cash flow before financing
& taxation 63.1 108.7
Taxation (0.4) (8.7)
Financing (4.9) (6.7)
Dividends paid (29.4) (29.4)
Other movements (0.7) (1.8)
---------- ----------
Change in net debt 27.7 62.1
Opening net debt 275.9 279.0
Closing net debt 248.2 216.9
Capital expenditure
Capital expenditure was GBP60.3 million during the half compared
to GBP47.5 million in the same period last year. This is in line
with our plans and is due to an increased focus on warehouse
automation.
Inventory
Stock levels were managed tightly during the first half,
reflecting the requirement to exit the season clean despite the
tough trading environment. Total stock value increased by 0.1% to
GBP318.3 million. Terminal stock of 2.9% was in line with our
historical range of 2.5% to 3.5%. We continue to target working
capital efficiencies.
Dividends
Total cash paid in dividends of GBP29.4 million related to the
2017 final dividend of 2.4 pence per share that was paid to
shareholders on 19 January 2018.
The directors have resolved to pay an interim dividend in
respect of the 26 weeks ended 3 March 2018 of 0.50 pence per share
(4 March 2017: 1.025 pence) which will absorb an estimated GBP6.1
million of shareholders' funds (4 March 2017: GBP12.6 million). It
will be paid on 6 July 2018 to shareholders who are on the register
of members at close of business on 8 June 2018.
Net debt
The Group's net debt position as at 3 March 2018 of GBP248.2
million was GBP31.3 million higher than at the same point last year
(2017: GBP216.9 million).
The ratio of net debt to EBITDA of 1.4 times compares with 0.9
times at the same point last year, the increase in the ratio is a
result of the movement in profits this year.
The Group had net debt headroom of GBP271.8 million at 3 March
2018. 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 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 ("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 3 March 2018 was GBP91.5 million (4
March 2017: net surplus of GBP46.8 million). The surplus was driven
by a reduction in scheme liabilities.
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 the
same 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 GBP5.0 million per annum to the pension
schemes for the period from 1 September 2017 to 31 March 2022. The
next actuarial valuation is at 31 March 2020.
The agreement replaced an agreement made in 2015 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 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.
GUIDANCE FOR FY2018
Guidance for FY2018 has been revised and is shown below.
Following the shortfall in H1 gross margin as flagged in January,
full year gross margin guidance is revised to c. (100bps) from c.
(25bps). We have revised cost growth from c. 1% growth to growth of
0% to 1%. We have revised expected capital expenditure from GBP150
million to GBP140 million, reflecting revised priorities for
spending as indicated in January. Other guidance is broadly
unchanged.
Gross margin c. (100 bps)
Total cost growth +0% to +1%
Depreciation & amortisation c.GBP115m
Net finance costs GBP10-GBP12million
Taxation* c.20%
Capital expenditure c.GBP140 million
Net Debt GBP300-GBP320 million
*after exceptional charges
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 to GBP1, which is approximately 15% below FY2017. Our
average hedging rate for FY2019 is currently c.$1.35 to GBP1. We
continue 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 October 2017 that exceptional costs
over the period of implementing the Debenhams Redesigned strategy
would amount to approximately GBP55 million spread over three
years, of which approximately half would be cash costs. We now
expect exceptional costs to be approximately GBP85 million over the
three year period, of which approximately GBP50 million will be
cash costs. The exceptional costs are expected to be higher as a
result of
- c.GBP13 million higher store impairment and onerous lease
costs (non-cash) arising from a weaker than expected trading
performance;
- c.GBP15 million from staff operating model changes that were
not within the original plan (cash). This is expected to deliver
annualised savings of GBP15 million, which is within the GBP20
million of additional cost savings announced in January 2018.
OUTLOOK
Our Debenhams Redesigned strategy was established with the
expectation of continuing change in the UK retail environment. The
market dynamics we have seen have reinforced our view that we need
to move even faster to implement the cultural and organisational
changes needed to ensure Debenhams is in the best possible shape to
compete effectively in the future.
We have strengthened the management team with some important new
hires. We are making good progress in delivering planned cost
savings, we see encouraging signs of progress in our strategy and
in some areas, by using partnerships we will be able to accelerate
the pace of change. As we implement our five point action plan
including self-help initiatives that will help to mitigate the
challenging trading background, we remain confident that we have
the right team and the right plan to return Debenhams to profitable
growth.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties remain as detailed in the
Group's 2017 Annual Report and Accounts. Reference should be made
to the 2017 Annual Report and Accounts for more details on the
potential impact of these risks and examples of mitigation.
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 Brexit and these
continue to be monitored carefully, with appropriate levels of
mitigating action being considered as details emerge.
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
The board of directors as at 19 April 2018 is as follows: Sir
Ian Cheshire (Chairman), Sergio Bucher (Chief Executive), Matt
Smith (Chief Financial Officer), David Adams (independent
non-executive director), Terry Duddy (senior independent director),
Peter Fitzgerald (independent non--executive director), Stephen
Ingham (independent non--executive director), Martina King
(independent non--executive director), Nicky Kinnaird (independent
non-executive director) and Lisa Myers (independent non-executive
director). Martina King's third three year term comes to an end on
31 July 2018, on which date she will step down from the Board.
Nicky Kinnaird will take over as Chair of the Remuneration
Committee.
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 3 March 2018 have been prepared in accordance
with IAS 34 as adopted by the European Union;
-- 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
19 April 2018
NOTES TO EDITORS
Debenhams is a leading international, department store
destination with a proud British heritage which trades out of 241
stores across 22 countries and is available online in more than 60
countries. Debenhams gives its customers around the world a unique,
differentiated and exclusive mix of own brands, international
brands and concessions.
Debenhams has been investing in design for over 20 years through
its exclusive Designers at Debenhams portfolio of brands. Current
designers include Abigail Ahern, Jeff Banks, Jasper Conran, Sadie
Frost and Jemima French, Patrick Grant, Henry Holland, Julien
Macdonald, Savannah Miller, Jenny Packham, Richard Quinn, Aliza
Reger, John Rocha, Ashley Thomas, Justin Thornton and Thea
Bregazzi, and Matthew Williamson.
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 condensed consolidated interim
financial information. (the "interim financial statements") in the
interim results of Debenhams plc for the 26 week period ended 3
March 2018. 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
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 3 March 2018;
-- the condensed consolidated income statement and the condensed
consolidated statement of comprehensive income for the period then
ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed 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 interim results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook 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 interim results, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim 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 Guidance and Transparency Rules sourcebook 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,
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 interim
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
19 April 2018
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.
Condensed Consolidated Income Statement
For the 26 weeks ended 3 March 2018
Unaudited 26 weeks to Unaudited Audited 52 weeks to
3 March 2018 26 weeks 2 September 2017
to
------------------------------------
Before Exceptional 4 March Before Exceptional
exceptional items 2017 exceptional items
items (note Total Total items (note Total
5) GBPm 5)
----------
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- ----------- ----------- ---------- ---------- ------------ ------------ ----------
2,
Revenue 3 1,319.2 - 1,319.2 1,351.1 2,335.0 - 2,335.0
Cost of sales (1,167.8) (20.8) (1,188.6) (1,158.5) (2,046.1) (24.1) (2,070.2)
Gross profit 151.4 (20.8) 130.6 192.6 288.9 (24.1) 264.8
Distribution
costs (74.7) (5.8) (80.5) (68.7) (124.5) (10.6) (135.1)
Administrative
expenses (30.2) (2.1) (32.3) (30.0) (56.9) (1.5) (58.4)
Operating profit 4 46.5 (28.7) 17.8 93.9 107.5 (36.2) 71.3
----------------- ----- ----------- ----------- ---------- ---------- ------------ ------------ ----------
Finance income 7 1.1 - 1.1 0.1 0.1 - 0.1
Finance costs 8 (5.4) - (5.4) (6.2) (12.4) - (12.4)
----------------- ----- ----------- ----------- ---------- ---------- ------------ ------------ ----------
Profit before
taxation 42.2 (28.7) 13.5 87.8 95.2 (36.2) 59.0
Taxation 9 (7.7) 5.5 (2.2) (16.2) (17.2) 7.0 (10.2)
Profit for the
financial
period
before share of
non-integral
associate 34.5 (23.2) 11.3 71.6 78.0 (29.2) 48.8
Share of loss of
non-integral
associate (0.5) - (0.5) - - - -
Profit for the
financial
period
After share of
non-integral
associate 34.0 (23.2) 10.8 71.6 78.0 (29.2) 48.8
Earnings per share attributable to the owners of the parent
(pence per share)
Basic earnings
per share 10 2.8 0.9 5.8 6.4 4.0
Diluted earnings
per share 10 2.8 0.9 5.8 6.4 4.0
The notes on pages 23-35 form an integral part of this condensed
consolidated interim financial information.
Condensed Consolidated Statement of Comprehensive Income
For the 26 weeks ended 3 March 2018
Note
Unaudited Unaudited Audited
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
-------------------------------------------------------------- ----- ------------ ------------ --------------
Profit for the financial period 10.8 71.6 48.8
Other comprehensive income
Items that will not be reclassified
to the income statement
Remeasurements of pension schemes 15 7.4 46.1 76.7
Taxation relating to items that will
not be reclassified (4.5) (10.0) (18.5)
2.9 36.1 58.2
Items that may be reclassified to the
income statement
Change in value of available-for-sale
investments (0.2) (0.1) (0.1)
Currency translation differences:
* retranslation of overseas subsidiaries (2.3) 1.0 5.9
Foreign currency cash flow hedges:
* fair value (losses)/gains (17.1) 25.0 4.6
* recycled and adjusted against cost of inventory 4.5 (30.0) (50.4)
Cash flow hedges reclassified and reported
in the income statement - 0.2 0.2
Taxation relating to items that may be reclassified 1.4 (0.2) 8.2
(13.7) (4.1) (31.6)
Total other comprehensive (expense)/income (10.8) 32.0 26.6
Total comprehensive income for the financial
period - 103.6 75.4
The notes on pages 23-35 form an integral part of this condensed
consolidated interim financial information.
Condensed Consolidated Balance Sheet
As at 3 March 2018
Unaudited Unaudited Audited
3 March 4 March 2 September
Note 2018 2017 2017
GBPm GBPm GBPm
---------------------------------- ------- ------------- ------------- --------------
Assets
Non-current assets
Intangible assets 12 995.3 978.3 991.9
Property, plant and equipment 12 637.4 646.6 654.9
Investments in joint ventures
and associates 13 7.0 - -
Available-for-sale investments 14 1.0 1.2 1.2
Derivative financial instruments 14 0.8 8.8 0.5
Trade and other receivables 18.8 18.4 19.3
Retirement benefit surplus 15 91.5 46.8 80.9
Deferred tax assets 16.0 16.8 15.3
1,767.8 1,716.9 1,764.0
---------------------------------- ------- ------------- ------------- --------------
Current assets
Inventories 318.3 318.0 317.8
Trade and other receivables 84.7 78.4 82.9
Derivative financial instruments 14 2.3 40.8 4.8
Cash and cash equivalents 20 39.1 40.0 40.0
444.4 477.2 445.5
---------------------------------- ------- ------------- ------------- --------------
Liabilities
Current liabilities
Bank overdraft and borrowings 20 (88.3) (57.2) (116.4)
Derivative financial instruments 14 (17.2) (7.3) (12.0)
Trade and other payables (558.0) (533.0) (523.3)
Current tax liabilities (11.1) (24.0) (9.8)
Provisions 17 (14.2) (7.5) (10.2)
(688.8) (629.0) (671.7)
---------------------------------- ------- ------------- ------------- --------------
Net current liabilities (244.4) (151.8) (226.2)
----------------------------------- ------- ------------- ------------- --------------
Non-current liabilities
Bank overdraft and borrowings 20 (199.0) (199.7) (199.5)
Derivative financial instruments 14 (6.8) (0.9) (5.3)
Deferred tax liabilities (57.9) (55.5) (54.0)
Other non-current liabilities 16 (353.0) (351.9) (351.7)
Provisions 17 (16.3) - (9.7)
(633.0) (608.0) (620.2)
---------------------------------- ------- ------------- ------------- --------------
Net assets 890.4 957.1 917.6
Equity
Share capital 18 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 (17.3) 26.2 (6.2)
Other reserves (6.1) (8.4) (3.5)
Retained earnings 229.8 255.3 243.3
Total equity 890.4 957.1 917.6
The notes on pages 23-35 form an integral part of this condensed
consolidated interim financial information.
Condensed Consolidated Statement of Changes in Equity
For the 26 weeks ended 3 March 2018
Share
capital Reverse
and Merger acquisition Hedging Other Retained Total
share reserve reserve reserve reserves earnings equity
premium GBPm GBPm GBPm GBPm GBPm GBPm
account
GBPm
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 2 September 2017 683.0 1,200.9 (1,199.9) (6.2) (3.5) 243.3 917.6
Profit for the financial
period - - - - - 10.8 10.8
Other comprehensive
(expense)/income
for the financial period - - - (11.1) (2.6) 2.9 (10.8)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Total comprehensive
(expense)/income
for the financial period - - - (11.1) (2.6) 13.7 -
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Share-based payment charge - - - - - 0.8 0.8
Dividends paid - - - - - (29.4) (29.4)
Unallocated dividend 1.4 1.4
Total transactions with
owners - - - - - (27.2) (27.2)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 3 March 2018 683.0 1,200.9 (1,199.9) (17.3) (6.1) 229.8 890.4
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
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 the
Debenhams Retail Employment
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 3 September 2016 683.0 1,200.9 (1,199.9) 31.2 (9.3) 178.0 883.9
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Profit for the financial
year - - - - - 48.8 48.8
Other comprehensive
(expense)/income
for the financial year - - - (37.4) 5.8 58.2 26.6
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Total comprehensive
(expense)/income
for the financial year - - - (37.4) 5.8 107.0 75.4
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Share-based payment charge - - - - - 0.5 0.5
Taxation recognised directly
in equity - - - - - 0.6 0.6
Dividends paid - - - - - (42.0) (42.0)
Purchase of shares by the
Debenhams Retail Employment
Trust 2004 - - - - - (0.8) (0.8)
Total transactions with
owners - - - - - (41.7) (41.7)
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
Balance at 2 September 2017 683.0 1,200.9 (1,199.9) (6.2) (3.5) 243.3 917.6
----------------------------- ---------- ---------- -------------- ---------- ----------- ----------- ---------
The notes on pages 23-35 form an integral part of this condensed
consolidated interim financial information.
Condensed Consolidated Cash Flow Statement
For the 26 weeks ended 3 March 2018
Unaudited Unaudited Audited
26 weeks 26 weeks 52 weeks
to to to
Note 3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
--------------------------------------------- ------- ---------- ---------- -------------
Cash flows from operating activities
Cash generated from operations 19 130.9 156.2 200.4
Finance income - - 0.1
Finance costs (4.9) (6.7) (11.2)
Tax paid (0.4) (8.7) (16.3)
Net cash generated from operating
activities 125.6 140.8 173.0
Cash flows from investing activities
Purchase of property, plant and equipment (45.1) (22.9) (72.6)
Purchase of intangible assets (15.2) (24.6) (52.2)
Investment in joint venture and associates 13 (7.5) - -
-
--------------------------------------------- ------- ---------- ---------- -------------
Net cash used in investing activities (67.8) (47.5) (124.8)
Cash flows from financing activities
Repayment of revolving credit facility (11.0) (75.0) (25.0)
Dividends paid (29.4) (29.4) (42.0)
Purchase of shares by Debenhams Retail
Employee Trust 2004 - (0.8) (0.8)
Finance lease payments (0.8) (0.6) (1.6)
Net cash used in financing activities (41.2) (105.8) (69.4)
Net increase/(decrease) in cash and cash
equivalents 20 16.6 (12.5) (21.2)
Net cash and cash equivalents at beginning
of financial period 19.7 40.8 40.8
Foreign exchange (losses)/gains on cash
and cash equivalents (0.1) - 0.1
Net cash and cash equivalents at end
of financial period 20 36.2 28.3 19.7
The notes on pages 23-35 form an integral part of this condensed
consolidated interim financial information.
Condensed notes to the financial statements
1 General information and basis of preparation
General information
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 52 weeks ended 2 September 2017 and the
26 weeks ended 4 March 2017 are consistent with the Group's 2017
annual report and financial statements and interim financial
statements respectively.
The report of the auditors for the financial statements for the
52 weeks ended 2 September 2017 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 52 weeks have been filed with the Registrar of
Companies.
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 3 March 2018 should be read in conjunction
with the annual financial statements for the 52 weeks ended 2
September 2017 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.
Accounting policies
The Group's principal accounting policies used in preparing this
information are as stated in the financial statements for the 52
weeks ended 2 September 2017, which are available on our website
www.debenhamsplc.com.
IFRS 16 "Leases" was issued on 13 January 2016 and is effective
for periods beginning on or after 1 January 2019. 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, collection of relevant data from different areas of the
business and consideration of the methodology for calculating the
discount rate. 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 following standards and amendments apply for the first time
in the current financial year. They are not expected to have a
material impact on the consolidated financial information of the
Group:
IFRS 9 "financial Instruments" The standard is effective for
accounting periods beginning on or after 1 January 2018
IFRS15 "Revenue from Contracts with Customers" is effective for
periods beginning on or after 1 January 2018.
The critical accounting estimates and judgements made by
management in applying the Group's accounting policies are
consistent with those detailed on page 103 of the annual report and
financial statements for the 52 weeks ended 2 September 2017 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 15 of this interim report.
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 36 including explanations of
how they are calculated and how they can be reconciled to a
statutory measure where relevant.
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 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
------------------------- --------- --------- -------------
Gross transaction value 1,650.1 1,676.5 2,954.1
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 digital
retail business. The International segment consists of subsidiaries
in the Republic of Ireland and Denmark, together with international
franchise and digital 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 3 March 2018 1,303.3 346.8 1,650.1
Gross transaction value
Concessions, consignments and staff
discounts (237.4) (93.5) (330.9)
-------------------------------------- -------- -------------- --------
External revenue 1,065.9 253.3 1,319.2
-------------------------------------- -------- -------------- --------
Operating profit before exceptional
items 19.7 26.8 46.5
Exceptional items (28.7) - (28.7)
-------------------------------------- -------- -------------- --------
Operating profit after exceptional
items (9.0) 26.8 17.8
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
52 weeks ended 2 September 2017
Gross transaction value 2,350.0 604.1 2,954.1
Concessions, consignments and staff
discounts (457.1) (162.0) (619.1)
-------------------------------------- -------- -------------- --------
External revenue 1,892.9 442.1 2,335.0
-------------------------------------- -------- -------------- --------
Operating profit before exceptional
items 74.0 33.5 107.5
Exceptional items (34.3) (1.9) (36.2)
-------------------------------------- -------- -------------- --------
Operating profit after exceptional
items 39.7 31.6 71.3
Total segmental operating profit may be reconciled to total
profit before taxation as follows:
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
Total operating profit 17.8 93.9 71.3
Finance income 1.1 0.1 0.1
Finance costs (5.4) (6.2) (12.4)
Total profit before taxation 13.5 87.8 59.0
4 Operating profit
The following items have been included in arriving at operating
profit:
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
Amounts of inventory written down during
the financial period 7.5 5.3 9.7
Cost of inventory recognised as an
expense 697.8 680.3 1,151.3
Depreciation and amortisation 58.1 55.0 109.5
Impairment of property, plant and equipment
(note 12) 5.8 - 7.2
Loss on disposal and write off of property,
plant and equipment and intangible
assets 2.3 0.2 5.8
Operating lease rentals 113.1 112.3 221.4
Foreign exchange gains (16.7) (23.8) (49.4)
5 Exceptional items
Exceptional items comprise the following:
26 weeks to 3 March Cost Distribution Administrative Operating Taxation Total
2018 of sales costs expenses profit
GBPm GBPm GBPm
Strategic review and
restructuring 20.1 - 2.1 22.2 (4.2) 18.0
Strategic warehouse 0.7 5.8 - 6.5 (1.3) 5.2
------------------------- ---------- ------------- --------------- ---------- --------- ------
20.8 5.8 2.1 28.7 (5.5) 23.2
------------------------- ---------- ------------- --------------- ---------- --------- ------
26 weeks ended 4 March - - - - - -
2017
------------------------- ---------- ------------- --------------- ---------- --------- ------
52 weeks to 2 September
2017
Strategic review 21.1 0.9 1.5 23.5 (4.9) 18.6
Strategic warehouse
restructuring 3.0 9.7 - 12.7 (2.1) 10.6
------------------------- ---------- ------------- --------------- ---------- --------- ------
24.1 10.6 1.5 36.2 (7.0) 29.2
------------------------- ---------- ------------- --------------- ---------- --------- ------
Strategic review
Total exceptional items before taxation recognised during the 26
weeks ended 3 March 2018 in relation to the strategic review and
restructuring were GBP22.2 million (26 weeks ended 4 March 2017:
GBPnil; 52 weeks ended 2 September 2017: GBP23.5 million).
Strategic review and restructuring
Given the significant changes that are taking place across the
retail sector and aligned to the Debenhams Redesigned strategy the
Group is reviewing all of its operations, focussing on improving
productivity and restructuring to ensure we are well positioned for
the future. Following this review the Group has recognised
exceptional costs of GBP15.1 million in relation to impairment of
property, plant and equipment, onerous lease commitments, and write
off of the IT legacy systems.
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.
Strategic review of the operating model
During the 26 weeks ended 3 March 2018, as part of the Debenhams
Redesigned strategy to simplify and focus the business, the Group
developed a new, more flexible operating model resulting in
reorganisation and restructuring activity both in stores and the
support centres. Exceptional costs of GBP5.2 million relating to
redundancies, recruitment, professional fees and directly
attributable Human Resourcing staff time were recognised during the
26 weeks ended 3 March 2018. This activity will continue into the
second half of the year and as a result, in order to encourage more
collaborative working the fifth floor of the London support centre
is no longer required. In January 2018 we agreed to sublet that
space and as a result incurred a GBP1.9 million charge relating to
writing off assets no longer required and associated legal
fees.
Costs incurred in relation to the strategic review of the
operating model 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.
Strategic warehouse restructuring
During 2017 the Group embarked on a strategic warehouse
restructuring which included warehouse automation and the closure
of its distribution centre at Northampton and certain regional
warehousing facilities. Total exceptional items before taxation
recognised during the 26 weeks ended 3 March 2018 in relation to
the strategic warehouse restructuring were GBP6.5 million (26 weeks
ended 4 March 2017: GBPnil; 52 weeks ended 2 September 2017:
GBP12.7 million).
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.
6 Employment costs
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
--------- ---------
Wages and salaries including restructuring
costs and other termination benefits 188.9 188.5 366.5
Social security cost 11.9 11.5 23.0
Other pension costs 8.9 8.5 17.5
Share-based payments 0.8 (0.2) 0.5
210.5 208.3 407.5
7 Finance income
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
Interest on bank deposits 0.1 0.1 0.1
Net interest on net defined benefit 1.0 - -
pension schemes' asset
1.1 0.1 0.1
8 Finance costs
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
--------- ---------
Interest payable on bank loans and overdrafts 1.3 1.4 2.8
Interest payable on senior notes 5.2 5.2 10.4
Cash flow hedges reclassified and reported
in the income statement - 0.2 0.2
Amortisation of issue costs on loans
and senior notes 0.5 0.6 1.3
Interest payable on finance leases 0.1 0.1 0.2
Capitalised finance costs - qualifying
assets (1.7) (1.3) (2.5)
5.4 6.2 12.4
9 Taxation
The taxation charge for the 26 weeks ended 3 March 2018 is based
on an estimated effective tax rate for the full year of 18.2% (52
weeks ended 2 September 2017: 17.3%), which is lower than the
blended standard rate of corporation tax of 19.0%. The difference
primarily relates to a prior year adjustment.
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 52 weeks to
Basic and diluted 3 March 4 March 2 September
earnings 2018 2017 2017
per share
Basic Diluted Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Profit for the
financial
period after taxation 10.8 10.8 71.6 71.6 48.8 48.8
Exceptional items
after
taxation
(note 5) 23.2 23.2 - - 29.2 29.2
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Profit for the
financial
period after taxation
- before exceptional
items 34.0 34.0 71.6 71.6 78.0 78.0
Number Number Number Number Number Number
m m m m m m
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Weighted average
number
of shares 1,227.8 1,227.8 1,227.8 1,227.8 1,227.8 1,227.8
Shares held by ESOP
(weighted)
(weighted) - - (0.7) (0.7) - -
Shares issuable
(weighted) - 4.6 - 0.2 - 1.2
Weighted average
number
of shares used in
calculating
earnings per share 1,227.8 1,232.4 1,227.1 1,227.3 1,227.8 1,229.0
Pence Pence Pence Pence Pence Pence
per share per share per share per share per share per share
----------------------- ---------------- ----------- ----------- ----------- ------------- -----------
Earnings per share 0.9 0.9 5.8 5.8 4.0 4.0
Earnings per share -
before exceptional
items 2.8 2.8 5.8 5.8 6.4 6.4
11 Dividends
The Company paid a final dividend in respect of the 52 weeks
ended 2 September 2017 of 2.4 pence per share on 19 January 2018.
The directors have resolved to pay an interim dividend in respect
of the 26 weeks ended 3 March 2018 of 0.5 pence per share (4 March
2017: 1.025 pence) which will absorb an estimated GBP6.1 million of
shareholders' funds (4 March 2017: GBP12.6 million). It will be
paid on 6 July 2018 to shareholders who are on the register of
members at close of business on 8 June 2018.
12 Intangible assets and property, plant and equipment
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
---------------------------------------- -------- -------- ------------
Opening net book amount 1,646.8 1,632.3 1,632.3
Additions:
* Intangible assets 15.2 26.5 53.3
* Property, plant and equipment 38.6 20.0 78.4
Foreign currency revaluation (1.7) 1.3 5.3
Disposals and write offs (2.3) (0.2) (5.8)
Depreciation and amortisation (58.1) (55.0) (109.5)
Impairment losses (5.8) - (7.2)
Closing net book amount 1,632.7 1,624.9 1,646.8
Capital commitments contracted but not provided for by the Group
amounted to GBP4.6 million (2 September 2017: GBP0.5 million; 4
March 2017: GBP4.3 million).
The total goodwill which arose upon the acquisition of the Group
in 2004 is GBP819.4 million at 3 March 2018. The Group has carried
out an impairment test at 3 March 2018 following the procedure as
that described in the financial statements on 2 September 2017. The
impairment review performed considers the value-in-use calculation
based on the new Debenhams Redesigned strategy which aims to drive
growth and deliver cost reductions across the Group. The key
assumptions in determining the value in use calculation are the
discount rate at 7.4%, a short term average UK EBITDA growth rate
at 3% and a long term UK EBITDA growth rate at 1%.
The test leads to a recoverable amount in excess of its
value-in-use at 3 March 2018. Whilst management believes that the
assumptions used are realistic, a sensitivity analysis of the test
has been performed on each of these key assumptions in isolation,
considering reasonable possible changes to the assumptions. An
increase of 0.5% to the discount rate or a reduction of 1% in the
short term average UK EBITDA growth rate would not lead to
impairment. A reduction of the long term UK EBITDA growth rate from
1% to zero would lead to a possible impairment of GBP28
million.
13 Investments in joint ventures and associates
On 5 September 2017, the Group acquired a stake in blow LTD. for
a cash consideration of GBP7.5 million. blow LTD. provides beauty
services and is registered in the UK.
3 March
2018
GBPm
------------------------------ --------
Aggregate carrying amount
of associate 7.5
Group's share of losses for
the year (0.5)
Closing net book amount 7.0
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 2 September 2017.
There have been no changes in risk management procedures and
policies since 2 September 2017.
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 3 March 2018
Assets
Available-for-sale financial investments 1.0 - 1.0
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - 1.5 1.5
* Other forward foreign currency contracts - 1.6 1.6
Total assets 1.0 3.1 4.1
Liabilities
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - (4.4) (4.4)
* Other forward foreign currency contracts - (19.6) (19.6)
-
Total liabilities - (24.0) (24.0)
Level 1 Level Total
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 2 September 2017
Assets
Available-for-sale financial investments 1.2 - 1.2
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - 5.2 5.2
* Other forward foreign currency contracts - 0.1 0.1
Total assets 1.2 5.3 6.5
Liabilities
Derivative financial instruments:
* Forward foreign currency contracts held as cash flow
hedges - (17.3) (17.3)
Total liabilities - (17.3) (17.3)
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 4 March 2017: no
transfers).
During the financial year ended 2 September 2017 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 GBP10.1 million was received. The gains on these
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 99 and 100 of the
Group's 2017 annual report and financial statements.
Available-for-sale financial investments within the level 1
hierarchy level relate to the Group's holding at 3 March 2018 of
10% (4 March 2017: 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 3 March 2018, 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 (4
March 2017: GBP0.1 million) for the Group as a result of the
changes in the fair value of available-for-sale investments
The above movement in market price is considered to represent
reasonable possible changes. Other larger or smaller changes are
also possible.
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 3 March 2018 the
carrying value of the Group's senior notes debt was GBP199.6
million (4 March 2017: GBP199.0 million) and the fair value of this
debt was GBP191.1 million (4 March 2017: GBP213.0 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.
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 GBP5.0 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 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 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.
Further details of the Group's pension arrangements are set out
in pages 124 to 127 of the annual report and financial statements
for the 52 weeks ended 2 September 2017.
The major assumptions used by the actuary were:
3 March 4 March 2 September
2018 2017 2017
per annum per annum per annum
% % %
-------------------------------------- -------------------- ---------- ------------
Inflation assumption 3.3 3.3 3.2
General salary and wage increase 3.3 3.3 3.2
Rate of increase in pension payments
and deferred payments 3.3 3.3 3.2
Pension increase rate 3.2 3.2 3.1
Discount rate 2.5 2.5 2.4
The amounts recognised in the balance sheet were:
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
-------------------------------------- --- ---------- ---------- --------------
Total market value of assets 1,089.5 1,089.3 1,123.4
Present value of scheme liabilities (998.0) (1,042.5) (1,042.5)
Net surplus in pension schemes 91.5 46.8 80.9
Analysed as:
DEPP scheme surplus 38.6 17.6 22.3
DRS scheme surplus 52.9 29.2 58.6
-------------------------------------------- ---------- ---------- --------------
The movement in the net pension surplus/(deficit) during the
financial period was:
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
----------------------------------- -------- -------- ------------
Net surplus/(deficit) in the
schemes at the start of the
financial period 80.9 (4.1) (4.1)
Movement in the financial period:
- Company contributions 3.0 5.6 9.8
- Current service cost (including
expenses) (0.8) (0.8) (1.5)
- Net interest on net defined 1.0 - -
benefit asset/liability
- Re-measurements of pension
schemes 7.4 46.1 76.7
Net surplus in the schemes
at end of the financial period 91.5 46.8 80.9
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 table below illustrates the estimated impact on the schemes'
liabilities as a result of movements in the principal assumptions
used to measure those liabilities.
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
---------------------------------- ------------------ -------- ------------
Increase in schemes' liabilities
arising from:
- a 0.5% increase in inflation 75.7 115.7 113.2
- a 0.5% reduction in the 99.0 126.1 123.3
discount rate
- a one year increase in 32.7 27.9 27.3
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 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.
16 Other non-current liabilities
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
Property lease incentives received 353.0 351.9 351.7
Property lease incentives received from landlords, either
through developers' contributions or rent-free periods, are
recognised as non-current liabilities and are credited to the
income statement on a straight line basis over the term of the
relevant lease. Property lease incentives received also relate to
the spreading of the charges in respect of leases with fixed annual
increments in rent (escalating rent clauses) over the term of the
relevant lease.
17 Provisions
Promotional
activities Property Restructuring Total
GBPm GBPm GBPm GBPm
------------------------ ----------- ----------- ---------------- --------
At 2 September 2017 6.0 10.2 3.7 19.9
Charged to the income
statement 10.1 9.6 3.6 23.3
Released to the income
statement - (1.4) - (1.4)
Utilised during the
financial period (8.9) (0.3) (2.1) (11.3)
At 3 March 2018 7.2 18.1 5.2 30.5
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
------------- ---- -------- -------- ----------------
Current 14.2 7.5 10.2
Non-current 16.3 - 9.7
Total 30.5 7.5 19.9
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 financial period of GBP7.2 million
(52 weeks ended 2 September 2017: GBP5.9 million) which has been
recognised as an exceptional item within strategic review and
restructuring and strategic warehouse restructuring (note 5).
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% (2 September
2017: 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 arose as a result of the strategic
review and restructuring programme that Debenhams is currently
undergoing. The GBP3.4 million charge for the financial period
relates to redundancies, recruitment, professional fees and
directly attributable human resourcing staff time (52 weeks ended 2
September 2017: GBP5.2 million, principally relating to the support
centre and the closure of the Group's distribution centre at
Northampton). The provision is expected to be utilised over the
next five years.
18 Share capital
GBP Number
----------------------------------------- -------- --------------
Issued and fully paid - ordinary shares
of GBP0.0001 each
At 3 March 2018, 4 March 2017 and
2 September 2017 128,686 1,286,863,381
19 Cash generated from operations
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------------ --------- --------- -------------
Profit before taxation 13.5 87.8 59.0
Depreciation and amortisation (note
12) 58.1 55.0 109.5
Impairment losses 5.8 - 7.2
Loss on disposal and write off of property,
plant and equipment and intangible assets 2.3 0.2 5.8
Share-based payment charge/(credit) 0.8 (0.2) 0.5
Fair value losses/(gains) on derivative
instruments 1.7 (7.6) 6.4
Net movements in provisions 10.6 (6.5) 5.9
Finance income (note 7) (1.1) (0.1) (0.1)
Finance costs (note 8) 5.4 6.2 12.4
Net movement in close out of forward
foreign currency contracts (5.4) - (1.6)
Pension current service cost (note 15) 0.8 0.8 1.5
Cash contributions to pension schemes
(note 15) (3.0) (5.6) (9.8)
Net movement in other long-term receivables - (0.5) (0.1)
Net movement in other non-current liabilities 1.3 (2.6) (2.8)
Changes in working capital
(Increase)/decrease in inventories (0.5) 8.4 8.8
(Increase)/decrease in trade and other
receivables (1.8) 2.8 (1.4)
Increase/(decrease) in trade and other
payables 42.4 18.1 (0.8)
Cash generated from operations 130.9 156.2 200.4
Cash payments in relation to exceptional costs were:
26 weeks 26 weeks 52 weeks
to to to
3 March 4 March 2 September
2018 2017 2017
GBPm GBPm GBPm
--------- ---------
Exceptional items for the 26 weeks ended 7.8 - -
3 March 2018
Exceptional items for the 52 weeks ended
2 September 2017 3.0 - 8.5
Exceptional items for the 53 weeks ended
3 September 2016 - 6.7 7.4
10.8 6.7 15.9
20 Analysis of changes in net debt
At Foreign At
2 September exchange Non-cash 3 March
2017 Cash losses movements 2018
flow
GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------- ------- --------- ------------ ---------
Analysis of net debt
Cash and cash equivalents 40.0 (0.8) (0.1) - 39.1
Bank overdrafts (20.3) 17.4 - - (2.9)
------------------------------- ------------- ------- --------- ------------ ---------
Net cash and cash equivalents 19.7 16.6 (0.1) - 36.2
Debt due within one year (94.5) 11.0 - (0.3) (83.8)
Debt due after one year (197.9) - - (0.3) (198.2)
Finance lease obligations
due within one year (1.6) 0.8 -- (0.8) (1.6)
Finance lease obligations
due after one year (1.6) - - 0.8 (0.8)
(275.9) 28.4 (0.1) (0.6) (248.2)
At 3 March 2018, the Group's drawings under credit facilities
outstanding comprised revolving credit facility drawings of GBP84.0
million (52 weeks ended 2 September 2017: GBP95.0 million: 4 March
2017: GBP45.0 million).
21 Related parties
There have been no significant related party transactions during
the period.
22 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.
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 Reconciling Definition and purpose
equivalent items
IFRS to IFRS
measure measure
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Income statement measures
----------------------------------------------------------------------------------------------------------------------------------
Gross No direct Refer Gross transaction value is calculated as sales
transaction equivalent to (excluding VAT) on a gross basis before adjusting
value definition for concessions, consignments and staff discounts.
(GTV) 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 2.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Like-for-like No direct Refer Like-for-like sales movement relates to sales
sales equivalent to from stores which have been open for more than
movement definition 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 (4.1%)
UK digital +1.1%
International 0.2%
-------
Like-for-like-sales
- constant currency(1) (2.8%)
Exchange rate impact 0.6%
-------
Like-for-like sales
movement - reported (2.2)%
-------
(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.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Gross Not Refer Gross margin is calculated as GTV less the value
margin defined to of cost of goods sold, as a percentage of GTV.
within definition The gross profit used in this calculation is based
IFRS. on an internal measure of margin and is a key
internal management metric for assessing division
performance.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Underlying Not Refer Underlying Group EBITDA is calculated as profit
Group defined to before interest, tax, depreciation, amortisation
EBITDA within definition and profit/loss on disposal of assets, asset write
IFRS. 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: GBPm
Operating profit before exceptional
items 46.5
Add: non-exceptional depreciation
and amortisation 56.0
Add: non-exceptional loss on
disposal of assets and asset
write offs 1.0
Underlying Group EBITDA 103.5
------
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Underlying Profit Exceptional Profit before the impact of exceptional items
profit before items and tax. The Group considers this to be an important
before tax (see note measure of Group performance and is consistent
tax 5) with how business performance is reported to and
assessed by the board and executive committee.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Underlying Earnings Exceptional Profit after tax attributable to the owners of
earnings per share items the parent and before the impact of exceptional
per share (see note items, divided by the weighted average number
5) 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 10.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Underlying Diluted Exceptional Profit after tax attributable to the owners of
diluted earnings items the parent and before the impact of exceptional
earnings per share (see note items, divided by the weighted average number
per share 5) 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 10.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Balance sheet measures
----------------------------------------------------------------------------------------------------------------------------------
Net debt None Refer Net debt comprises cash and cash equivalents and
to total borrowings (bank, Senior Notes bond and
definition 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
20.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
Tax measures
----------------------------------------------------------------------------------------------------------------------------------
Effective Effective Exceptional The effective tax rate before exceptional items
tax rate tax rate items is calculated as the total tax charge for the
before and their year excluding the tax impact of exceptional items
exceptional tax impact divided by profit before tax before exceptional
items items. This provides an indication of the ongoing
tax rate across the Group.
-------------- ----------- ------------ ---------------------------------------------------------------------------------------
[1] Company-compiled consensus published on
www.debenhamsplc.com
[2] BRC non-food online growth for 3m ended February 2018
+6.5%
[3] Kantar Worldpanel data 24 weeks to 11 March 2018
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGURWCUPRGMR
(END) Dow Jones Newswires
April 19, 2018 02:00 ET (06:00 GMT)
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