24th Oct 2006 07:01
Debenhams plc24 October 2006 24 October 2006 Debenhams plc Preliminary Results Announcement Debenhams plc, the leading department stores group, today announces itsPreliminary Results for the 52 weeks ended 2 September 2006. Financial Highlights • Turnover up 6.6% at £2.19 billion• Underlying trading profit before exceptional items3 up 21.2% at £267.4 million• Profit before tax and exceptional items up 67.9% at £112.8 million• 2.4p dividend per share• Net Debt down to £1.11 billion Business Highlights • Accelerated pipeline of 24 contracted new department stores creating approximately 6,000 new jobs.• Six new department stores opened• Four Desire by Debenhams stores opened.• Nine stores acquired in the Republic of Ireland from Roches Stores.• Continued success with Designers at Debenhams ranges, new ranges launched from Jasper Conran, Julien Macdonald and Betty Jackson.• Gross margins improved through sourcing initiatives and own-bought sales participation increasing. Rob Templeman, Chief Executive, said: "For the first seven weeks of the newfinancial year the retail climate has been volatile, impacted by theunseasonably warm weather. Total sales are up by +7.0% compared with the comparable period last year withlike-for-like sales down by -4.2% in the seven weeks. Our expectation is that margins will continue to improve during the year. We are also confident that the rigorous delivery of our strategy together withthe store expansion programme will drive future growth for our shareholders". Financial Summary 52 weeks ended 52 weeks ended Growth 2 September 2006 3 September 2005 £m £m Turnover 1 2,192.9 2,056.8 + 6.6%Like-for-like turnover 2 + 0.5%Underlying Trading profit before exceptional 267.4 220.7 + 21.2%items 3Underlying profit before taxation and 200.3 147.9 +35.4%exceptional items 3 Underlying earnings per share3 16.5 p 11.0 p + 50.0%Dividend per share 2.4 p - - 52 weeks ended 53 weeks ended Growth 2 September 2006 3 September 2005 £m £m Turnover 1 2,192.9 2,086.8 + 5.1%Operating profit before exceptional items 238.2 228.0 + 4.5%Operating profit 223.6 341.3 - 34.5%Profit before taxation and exceptional items 112.8 67.2 + 67.9%Profit before taxation 62.1 87.6 - 29.1%Basic earnings per share 7.4 p 26.2 p - 71.8%Net Debt 1,112.3 1,875.6 - 40.7%Cash generated from operating activities 190.3 42.6 +346.7% 1 Equivalent to gross transaction value after the adoption of FRS 5ANG, which shows revenue on a gross basis before adjusting for concessions,staff discounts and the cost of loyalty scheme points. 2 Like-for-like growth in gross transaction value represents thecurrent period's gross transaction value (including VAT) for all stores thathave traded for at least 12 months and the internet less the prior period'sgross transaction value for the same grouping. 3 After adjusting for: (i) £14.1m of additional rent year on yearfollowing the British Land property transaction (ii) leases with fixed annualincrements (iii) share-based payments (iv) the 53rd week of the financial yearended 3 September 2005 (v) proforma interest based on the Groups capitalstructure post IPO. Enquiries: Media Gainsborough CommunicationsAndy Cornelius 020 7190 1703Duncan Murray 020 7190 1704 Analysts Debenhams plcRob Templeman, Chief ExecutiveChris Woodhouse, Finance Director 020 7408 3302 Cautionary Statement Statements made in this announcement that look forward in time or that expressmanagement's beliefs, expectations or estimates regarding future occurrences andprospects are "forward-looking statements" within the meaning of the UnitedStates federal securities laws. These forward-looking statements reflectDebenhams' current expectations concerning future events and actual results maydiffer materially from current expectations or historical results. Any suchforward-looking statements are subject to various risks and uncertainties,including: Debenhams' ability to accurately predict customer preferences anddemands; the effectiveness of Debenhams' brand awareness and marketingprogrammes; the occurrence of weak sales during peak selling seasons or extremeor unseasonal weather conditions; competitive factors in the highly competitiveretail industry; Debenhams' ability to successfully implement its new storerollout and department store refurbishment/modernization strategy; Debenhams'ability to maintain its relationships with certain designers and its significantconcession partners; and currency fluctuations and currency risk. * * * Additional risk factors that you may want to consider are: Debenhams' abilityto retain key management and personnel; disruptions or other adverse eventsaffecting Debenhams' relationship with its major suppliers or its store cardprovider; factors outside Debenhams' control, such as changes in the financialor equity markets, adverse economic conditions or a downturn in the retailindustry, or damage or interruptions due to operational disruption, naturaldisaster, war or terrorist activity; and work stoppages; slowdowns or strikes. Chairman's statement These first full-year results as a publicly-listed company once againdemonstrate the strength and resilience of Debenhams as we continue to deliveron our plans to grow the business profitably. During the year Debenhams has enhanced its position as one of the leadingdepartment store groups in the world, offering stylish products at affordableprices. Against a challenging retail backdrop, we have again increased profits, salesand market share while accelerating our store opening plans, improving thesupply chain and successfully refurbishing our existing stores. There is still significant growth potential to come from our Designers atDebenhams and own-label brands, while our unique mix of own, international andconcession brands gives this business huge flexibility. In addition, we are accelerating plans to expand our portfolio of departmentstores, either by acquisition or new store openings, and believe there ispotential to increase our portfolio from 132 up to 240 stores in the UK andRepublic of Ireland. Separately, we have successfully trialled and opened four of our new conceptwomen's store, Desire by Debenhams. We now have five stores open and anotherfour contracted to open and have invested in a new distribution centre and inupgrading our website. We also have plans to increase our international store franchises from 30 toover 70 stores by the end of the 2010 financial year. Debenhams changed its culture under it's new management team with an increasedemphasis on the needs of our customers. It is no coincidence that we had ourbest ever years in the wake of this change. We are committed to our culture. We know it gives us the best chance to succeedin an increasingly tough and demanding marketplace. The board is recommending a final dividend of 2.4 pence per share in line withthe progressive dividend policy outlined at IPO. Chief Executive's Review The year under review has been a period of both transformation and expansion forDebenhams. The Company re-listed its shares on the London Stock Exchange in May2006, completed the conversion of the eight former Allders stores that werepurchased in the previous year and agreed to acquire nine department stores fromRoches Stores in the Republic of Ireland. During the year expansion of our store portfolio continued with the opening offive new department stores in Hemel Hempstead, Ayr, Newbridge, Doncaster andWorkington. We also opened three new Desire by Debenhams stores, our excitingsmall store format, in South Shields, Orpington and Falkirk along with 11 newinternational franchise stores in five countries which helped extend the globalreach of the Debenhams brand. Our new distribution centre in Peterborough is now fully operational whichpositions us well in terms of our store expansion programme. At the time of the IPO in May 2006, we outlined our strategy for growth whichrevolved around three main drivers: space expansion, supply chain and storeportfolio initiatives as well as new routes to market. As we enter the newfinancial year, our strategy remains firmly on track and our space expansionprogramme has been accelerated with the recent acquisition of nine departmentstores from Roches Stores in the Republic of Ireland and the opening of afurther department store in Llandudno and a Desire by Debenhams store inBirmingham Fort. One of Debenhams' key strengths is our multi-category product strategy whichenables us to differentiate ourselves from traditional single-brand high streetretailers and widens our appeal to a larger consumer audience. We have a strongpresence in key product categories such as womenswear, menswear, accessories,lingerie, childrenswear and homewares. The continued development of ourexclusive own-brand products such as Red Herring, Maine New England , Debut andThomas Nash alongside our exclusive Designers at Debenhams ranges has resultedin our own-bought sales continuing to increase market share and become a greaterproportion of our overall sales. Performance last year For the year to 2 September 2006 gross transaction value increased by £106.1million to £2,192.9 million. As a result of these sales increases, together withmargin gains and a firm focus on our cost base, our underlying operating profitbefore exceptional items for the year increased by 21.2 per cent to £267.4million. Group profit before tax and exceptional charges rose by 67.9 per cent to £112.8million. Like-for-like sales increased by 0.5 per cent for the year, compared to a 2.8per cent increase in the previous year. Sales were adversely affected duringJune. This was predominantly caused by a combination of a delay in the launch ofour summer sale due to the unfavourable weather, the World Cup and the lack of astrong fashion trend across the summer. Sales progressively improved during thelatter months of the year. Products and supply chain Our exclusive Designers at Debenhams ranges are a key differentiator for ourCompany. Consumers today are more stylish and design conscious than ever before.Our strategy of working closely with the designers who create leadingcollections enables us to bring exciting and stylish products with designerbranding straight from the catwalk to a wider audience at affordable prices.During the year, we have continued to extend our exclusive designer ranges intomore stores and into new product areas. New ranges have been developed with anumber of our established designers such as the Jasper Conran "LimitedCollection" which showcases some of the finest fabrics and designs in limitedquantities. The arrival of these new limited collections allows us to stretchour pricing. We continue to extend our Designers at Debenhams collection with a new accessoryand home range from Betty Jackson, a children's range from Julien Macdonald andan exciting new menswear range from Jeff Banks. Our focus on developing our own exclusive brands alongside our Designers atDebenhams ranges has led to a stronger sales participation from our own-boughtmerchandise which in turn has had a positive impact on our margins for the year. The strengthening of our internal design office and our buying teams, togetherwith the opening of a new sourcing office in Turkey, will allow us to continueto build on our existing own-brand collections. We will source more of our ownproduct direct from suppliers improving both our speed to market and stockavailability. We are extremely proud of our products and brands and during the year Debenhamswas pleased to receive the Department Store of the Year Award, voted by 6,000readers of Company Magazine and the following Prima High Street Awards. • Retailer of the Year • Best Evening Wear • John Rocha - Best Designer A key objective is to shorten the lead time for our products. This is beingachieved by improved product development, more efficient logistics andmerchandising processes and increased frequency of our buying cycles. We believethat these initiatives will help Debenhams continue to improve stockavailability, reduce markdowns and drive faster stock-turns. The £27 million investment in a new 700,000 sq ft distribution centre inPeterborough has also improved our logistics operations and will underpin thegrowth of the Company as new stores open over the next few years. Store portfolio New department stores Although Debenhams is a well established and respected brand, we only have 132stores in the UK and Republic of Ireland, which is substantially less than someof our competitors. We believe that there is the potential to increase thenumber of our department stores to up to 240. Since 4 September 2005, inaddition to the Roches acquisition (see below) we have opened six new departmentstores. Currently we have 24 contracts signed for new department stores whichwill increase our trading space by 17.5 per cent to 11.8 million sq ft. at theend of the 2011 financial year. Our property team continues to focus on developing further opportunities for ourexpansion programme and negotiations are progressing on a strong pipeline of newsites. Acquisition from Roches Stores Since the year end, Debenhams has completed the acquisition of nine departmentstores in the Republic of Ireland. These leasehold stores were bought fromRoches Stores for a consideration of €29 million, payable in three instalmentsover a two-year period. We also purchased the trading stock. This acquisition, alongside our existing stores in the Republic of Ireland,gives us a strong presence in the country. Over the next year we will convertthese stores into the Debenhams trading format. Desire by Debenhams Debenhams opened its first Desire by Debenhams store in Truro in June 2005. Thisis a new smaller concept store featuring a mix of women's fashion, accessories,lingerie and cosmetics which offers a differentiated proposition in locationswhich would not sustain a full department store. Five Desire stores are now trading in Falkirk, Orpington, South Shields, Truroand Birmingham Fort. They have been tested in challenging markets and aredelivering higher margins and sales densities than the main chain. Contracts foran additional four stores have also been signed and ultimately Debenhamsbelieves there is potential for up to 100 of these stores across the UK. International Debenhams is expanding internationally with a franchise model and has 30 storesin 14 different countries. A further 16 stores are contracted to open by the endof the 2009 financial year. By 2010 we anticipate that we will have 70 international franchise stores, withthe further potential to develop the Debenhams and Desire by Debenhams conceptoverseas. Our store portfolio now consists of: 132 department stores 5 Desire by Debenhams 30 international stores Refurbishment programme During the year we completed the refurbishment of 14 stores. The programme isdesigned to improve both the linear conversion and visual merchandising acrossthe store as well as establishing strong delineation of our brands. Resultsachieved from these refits and the customer feedback have been very positive. We plan to continue to invest in our store portfolio and at least another 10stores will be refurbished during this financial year. Other sales/revenue channels During the year, we have invested in a £7 million upgrade of our website. Webelieve that this investment will enable Debenhams to make significantimprovements compared to our existing site and allow us to capture a greatershare of this ever-growing market. Our development programme for multi-channelretailing will extend the availability of our ranges to a wider audience andprovide the necessary platform for the development of niche micro-sites for ourproducts. Debenhams already has one of the U.K.'s leading wedding gift services, which canbe further enhanced by the developments being made to our website. Outlook Debenhams has over the past 10 years consistently grown its profits, sales andmarket share. These results demonstrate that, even in a challenging market, ourCompany can continue to grow. We have an excellent business, have invested in our infrastructure and, with ourstore opening programme and other growth initiatives, remain confident about theoutlook for our Company. Finance Director's Review Basis of reporting The results for the year ended 2 September 2006 ("2006") have been prepared inaccordance with International Financial Reporting Standards ("IFRS"). This is the first year that the Group has reported its results in accordancewith IFRS. The biggest impact arises from changes in treatment of operatinglease costs and incentives, business combinations and share-based payments. TheGroup has, therefore, restated its results for the year ended 3 September 2005("2005") to reflect these changes. In relation to financial instruments theGroup has taken an exemption under IFRS not to restate comparatives. Summary of results 2006 2005 52 weeks 53 weeks £m £m Revenue 1,707.7 1,608.7 Operating profit before exceptional items 238.2 228.0Leases with fixed annual increments in rent 14.9 9.7Share-based payments 14.3 5.5Impact of 53rd week - (8.4)Lease cost adjustments - (14.1) Underlying operating profit before exceptional items 267.4 220.7Net interest before exceptional items (67.1) (72.8) Underlying profit before taxation and exceptional items 200.3 147.9 Underlying operating profit is used by management as a measure of profitabilitywithin the Group. It is defined as operating profit before exceptional items andthe impact of leases with fixed annual increments in rent and charges relatingto share-based payments. . The results for 2005 have been adjusted to remove theimpact of week 53 and lease cost adjustments for the period prior to the BritishLand Company property transaction which took place in February 2005. Inaddition, in both 2005 and 2006 the Group underwent significant re-financing.In consequence, the statutory interest and related financing costs are notcomparable year-on-year. The above adjustment for interest assumes that the2006 re-financing, which took place after the date of Admission, was effectiveat the beginning of the year ended 3 September 2005 and that the proceeds ofshares issued on Admission (£700 million) were available at that date. The comparison of performance year on year has been made complex by costsincurred as a result of: • the Company's Admission to the London Stock Exchange on 9 May 2006; and • the refinancing of its debt facility on 30 May 2006. These changes principally increase the number of shares issued by the Company,reduce the level of borrowings held by the Group, and reduce the interestcharged on the lower levels of borrowings since 30 May 2006. Sales and margins During the 52 weeks ended 2 September 2006, our retail business achievedlike-for-like sales growth of 0.5 per cent. This together with strongperformance from our new stores resulted in gross transaction value growing by5.1 per cent to £2,192.9 million (53 weeks ended 2005: £2,086.8 million). The international business has also continued to grow with a year-on-year salesgrowth of 21.1 per cent being achieved through a combination of like-for-likeimprovement and the addition of 11 new franchise stores. Week 53 in 2005accounted for 1.5 per cent of the comparative sales, for the Group. Debenhamscontinued to improve its market share across key product categories. Improvements in the efficiency of the supply chain together with the continuedcost control throughout the business have enabled us to generate a gross profitmargin of £331.4 million (2005 before exceptional items: £315.3 million). Underlying operating profit before exceptional items increased by 21.2% percent during the year to £267.4 million ( 52 weeks ended 2005: £220.7 million).(Operating profit 2006: £223.6 million, 2005: £341.3 million). Reporting results in accordance with IFRS has had a significant impact onoperating leases with annual fixed increments in rent. The adverse profit impactfrom adopting this standard is £14.9 million (2005: £9.7 million). On 30 May 2006 the Group refinanced its debt position, which resulted in therepayment of senior credit facilities. As a result of this repayment the Groupwrote-off all unamortised debt issue costs of £33.5 million and suffered anearly repayment interest penalty of £2.1 million. All fees in respect of the newterm loan facility are being amortised over the term of that facility. The refinancing also resulted in the restructuring of the Group's interest rateswap portfolio. An interest rate cap was closed out and two forward startinterest rate swaps restructured at a cost of £0.5 million Interest Net interest before exceptional items for the 52 weeks ended 2 September 2006year was £125.4 million, a £35.4 million reduction when compared to the 53 weeksin 2005. The reduction is principally due to: • a further refinancing in May 2005 which allowed the repayment of the more expensive debt, being deep discounted bonds and high-yield bonds; and • the new lower-cost finance structure which was put in place in May 2006 after the Group's Admission to the London Stock Exchange. Taxation The effective tax rate on profit before exceptional items for the year ended 2September 2006 is 29.0 per cent. The Group's tax charge has been adjusted forthe resulting credit on the deductible element of exceptional items, which hasgiven rise to an overall tax charge of £18.4 million and an effective tax rateof 29.6 per cent. Earnings The basic and diluted earnings per share on the face of the income statementreflect the weighted average number of shares in issue during the course of thefinancial year and similarly for the comparative period. As a result ofsignificant changes in the Group's capital structure associated with Admissionto the London Stock Exchange an underlying earnings per share figure has beencalculated. The underlying earnings per share reflects the underlying earningsfigure and for both financial periods the number of shares following there-listing.The figures are set out below. 2006 2005 Pence Pence per share per share Basic EPS 7.4 26.2 Underlying EPS 16.5 11.0 Dividends The directors are proposing a final dividend in respect of the financial yearended 2 September 2006 of 2.4 pence per share. It will be paid on 4 January 2007to shareholders who are on the register of members at close of business on 24November 2006. Capital expenditure We continue to invest for the long-term growth of the Group. Cash out flow fromnet capital expenditure for the year was £88.5 million (2005: £100.1 million).During the year under review we invested £42.1 million in eight new stores,£10.3 million in refurbishing existing stores with the balance being invested inimproving the infrastructure of the business. We are committed to investing £7.0 million in the development of a new Debenhamswebsite which is expected to launch shortly. A central distribution centre at Peterborough was opened in July 2005, at a costof £27 million and has become fully operational during the year. The Group willgenerate savings through the introduction of this centralised distributioncentre and through improving the efficiency of logistics operations. Importantlythe Peterborough facility contains capacity to deal with future expansion over anumber of years to come. Cash flow Net cash flow from operating activities after outflows on capital expenditurehas shown a strong increase year on year and is derived from the financialstatements as follows: 2006 2005 52 weeks 53 weeks £m £m Cash flow from operating activities 317.0 381.9Net interest paid (139.6) (328.9)Capital expenditure (88.5) (100.1)Tax received/(paid) 12.9 (10.4) Cash flow from operatingactivities after capital expenditure 101.8 (57.5) The cash flow from operating activities of £317.0 million reflects operatingprofits of £223.6 million, adjusted by non-cash items of £95.2 million, reducedby £26.2 million of pension contributions in excess of service charges and aninflow from working capital of £24.4 million. This inflow from working capital principally reflects an increase in trade andother payables. Borrowings and refinancing During the year the Group's net debt position has reduced by £763.3 million to£1,112.3 million. The Group's net debt position on Admission was £1.9 billion. £700 million ofnew equity was issued and the funds used to repay: part of the senior creditfacility, a contribution of £18 million to the Group pension schemes and costsassociated with Admission and Refinancing of £26.8 million. On 30 May 2006 the Group refinanced its existing £2.05 billion senior creditfacilities with the proceeds of a new term loan of £1.05 billion and a revolvingcredit facility ("RCF") of £0.3 billion. Issue costs of £17.2 million are beingamortised over the term of the facility. On 3 July 2006 the RCF was reduced to£0.25 billion. Balance sheet Year-end net assets of £53.3 million have increased by £734.0 million whencompared to 2005. The increase is principally due to the proceeds of the newshare issue of £700 million, the impact of the triennial pension schemevaluation and new debt structure. Post balance sheet events On 12 September 2006, the Company completed the acquisition of nine leaseholdstores in the Republic of Ireland. The consideration on acquisition amounted to€29 million payable in three instalments over two years. 24 October 2006 Consolidated Income StatementFor the financial year ended 2 September 2006 For the financial year ended: Note 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Revenue 2 1,707.7 1,608.7 Cost of sales (1,376.3) (1,296.0) Analysed as:Cost of sales before exceptional items (1,376.3) (1,293.4)Exceptional cost of sales 4 - (2.6) Gross profit 331.4 312.7 Distribution costs (53.0) (43.5)Administrative expenses (54.8) (45.6) Analysed as:Administrative expenses before exceptional items (40.2) (43.8)Exceptional administrative expenses 4 (14.6) (1.8) Operating profit before deemed disposal of subsidiary 223.6 223.6 Profit on deemed disposal of subsidiary 4 - 117.7 Operating profit 223.6 341.3 Analysed as:Operating profit before exceptional items 238.2 228.0Exceptional operating items 4 (14.6) 113.3 Interest receivable and similar income 5 7.3 7.4Interest payable and similar charges 6 (168.8) (261.1) Analysed as:Interest payable and similar charges before 6 (132.7) (168.2)exceptional itemsExceptional interest payable and similar charges 4,6 (36.1) (92.9) Profit before taxation 62.1 87.6 Taxation 7 (18.4) 36.1 Analysed as:Taxation before exceptional items (32.7) (28.9)Taxation credit on exceptional items 7 14.3 65.0 Profit for the financial year attributable to equity 10 43.7 123.7shareholders Earnings per share attributable to the equity shareholders (expressed in pence per share) Pence per share Pence per share Basic 9 7.4 26.2 Diluted 9 7.4 26.2 Underlying earnings per share (non-GAAP measure) 9 16.5 11.0 Dividends per share (expressed in pence per share) Pence per share Pence per share Proposed final dividend per share 8 2.4 - All Group operations during the financial years were continuing operations. Consolidated Statement of Recognised Income & ExpensesFor the financial year ended 2 September 2006 For the financial year ended: 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Profit for the financial year 43.7 123.7 Actuarial (loss)/gain recognised in the (3.0) 8.5pension scheme Movement on deferred tax relating to the pension scheme 0.9 (2.5) Cash flow hedges - Net fair value gains (net of tax) 15.8 - - Recycled and adjusted against the initial (0.2) - measurement of the acquisition cost of inventory- Reclassified and reported in net profit 0.8 - Net gains recognised directly in equity 14.3 6.0 Total recognised income attributable to the equity of the Group 58.0 129.7 Adoption of IAS32 and IAS 39 (net of tax) (11.6) - Consolidated Balance SheetAt 2 September 2006 2 September 3 September Note 2006 2005 £m £m ASSETSNon current assetsIntangible assets 836.1 829.9Property, plant and equipment 639.5 650.0Financial assets- Available for sale investments 8.2 7.2- Derivative financial instruments 7.8 -Retirement benefit obligations 13.8 -Deferred tax assets 51.1 58.9 1,556.5 1,546.0 Current assets Inventories 207.8 197.2Trade and other receivables 63.9 54.5Cash and cash equivalents 34.0 76.1 305.7 327.8LIABILITIESCurrent liabilitiesFinancial liabilities- Bank overdraft and borrowings (33.1) (75.0)- Derivative financial instruments (5.3) -Trade and other payables (400.4) (388.6)Current tax liabilities (18.8) (0.6)Provisions (4.7) (6.8) (462.3) (471.0) Net current liabilities (156.6) (143.2) Non current liabilitiesFinancial liabilities- Bank overdraft and borrowings (1,097.0) (1,839.1)- Derivative financial instruments (2.3) -Deferred tax liabilities (84.8) (73.8)Other non-current liabilities (161.0) (158.8)Provisions (1.5) (2.4)Retirement benefit obligations - (9.4) (1,346.6) (2,083.5) Net assets/(liabilities) 53.3 (680.7) SHAREHOLDERS' EQUITYShare capital 0.1 -Share premium 682.9 -Merger reserve 1,200.9 1,200.9Reverse acquisition reserve (1,199.9) (1,199.9)Hedging reserve 1.5 -Other reserves 1.0 -Retained earnings (633.2) (681.7) Total equity 10 53.3 (680.7) Consolidated Cash Flow Statementfor the financial year ended 2 September 2006 For the financial year ended: 2 September 3 September Note 2006 2005 52 weeks 53 weeks £m £m Cash flows from operating activitiesCash generated from operations 11 317.0 381.9Interest received 7.8 8.1Interest paid (147.4) (337.0)Tax received/(paid) 12.9 (10.4) Net cash generated from operating activities 190.3 42.6 Cash flows from investing activitiesNet cash received on deemed disposal of - 121.8subsidiaryPurchase of property, plant and equipment (88.6) (114.2)Purchase of stores - (34.0)Proceeds from sale of freehold properties - 22.0Proceeds from sale of property, plant and 0.1 26.1equipmentPurchase of investments - (4.2) Net cash (used)/generated from investing activities (88.5) 17.5 Cash flows from financing activitiesDrawdown of Term Loan Facility 1,050.0 -Drawdown of Senior Term Loan - 1,827.6Repayment of Senior Term Loan (1,827.6) -Proceeds from issue of ordinary shares 700.0 -Share issue costs (12.6) -Mortgage Facility repayment - (5.7)Repayment of Senior Loan Facilities - (621.0)Appropriation - settlement of 'A' Loan Notes - (516.8)Appropriation - settlement of 'B' Loan Notes (50.1) -Appropriation - settlement of 'C' Loan Notes (22.1) -Restricted cash held in Debenhams Retail Employee - 12.8Trust ("DRET")Purchase of shares by DRET (2.0) -Appropriation by DRET (1.1) -Repayment of Deep Discounted Bonds - (514.3)Repayment of High Yield Bonds - (326.7) Net cash used in financing activities (165.5) (144.1) Net decrease in cash and cash equivalents (63.7) (84.0) Cash and cash equivalents at beginning of financial year 64.0 148.0 Cash and cash equivalents at end of financial 0.3 64.0year Notes to the AccountsAt 2 September 2006 1 Basis of preparation The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ('IFRS') as adopted in the EuropeanUnion and those parts of the Companies Act 1985 applicable to those companiesreporting under IFRS. This is the first year that the Group's consolidated financial statements havebeen prepared under IFRS and IFRS 1 'First time adoption of IFRS' has beenapplied. In accordance with IFRS 1 the Group has taken the exemption not torestate comparatives for IAS 32 'Financial Instruments: Disclosure andPresentation' and IAS 39 'Financial Instruments: Recognition and Measurement'.Comparative information in respect of these items are presented on a UK GAAPbasis as previously reported. The consolidated financial statements have beenprepared on the basis of the accounting policies set out in the financialstatements of Debenhams plc for the 52 weeks ended 2 September 2006 and withinthe previously published prospectus which is available by contacting the CompanySecretary. Accounting policies have been consistently applied. The financial information set out in this document does not constitute thestatutory accounts of the Group for the years ended 2 September 2006 and 3September 2005 but is derived from the 2006 annual report and financialstatements. The annual report and financial statements for 2005, which wereprepared under UK GAAP, have been delivered to the Registrar of Companies andthe Group annual report and financial statements for 2006, prepared under IFRS,will be delivered to the Registrar of Companies in due course. The auditors havereported on those accounts and have given an unqualified report which does notcontain a statement under section 237 (2) or (3) of the Companies Act 1985. The Directors believe that the underlying operating profit before exceptionalitems and underlying earnings per share measures provide additional usefulinformation for shareholders on the underlying performance of the business, andare consistent with how business performance is measured internally. It is not arecognised profit measure under IFRS and may not be directly comparable withunderlying profit measures used by other companies. Non-GAAP measure 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Operating profit before exceptional items 238.2 228.0Impact of 53rd week - (8.4)Lease cost adjustments - (14.1)Leases with fixed annual increments in rent 14.9 9.7Share-based payments 14.3 5.5 Underlying operating profit before exceptional 267.4 220.7items 2 Turnover The Group has one class of business, retailing, and all material operations arein the UK. 3 Gross transaction value Revenue from concessions is required to be shown on a net basis, being thecommission received rather than the gross value achieved by the concessionaireon the sale. Management believe that gross transaction value, which presentsrevenue on a gross basis before adjusting for concessions, staff discounts andthe cost of loyalty scheme points, represents a good guide to the value of theoverall activity of the Group. 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Gross transaction value 2,192.9 2,086.8 4 Exceptional items Exceptional items are events or transactions that fall within the activities ofthe Group and which by virtue of their size or incidence have been disclosed inorder to improve a reader's understanding of the financial statements. 2 September 3 September 2006 2005 52 weeks 53 weeks £m £mOperating exceptional items:Other exceptional cost of sales - 2.6Admission to the London Stock Exchange 4.6 -Other exceptional item 10.0 -Refinancing - 1.8Profit on deemed disposal of subsidiary - (117.7) Total operating exceptional items 14.6 (113.3)Write off of capitalised debt costs on refinancing 33.5 22.3Interest on refinancing (note 6) 2.6 70.6 Total exceptional items before tax 50.7 (20.4) Financial year ended 2 September 2006 Admission to the London Stock Exchange Costs relating to the Company's Admission to the London Stock Exchange includetaxation and restructuring advice of £1.0 million, legal and professional feesof £1.0 million, bonuses of £1.1 million and other advisory services of £1.5million, relating to printing costs, marketing and public relations all of whichrelated to the Admission. Other exceptional items Restricted cash of £10.3 million is held by The Debenhams Retail Employee Trust2004. Following the Company's Admission to the London Stock Exchange theTrustees agreed to distribute £10.0 million of this restricted cash to thebeneficiaries of the Trust. Interest on refinancing On 30 May 2006 the Group refinanced its debt, which resulted in the repayment ofthe senior credit facilities. As a result of this repayment the Group wrote-offall unamortised debt issue costs associated with the senior credit facility,which amounted to £33.5 million. All fees associated with the new term loanfacility are being amortised over the term of the facility. Additional interest expense of £2.1 million relating to the early repayment ofthe senior credit facility was incurred on refinancing. As a result of therefinancing the interest rate hedging strategy required the restructuring of theinterest rate swap portfolio. This resulted in the close out of the interestrate cap and the restructuring of the two forward start interest rate swaps at acost of £0.5 million. Financial year ended 3 September 2005 Other exceptional cost of sales A payment of £2.6 million was paid to Red Letter Day ("RLD"). This paymentguaranteed that all old RLD experiences purchased by the Group prior to RLDgoing into administration were honoured by the new management of RLD. Refinancing The Group incurred administrative costs totalling £1.8 million in relation tothe refinancing in May and June 2005. These costs include legal costs, taxationadvice and professional costs associated with the dissolution of the BaronessGroup Limited Partnership which was the parent entity of the Group prior to theMay 2005 refinancing. Deemed disposal of subsidiary The profit on the deemed disposal of BF Properties (No.4) Limited amounted to£117.7 million. Interest on refinancing In connection with the 2005 refinancing, the Group wrote-off unamortised debtissue costs associated with the previous senior facility and high-yield bondsamounting to £18.3 million and £4.0 million respectively. Furthermore, therepayment of the high-yield bond in June 2005 included a 'make whole premium' of£70.6 million, which arose due to the early repayment of the high-yield bonds. 5 Interest receivable and similar income 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Interest on bank deposits 7.3 7.4 6 Interest payable and similar charges 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Interest payable and similar chargesBank loans and overdrafts (124.1) (110.4)Amortisation of issue costs on loans (5.1) (9.6)Interest payable on finance leases (3.5) (3.2)Exchange losses on foreign currency borrowings - (2.3)Deep discount bond charges - (42.7) Interest payable before exceptional items (132.7) (168.2) Exceptional items - interest payable and similarchargesUnamortised issue costs written off on repayment of - (22.3)the senior facility and high-yield bonds (note 4)Make-whole premium payable on the repayment of the - (70.6)high yield bonds (note 4)Unamortised issue costs written off on repayment of (33.5) -the senior term loan (note 4)Premium on early settlement of the senior term loan (note 4) (2.1) -Cost of restructuring the interest swap portfolio (0.5) -(note 4) Exceptional items - interest payable and similar (36.1) (92.9)charges Interest payable and similar charges after exceptional items (168.8) (261.1) Included within 'amortisation of issue costs on loans' for the year ended 3September 2005, is £4.3 million which relates to the write-off of the feesassociated with the mortgage facility. 7 Taxation Analysis of tax charge/(credit) in the year 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Current tax:UK corporation tax charge on profit for the year 9.1 8.5Adjustments in respect of prior periods (3.6) (0.1) Current tax expense 5.5 8.4 Deferred taxation:Origination and reversal of timing differences 0.9 (47.0)Pension cost relief in excess of pension cost charge 8.0 2.2Adjustments in respect of prior periods 4.0 0.3 Deferred tax expense/(income) 12.9 (44.5) Tax charge/(credit) in the financial year 18.4 (36.1) Tax relating to exceptional items as detailed in note 4 and included in theabove tax charge/(credit) amounted to: 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Tax credit relating to:Operating exceptional items 3.5 37.1Interest exceptional items 10.8 27.9 14.3 65.0 8 Dividends The directors are proposing a final dividend in respect of the financial yearended 2 September 2006 of 2.4 pence per share which will absorb an estimated£20.6 million of shareholders' funds. It will be paid on 4 January 2007 toshareholders who are on the register of members at close of business on 24November 2006. 9 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the year. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Group has one class of dilutive potential ordinary shares, thoseshare options granted to employees where the exercise price is less than themarket price of the Company's ordinary shares during the year. At 3 September2005, the performance criteria for the vesting period of the share options hadnot been met and consequently the shares in question are excluded from thediluted earnings per share calculation. Basic and diluted earnings per share 2 September 2006 3 September 2005 52 weeks 53 weeks Basic Diluted Basic Diluted £m £m £m £m Profit for the financial year 43.7 43.7 123.7 123.7 Number Number Number Number m m m m Weighted average number of shares 614.4 614.4 500.0 500.0 Shares held by ESOP (weighted) (25.6) (25.6) (27.7) (27.7) Shares issuable (weighted) - 5.6 - -Adjusted weighted average number of shares 588.8 594.4 472.3 472.3 Pence per Pence per Pence per Pence per share share share share Earnings per share 7.4 7.4 26.2 26.2 Underlying earnings per share The underlying earnings per share reflects the underlying performance of thebusiness compared with the prior year and is calculated by dividing underlyingearnings by the number of shares in issue at the year end. 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Profit for the financial year 43.7 123.7Exceptional items 50.7 (20.4)Impact of 53rd week - (8.4)Lease cost adjustments - (14.1)Leases with fixed annual increments in rent 14.9 9.7Share-based payments 14.3 5.5Interest adjustments 58.3 88.0Adjustment to tax charge to reflect the above (40.5) (89.2)items Underlying profit for the year 141.4 94.8 Number Number m m Issued share capital at 2 September 2006 859.0 859.0 Pence per Pence per share share Underlying earnings per share 16.5 11.0 Underlying profit is used by management as a measure of profitability within theGroup. It is defined as operating profit before exceptional items and the impactof leases with fixed annual increments in rent, charges relating to share-basedpayments. The results for 2005 have been adjusted to remove the impact of week53 and lease cost adjustments for the period prior to the British Land propertytransaction, which took place in February 2005. In addition, in both 2005 and2006 the Group underwent significant re-financing. In consequence, the statutoryinterest and related financing costs are not comparable year on year. The aboveadjustment for interest assumes that the 2006 re-financing, which took placeafter the date of Admission, was effective at the beginning of the year ended 3September 2005 and that the proceeds of shares issued on Admission (£700million) were available at that date. The comparison of performance year-on-year has also been made complex by costsincurred as a result of the Company's Admission to the London Stock Exchange on9 May 2006 which increased the number of shares issued by the Company. Theunderlying earnings per share uses the capital structure as at 2 September 2006to eliminate the effect of these changes. 10 Consolidated statement of changes in shareholders' equity 2 September 3 September 2006 2005 £m £m Opening shareholders' equity (680.7) (248.5)First time adoption of IAS 32 and IAS 39 (11.6) - (692.3) (248.5) Profit for the financial year 43.7 123.7Actuarial (loss)/gain in pension schemes (3.0) 8.5Movement in deferred tax relating to pension schemes 0.9 (2.5)Cash flow hedges 16.4 -Employee share ownership plans (net of tax) 28.9 (7.8)Appropriation relating to 2005 refinancing - (589.2)'A' Loan Notes held by Debenhams Retail Employee Trust - 12.8'C' Loan Notes held by Baroness Employee Limited Partnership (22.3) 22.3Issue of shares 683.0 -Purchase of treasury shares for DRET (2.0) - Closing shareholders' equity 53.3 (680.7) 11 Cash generated from operations 2 September 3 September 2006 2005 52 weeks 53 weeks £m £m Profit for the financial year 43.7 123.7Taxation 18.4 (36.1)Depreciation 86.0 85.4Amortisation 5.1 3.8(Profit)/loss on disposal of property, plant and (0.1) 2.7equipmentLoss on disposal of intangible assets - 0.3Profit on deemed disposal of subsidiary - (117.7)Employee options granted during the year 2.8 -Discretionary bonus granted during the year 1.1 -Fair value gains on derivative instruments 1.9 -Swap costs (0.8) -Net movements in provisions for liabilities and charges (3.0) (3.8)Interest income (note 5) (7.3) (7.4)Interest expense (note 6) 168.8 261.1Difference between pension charge and contributions paid (26.2) (29.5)Net movement in long-term creditors 2.2 15.3 Changes in working capitalIncrease in inventories (10.6) (29.8)Increase in trade and other receivables (8.2) (6.8)Increase in trade and other payables 43.2 120.7 Cash generated from operations 317.0 381.9 12 Reconciliation of net assets and profit under UK GAAP to IFRS The Group reported under UK GAAP in its previously published financialstatements for the period ended 3 September 2005. The analysis below shows areconciliation of net assets and profit as reported under UK GAAP as at 3September 2005 to the revised net assets and profits under IFRS as reported inthese financial statements. In addition, there is a reconciliation of netassets under UK GAAP to IFRS at the transition date for this Group, being the 29August 2004. Exemptions from full retrospective application elected by the Group IFRS 1 provides a number of optional exemptions to the general principles offull retrospective application of IFRS. The Group has elected to take advantageof the following optional exemptions from full retrospective application at thedate of transition. Business combinations A first time adopter may elect not to apply IFRS 3 'Business Combinations'retrospectively to business combinations that occurred before the date oftransition to IFRS. The Group has elected to take advantage of this exemption.Business combinations that occurred before the date of transition have beenconsolidated in accordance with UK GAAP. Any unamortised goodwill at 29 August2004 has been recognised in the IFRS financial statement at amortised cost. Financial instruments In its first financial statements a first time adopter need not restate itscomparative information in compliance with IAS 32 and IAS 39. The Group haselected to take advantage of this exemption. The Group has adopted IAS 32 andIAS 39 with effect from 4 September 2005. Reconciliations of UK GAAP to IFRS The Group has prepared reconciliations between the shareholders' equityrecognised under UK GAAP and under IFRS at 29 August 2004, the date oftransition to IFRS, and as at 3 September 2005. The UK GAAP financial statementhas been extracted from the previously published UK GAAP financial statement forthe period ended 3 September 2005. Debenhams plc (formerly Debenhams Retail Holdings Limited) was incorporated on10 May 2005. As a result, there is no UK GAAP consolidated balance sheet forthe Group at 29 August 2004. However, under IFRS, the acquisition of theDebenhams Group on 24 May 2005 is treated as a reverse acquisition, andtherefore, an IFRS comparative balance sheet at this date has been presented.The adjustments have been split into four different categories: "IFRS 3(Business Combinations)", "Effects of presentation items", "Effects ofmeasurement items", and "Other items". Reconciliation of equity at 29 August 2004 UK GAAP IFRS 3 Effects of Effects of Other IFRS 29 August presentation measurement 29 August 2004 items items 2004 £m £m £m £m £m £m ASSETSNon current assetsIntangible assets - 800.0 (b) 6.9 (d) - - 806.9Property, plant and equipment - 1,038.9 (b) (6.9) (d) - - 1,032.0Deferred tax asset - 3.9 (b) - 39.3 (i,j,k) 14.2 (l) 57.4 - 1,842.8 - 39.3 14.2 1,896.3 Current assetsInventories - 167.4 (b) - - - 167.4Trade and other receivables - 62.4 (b) - - (14.4) (l) 48.0Cash and cash equivalents - 159.3 (b) - - - 159.3 - 389.1 - - (14.4) 374.7 LIABILITIESCurrent liabilitiesFinancial liabilities - Bank - (43.1) (b) - - - (43.1)overdraft and borrowingsTrade and other payables - (359.9) (b) - 34.2 (i,k) - (325.7)Provisions - - (4.8) (g) - - (4.8) - (403.0) (4.8) 34.2 - (373.6) Net current (liabilities)/ - (13.9) (4.8) 34.2 (14.4) 1.1assets Non current liabilitiesFinancial liabilities - Bank - (1,829.2) (b) - - - (1,829.2)overdraft and borrowingsDeferred tax liabilities - (99.4) (b,c) - (18.2) (h) - (117.6)Other non-current liabilities - - - (143.5) (i,j) - (143.5)Provisions - (13.0) (b) 4.8 (g) - - (8.2)Defined benefit obligation - - - - (47.4) (l) (47.4) - (1,941.6) 4.8 (161.7) (47.4) (2,145.9) Net liabilities - (112.7) - (88.2) (47.6) (248.5) SHAREHOLDERS' EQUITYShare premium - 1.0 (b) - - - 1.0Retained earnings - (113.7) - (88.2) (47.6) (249.5) Total equity - (112.7) - (88.2) (47.6) (248.5) Reconciliation of equity at 3 September 2005 UK GAAP IFRS 3 Effects of Effect of Other IFRS 3 Sept presentation measurement 3 Sept 2005 items items 2005 £m £m £m £m £m £m ASSETS Non current assets Intangible assets 2,504.5 (1,692.6) (a,b) 18.0 (d) - - 829.9Property, plant and equipment 668.0 - (18.0) (d) - - 650.0Financial assets - Available for 7.2 - - - - 7.2sale investments Deferred tax asset - - 11.9 (e,f) 47.0 (i,j,k) - 58.9 3,179.7 (1,692.6) 11.9 47.0 - 1,546.0 Current assets Inventories 197.2 - - - - 197.2Trade and other receivables 56.4 (1.9) (b) - - - 54.5Current tax asset - - - - - -Cash and cash equivalents 63.3 - - - 12.8 (m) 76.1 316.9 (1.9) - - 12.8 327.8 LIABILITIES Current liabilities Financial liabilities - Bank (24.9) (50.1) (b) - - - (75.0)overdraft and borrowings Trade and other payables (400.7) - - 12.1 (i,k) - (388.6)Current tax liabilities (0.6) - - - - (0.6)Provisions - - (6.8) (g) - - (6.8) (426.2) (50.1) (6.8) 12.1 - (471.0) Net current liabilities (109.3) (52.0) (6.8) 12.1 12.8 (143.2) Non current liabilities Financial liabilities - Bank (1,911.5) 72.4 (b) - - - (1,839.1)overdraft and borrowings Deferred tax liabilities (12.6) (58.8) (b,c) (2.4) (e) - - (73.8)Other non-current liabilities - - (158.8) (i,j) - (158.8)Provisions (18.8) 9.6 (b) 6.8 (g) - - (2.4)Retirement benefit obligation 0.1 - (9.5) (f) - - (9.4) (1,942.8) 23.2 (5.1) (158.8) - (2,083.5) Net assets/(liabilities) 1,127.6 (1,721.4) - (99.7) 12.8 (680.7) SHAREHOLDERS' EQUITY Share capital - - - - - -Merger reserve 1,200.9 - - - - 1,200.9Reverse acquisition reserve - (1,199.9) (b) - - - (1,199.9)Retained earnings (73.3) (521.5) - (99.7) 12.8 (681.7)Total equity 1,127.6 1,721.4) - (99.7) 12.8 (680.7) Reconciliation of profit for the financial year Group 3 September 2005 Note £m Loss for the financial year reported under UK GAAP (91.8)Reverse acquisition accounting (b) 160.4Goodwill amortisation (a) 63.2Deferred tax adjustments (c,h) 20.1Lease classification and incentives (net of tax) (i) (11.3)Escalating leases (net of tax) (j) (6.8)Adoption of FRS 17 (l) (6.2)Share-based payments (net of tax) (k) (3.9)Profit reported under IFRS 123.7 Explanation of reconciling items between UK GAAP and IFRS IFRS 3 (Business Combinations) a) Under UK GAAP, goodwill was amortised over its estimated expected usefullife of 20 years. Under IFRS 3 'Business combinations', goodwill is consideredto have an indefinite life and so is not amortised, but is subject to annualimpairment testing. The goodwill charge made under UK GAAP has not been recordedunder IFRS from 29 August 2004, the IFRS transition date. The IFRS restatementresults in a reduction in the amortisation charge, within administrationexpenses, of £63.2 million for the year ended 3 September 2005, and acorresponding increase in goodwill as at 3 September 2005. b) Under UK GAAP, the 2005 Acquisition was accounted for as an acquisitionby the Company of Baroness Group Holdings Limited. Total goodwill of £2,536.0million was recognised at the date of the acquisition, calculated as thedifference between the fair value of the consideration (comprising the sharesand loan notes issued by the Company) and the fair value of the identifiable netliabilities of Baroness Group Holdings Limited and its subsidiaries. Under IFRS 3 'Business Combinations', the 2005 Acquisition has been accountedfor as a reverse acquisition, and for accounting purposes the legal subsidiary,Baroness Group Holdings Limited, has been deemed to have acquired the legalparent, Debenhams plc. The net assets of Baroness Group Holdings Limited havebeen recognised at their pre-combination carrying amounts, the cost of theacquisition was nil and there was no goodwill arising. The consideration for the Acquisition was satisfied by the issue of shares(£1,200.9 million) and £589.2 million loan notes. At 3 September 2005, the £22.3million C loan notes outstanding have been transferred to equity and the £50.1million B Loan notes outstanding have been reclassified as a current liability. Fair value adjustments created at the time of the acquisition have been releasedresulting in an increase to deferred tax liabilities of £2.3 million, areduction in non-current provisions of £9.6 million, and a reduction in otherreceivables of £1.9m as at 3 September 2005. As a result of applying reverse acquisition accounting, the consolidated IFRSfinancial information of Debenhams plc is a continuation of the financialinformation of Baroness Group Holdings Limited and its subsidiaries. Theretained earnings shown as at 3 September 2005 are those for Baroness GroupHoldings Limited and its subsidiaries and a reverse acquisition reserve of£1,199.9 million has been created. Adjustments in the Statement of Income andExpenditure representing the trading prior to the reverse acquisition resultedin an increase in profit for the year ended 3 September 2005 of £160.4 million. Overall, as at 3 September 2005 under IFRS, retained earnings are £528.2 millionlower than under UK GAAP and goodwill is reduced by £1,755.8 million. As at 29 August 2004, the reverse acquisition resulted in the following changesto the balance sheet: intangible assets increased by £800.0 million, property,plant and equipment increased by £1,038.9 million, deferred tax asset increasedby £3.9 million, inventories increased by £167.4 million, trade and otherreceivables increased by £62.4 million, cash and cash equivalents increased by£159.3 million, current financial liabilities increased by £43.1 million, tradeand other payables increased by £359.9 million, non-current financialliabilities increased by £1,829.2 million, deferred tax liabilities increased by£41.0 million and provisions increased by £13.0 million. The reverseacquisition also resulted in the creation of a share premium account of £1.0million. c) Under IFRS 3 on business combinations, a deferred tax provision isrecognised on the difference between the fair value of an acquired asset and itsequivalent tax value. Under UK GAAP, deferred tax is calculated on timingdifferences and therefore no additional deferred tax effect is required onbusiness combinations where permanent differences exist between the tax value ofan acquired asset and its carrying value. Similarly, IFRS also requires that adeferred tax asset is created for the fair value of developer incentivesacquired on a business combination which will not be taxed when released to theincome statement. The effect of this difference is an increase in deferred taxliabilities of £56.5 million as at 3 September 2005 (2004: £58.4 million) and areduction in the tax charge for the year ended 3 September 2005 of £1.9 million. Effects of presentation items d) In accordance with IFRS, capitalised software costs have beenreclassified from property, plant and equipment to intangible assets. The impactof the reclassification on transition and at 3 September 2005 was £6.9 millionand £18.0 million respectively. e) Deferred tax assets and liabilities are shown separately under IFRS.The effect of this is to increase deferred tax assets by £2.4 million as at 3September 2005 with a corresponding increase in deferred tax liabilities at thisdate. f) Accounting for pensions in accordance with IAS 19 'Employeebenefits' is different from FRS 17 'Retirement benefits'. The main differencesare: • Under FRS 17, pension balances are presented net of deferred tax onthe face of the balance sheet. Under IFRS these balances are shown separately asa liability for the pension scheme and as an asset for deferred tax. As aresult, the Group's retirement benefit obligation at 3 September 2005 increasedby £9.5 million and the non-current deferred tax asset increased by the sameamount. • Pension assets are valued at bid value under IFRS, whereas a midmarket valuation is used under FRS 17. The impact of this change is notmaterial. g) In accordance with IFRS provisions have been split between currentand non-current on the face of the balance sheet. As at 3 September 2005 £6.8million (2004: £4.8 million) has been reclassified as a current provision. Effects of measurement items h) IFRS requires that deferred tax is recognised where assets are heldat values that differ from their tax base cost. The basis of this calculationvaries depending on whether value is expected to be achieved from the assetthrough sale or through retention in the business. On the date of transition, adeferred tax liability of £18.2 million was created under IFRS to reflect thecapital gains tax that would become payable in respect of a portfolio ofproperties that the Group expected to sell. This liability was subsequentlyreleased to the income statement in the year ended 3 September 2005 when theproperties left the accounting corporate group without tax becoming payable. (i) As part of the operating lease agreements for buildings, the Groupreceives a number of lease incentives in the form of rent-free periods anddeveloper contributions. Under IFRS, lease incentives are spread over the leaseterm. Under UK GAAP, they were spread over the shorter of the lease term or theperiod to the first rent review, and the resulting liabilities of £4.6 million,relating to rent free periods, and £39.6 million, relating to developerscontributions, were shown within current trade and other payables. On transitionto IFRS at 29 August 2004, current trade and other payables were reduced by £3.5million and £33.5 million for rent free periods and developers contributionsrespectively and liabilities of £18.3 million and £124.6 million respectivelywere created in other non-current liabilities. This resulted in a decrease incurrent trade and other payables of £31.8 million as at 3 September 2005 (2004:£37.0 million), an increase in other non-current liabilities of £148.5 millionas at 3 September 2005 (2004: £142.9 million) and an increase in cost of salesof £10.9 million in the year ended 3 September 2005. The tax effect of theseadjustments was an increase in deferred tax assets of £38.0 million as at 3September 2005 (2004: £38.3 million) and an increase in the tax charge for theyear ended 3 September 2005 of £0.4 million. (j) A number of operating lease agreements contain fixed incrementalrental charges. In accordance with IAS 17 the total committed cost has beencalculated and is charged on a straight-line basis. Under UK GAAP the fixedincrements have been charged to the income statement on a basis consistent withthe amounts incurred each year. The impact of adopting IAS 17 for the leases hasbeen to increase other non-current liabilities by £10.3 million as at 3September 2005 (2004: £0.6 million), to increase non-current deferred tax assetby £3.1 million as at 3 September 2005 (2004: £0.2 million) and to increase costof sales and reduce the tax charge by £9.7 million and £2.9 million respectivelyin the year ended 3 September 2005. (k) On a UK GAAP basis, applying UITF17 'Employee share schemes',share-based awards are accounted for on an intrinsic basis. Under IFRS 2 'Sharebased payments' a charge is required in the income statement to recognise thefair value of shares and options awarded to employees over the period to whichthe employees' services relate. In the year ended 3 September 2005, the effectof this adjustment was to increase cost of sales by £4.7 million, increaseadministration expenses by £0.9 million and reduce the Group's tax charge by£1.7 million. The effect of this adjustment on the Group's balance sheet was toincrease deferred tax assets by £5.9 million as at 3 September 2005 (2004: £0.8million) and to increase trade and other payables by £19.7 million as at 3September 2005 (2004: £2.8 million). Other Items (l) Costs relating to the Groups pension schemes were accounted forunder SSAP 24 prior to the reverse acquisition. The UK GAAP financialstatements for the period ended 3 September 2005 applied FRS 17. Applying FRS17 to the period prior to the reverse acquisition resulted in an increase incost of sales of £5.9 million, an increase in administration expenses of £1.3million and an increase in other finance income of £1.0 million on for the yearended 3 September 2005. The impact on the balance sheet for the year ended 28August 2004 was to increase the defined benefit obligation by £47.4 million, toincrease deferred tax assets by £14.2 million and to reduce trade and otherreceivables by £14.4 million. The balance sheet at 3 September 2005 isunaffected. (m) In the UK GAAP accounts for the year ended 3 September 2005 theDebenhams Retail Employee Trust was not consolidated. An adjustment relating tothe consolidation of the Debenhams Retail Employee Trust resulted in an increasein cash and cash equivalents of £12.8 million for the year ended 3 September2005 and a corresponding increase in retained earnings. 13 Events after the balance sheet date On 12 September 2006 the Company acquired the business and assets of 9 storesbased in the Republic of Ireland from Roches Stores, an unlimited companyincorporated and registered in Ireland. The consideration for this acquisitionwas €29 million plus the value of the stock, with €15 million payable oncompletion, €5 million payable on the first anniversary and €9 million on thesecond anniversary of completion. The assets acquired include fixtures andequipment at each of the stores, goodwill, licences and trademarks. 14 Financial information The statutory accounts will be filed with the Registrar of Companies and sent tothe holders of the Company's listed securities in November. Copies will beavailable at the Company's registrars - Lloyds TSB Registrars, The Causeway,Worthing, West Sussex, BN99 6DA (0870 600 3970), and at the Company's registeredoffice, 1 Welbeck Street, London, W1G 0AA from the date of posting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Debenhams