Full Year Results

22nd Oct 2009 07:00



22 October 2009

DEBENHAMS PLC

FULL YEAR RESULTS FOR YEAR ENDED 29 AUGUST 2009

Financial Highlights

1 Before non-cash amortisation of capitalised bank fees of £4.4m (2008: £4.2m) 

Operational Highlights

2 Source: TNS Worldpanel Fashion 24 weeks market share data to 13 September 2009 vs. 2008

Rob Templeman, chief executive of Debenhams, said:

"We are very pleased with the outcome for 2009, especially given the difficult economic and retail environment. Achieving profit growth in these circumstances is, we believe, a creditable performance.

"The store space moves have now been completed and early indications are that customers are finding favour with the new ranges and departments. We look forward to further developments in our own bought ranges in 2010 and will continue to focus on improving the design, quality and value of our entire customer offer.

"The outlook for consumer behaviour remains hard to predict. However, we are encouraged by the response of customers to the changes we have made to our offer. Our focus will continue to be on the drivers of cash profit. We will also be investing for future growth through the opening of new stores, development of our multi-channel business and recommencing the store refurbishment programme."

  FINANCIAL SUMMARY

	2009	2008	Change
Gross transaction value (GTV)	£2,339.7m	£2,336.0m	+0.2%
Like-for-like sales			-3.6%
Operating profit	£182.2m	£176.1m	+3.5%
Gross margin			+70bps
Headline profit before tax*	£125.2m	£110.1m	+13.7%
Profit before tax	£120.8m	£105.9m	+14.1%
Profit attributable to equity shareholders	£95.1m	£77.1m	+23.3%
Earnings per share	10.0p	9.0p	+11.1%
Full year dividend per share	Nil	3.0p	-100.0%
	29-08-09	30-08-08	Change
Net debt	£590.3m	£994.0m	£403.7m

*After adding back £4.4m of amortisation of capitalised bank fees (2008: £4.2m); includes £13.1m deduction for flat lining of lease rentals, £138.3m before deduction (2008: deduction of £13.5m; PBT of £123.6m before deduction).

Enquiries

Debenhams plc
Rob Templeman, Chief Executive
Chris Woodhouse, Finance Director	020 7408 3302
Lisa Williams, Investor Relations	020 7408 3304/07908 483841
Financial Dynamics
Jonathon Brill	020 7269 7170
Billy Clegg	020 7269 7157
Caroline Stewart	020 7269 7227

High resolution images are available for media to view and download free of charge from www.prshots.com/Debenhams.

  REVIEW OF THE YEAR

MARKET CONDITIONS

2009 was characterised by a high degree of volatility arising out of wider economic factors and the financial year coincided with the worst of the "credit crunch" period almost in its entirety. Trading in the first half in particular was influenced by high profile collapses in the financial services sector which negatively impacted an already fragile consumer confidence. However, the important Christmas trading period held up reasonably well. There were a number of competing influences on consumer confidence in the second half. On the negative side, concerns over unemployment depressed confidence. On the positive side, lower mortgage payments due to record low interest rates gave rise to higher disposable income for some consumers. In the Republic of Ireland, trading conditions were difficult throughout the year in light of the sharp economic decline.

FINANCIAL PERFORMANCE

Debenhams delivered a good financial performance in 2009 despite the difficult trading environment with increases in gross transaction value, market share, gross margin and profit.

Gross transaction value (GTV) was 0.2% higher than the previous year at £2,339.7 million. Market share gains were achieved during the year (source: TNS Worldpanel Fashion 24 weeks market share data to 13 September 2009 vs. 2008).

 

During the last quarter of the year, the largest space moves in Debenhams' history commenced which resulted in c530,000 sq ft of trading space being converted from concession to own bought ranges. As expected, this programme caused disruption to sales in the latter part of the period and like-for-like sales for the year were 3.6% lower than last year. The shortfall in like-for-like sales was more than offset by a strong gross margin performance which improved significantly as the year progressed.

Gross margin increased by 70 basis points over last year. This was driven by higher own bought sales and an ongoing focus on the drivers of cash profit, including the tight management of costs and stock, and historically low terminal stock levels which resulted in lower markdown in sale periods. The adverse impact of sterling's deflation against the US dollar was reduced to a considerable degree by the company's hedging policy. 

Headline profit before tax and amortisation of capitalised bank fees was £125.2 million, an increase of 13.7% over the £110.1 million achieved last year. Profit before tax of £120.8 million grew by 14.1% (2008: £105.9 million) and profit attributable to equity shareholders increased by 23.3% to £95.1 million. EBITDA increased by 3.6% from £268.8 million in 2008 to £278.5 million in 2009.

Basic earnings per share of 10.0 pence (949 million weighted average shares in issue) compared with 9.0 pence last year (860 million weighted average shares in issue), an increase of 11.1%.

Cash flow from operating activities before financing, tax and interest during the year was £156.5 million compared with £160.2 million a year ago.

Net debt at year end on 29 August 2009 was £590.3 million. This was an improvement of £403.7 million over the position at the start of the financial year.

The scheduled £100.0 million amortisation payment of the term loan was made in May 2009 from cash flow. In June 2009, Debenhams raised £303.8 million (net) in a placing and open offer capital raising. Subsequently, a pre-payment of £50.0 million was made against the £150.0 million amortisation payment due in May 2010. A further £61.4 million of debt was bought back in the market at an average discount of 5.6%.

The board did not declare an interim dividend and has not proposed a final dividend for 2009. It is, however, the board's intention to return to paying a dividend as soon as it is financially prudent to do so. 

OPERATING REVIEW

Brand and Product Strategy

Debenhams gained market share throughout the year. In the most recently available data for the UK, Debenhams' total market share in clothing, footwear and accessories increased by 10 basis points (source for all market share data: TNS Worldpanel Fashion 24 weeks market share data to 13 September 2009 vs. 2008). The strongest market share performances were delivered by menswear (up 20 basis points) and childrenswear (up 40 basis points). Womenswear market share for the period was flat and was impacted by weak concession performance and the disruption to sales in the fourth quarter from space moves.  Debenhams has continued to gain a greater share of the market over the past two years and customers have responded positively to the significant improvements made to the design, quality and value of Debenhams' own bought products, as well as an enhanced shopping experience on the back of improved instore presentation.

Own bought products accounted for 76.0% of sales in 2009, up from 71.8% last year and in line with the strategic aim to increase the own bought product mix. The increase in own bought mix was largely driven by the introduction of a number of new own bought ranges and departments, the expansion of some existing brands (both in terms of trading space and product breadth) and higher own bought mix in new stores.

Designers at Debenhams made a strong contribution to sales during 2009 of some £432 million, an increase of 11.4% over the prior year. Overall, own bought sales increased by 3.4%. The weakest category was concessions which saw sales decline by 16.5%.

Towards the end of financial year 2009, a major programme of space moves commenced. In total, c530,000 sq ft of trading space was converted from concessions to own bought. This included the loss of c215,000 sq ft from womenswear concessions (including Principles), c200,000 sq ft from home concessions and c120,000 sq ft from women's accessories concessions. The largest increases in own bought space were womenswear (c165,000 sq ft), sports and leisure (c140,000 sq ft), women's accessories (c120,000 sq ft) and childrenswear (c60,000 sq ft). The programme was completed post period end in September 2009 and we are pleased with the response of customers to date.

New ranges introduced during 2009 include Butterfly by Matthew Williamson and Mantaray in womenswear, Bluezoo in childrenswear, sports and leisure for women, men and children and Ben de Lisi in home. Although it is early days as many of these brands were launched during the final month of the year, initial reactions from customers have been very positive.

In March, a quantity of stock and fixtures and fittings was acquired from the administrators of Principles, as well as a licence to trade the brand through that stock. This was done to ensure continuity of supply to Debenhams through the spring/summer season.

Since the end of the financial year we have announced the launch of two new own bought brands which will be introduced in the spring of 2010. H! by Henry Holland will be a new addition to Designers at Debenhams focusing on young fashion. Having now acquired the brand, Principles will return exclusively to Debenhams in conjunction with designer Ben de Lisi.

Stock Management

Stock levels were managed tightly during the year. Terminal stock was at a historically low level at the end of the financial year of 2.7%, arising mainly from very aggressive discounting in the post-Christmas sale. At year end, total stock was 14.1% higher than the previous year, of which 10.0% related to the increase in own bought space allocation. Like-for-like stock density decreased by 5.1%.

Store Portfolio 

At the end of 2009, the store portfolio consisted of 144 department stores and ten Desire by Debenhams stores. The total trading space of the portfolio was 11,046,000 sq ft, an increase of 3.1% since the start of the year.

Five new stores were opened during the year. These were: Livingston (60,000 sq ft) in August 2008; Westfield London (109,000 sq ft), Wrexham (60,000 sq ft) and Great Yarmouth (20,000 sq ft) all in October 2008; and Bury St Edmunds (59,000 sq ft) in March 2009. Overall, new stores have performed in line with or ahead of expectations.

The new store pipeline for 2010 is secure with six new stores, comprising three department stores and three Desire by Debenhams stores, adding some 300,000 sq ft of trading space. Two of these stores have opened since the end of the year: Kidderminster Desire in September and Monks Cross Desire in October.

The programme to refurbish core stores remained largely on hold in 2009, although the Cardiff store was refurbished, including a sizeable extension which provides an entrance into the new St. David's Shopping Centre. Improvements were made in all stores with the introduction of new shop fits for several ranges across the chain, especially in womenswear including J by Jasper Conran, Star by Julien Macdonald and Collection in 2009. It is management's intention to recommence the core store refurbishment programme in the second half of 2010.

International Franchise Stores

Debenhams' business outside the UK and Republic of Ireland takes the form of franchise stores operated by a number of regional franchise partners.

During 2009, a further 11 international franchise stores were opened in eight countries. These included market entry in Iran and Moldova. There were 52 franchise stores in 17 countries by the end of the year, representing 1.7 million sq ft of trading space.

Whilst some of the international markets have experienced a slowdown in consumer activity, overall we are pleased with the performance of the international business. Sales attributable to the international business increased by 13.6% to £63.3 million (2008: £55.7 million). Its contribution to total GTV increased from 2.4% in 2008 to 2.7% in 2009.

Multi-Channel

Debenhams Direct, the online business, continued to grow in 2009. Sales were up 31% to £55.1 million (2008: £42.1 million), resulting in a contribution to GTV of 2.4% (2008: 1.8%). EBITDA increased by 133%. Visitors to Debenhams Direct increased by 36.8% during 2009.

During 2009 a change was made to the online fulfilment provider which has improved service levels for customers and reduced delivery times. New features added to the website in 2009 include: zoom, video and catwalk/outfit projection; the online outlet which provides access to all current offers and promotions; shop by size; product reviews and surveys; and social networking capability. 

Priorities going forward will be to develop a full multi-channel offering alongside the existing online operation. Integrating the instore and online businesses will be an important part of this, seeking to extend ranging for smaller stores and availability for all stores. Other opportunities include international online business and the use of affiliates to drive additional footfall to online activities. 

Marketing

Launched in Autumn 2009, Debenhams has recently unveiled its new brand manifesto, "design in every department", symbolising the importance of design across all aspects of the business. New branding has been rolled out throughout all communications, stores and the website.  A key pillar of this campaign is a TV/digital campaign running in October and November 2009, with a subsequent product campaign continuing into 2010.

Complementing this focus of great product design and quality, Debenhams will continue to offer its customers exceptional value for money via product offers, promotions and spectaculars. We are committed to ensuring we support our customers when the economic outlook remains challenging.

The Debenhams Beauty Club was launched in April and not only allows customers to earn points on their purchases at Debenhams for money-off rewards but it also gives them access to cosmetics samples/free gifts, makeovers/skincare consultations, instore events, exclusive products and offers. 

BALANCE SHEET

Net debt stood at £590.3 million at year end, £403.7 million lower than at the start of the year.

The board had said for some time that reducing leverage for Debenhams was an important aim. To this end, a capital raising was launched on 4 June 2009 and subsequently approved by shareholders at a General Meeting on 23 June 2009 with new shares issued on 26 June 2009. The capital raising took the form of a placing and open offer which was chosen due to the unusually concentrated nature of Debenhams' shareholder register which contained a number of large shareholders who were unlikely to participate. The choice of this structure was vindicated as the firm placing element was several times oversubscribed and the discount was one of the lowest seen amongst the raft of capital raisings undertaken across the market during the first half of the calendar year 2009.

The purpose of the capital raising was four-fold. First, to reduce net debt and enhance the ability to refinance in the future. Secondly, to provide an opportunity to amend existing covenants resulting in greater headroom and operational and financial flexibility. Thirdly, to provide funds to buy back debt at below par in the market should it become available. Finally, to improve the ability to pursue opportunistic acquisitions.

In line with these aims, the covenants on the term loan and revolving credit facility were reset as follows: net debt/EBITDA of 3.75 times; fixed charge cover of 1.60 times (NB the metrics used in these covenants are based on UK GAAP as adjusted for covenant purposes).

A £50.0 million pre-payment was made in July against the £150.0 million amortisation payment on the term loan which is due in May 2010. A further pre-payment of £100.0 million was made after the end of the year on 21 October 2009. In addition, £61.4 million of debt was acquired in the market at an average discount of 5.6%.  

We will continue to look for accretive acquisitions. These could take the form of adding operating units to leverage our existing infrastructure or acquiring brands which would be reversed into Debenhams. Any acquisition must maintain or improve our leverage ratios.

BOARD OF DIRECTORS

Martina King and Sophie Turner Laing both joined the board as non-executive directors on 1 August 2009. Michael Sharp was appointed Deputy Chief Executive on 3 November 2008. Paul Pindar has been appointed Senior Independent Director and the Remuneration Committee is now chaired by Adam Crozier.

Richard Gillingwater retired from the board on 16 April 2009 and Peter Long retired on 1 August 2009. Philippe Costeletos and Jonathan Feuer resigned from the board on 3 June 2009. Angela Spindler resigned from the board on 30 November 2008. 

It has today been announced that John Lovering, Chairman, will retire on 31 March 2010 thereby providing ample time for the appointment of his successor. Further, Nigel Northridge will join the board as a non-executive director on 1 January 2010.

CURRENT TRADING

For the seven weeks to 17 October 2009, gross transaction value increased by 2.8% and like-for-like sales increased by 0.6%. Gross margin and cash margin are both higher than for the same period last year.

OUTLOOK

The outlook for consumer behaviour remains hard to predict. However, we are encouraged by the response of customers to the changes we have made to our offer. Our focus will continue to be on the drivers of cash profit. We will also be investing for future growth through the opening of new stores, development of our multi-channel business and recommencing the store refurbishment programme.

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. Any such forward-looking statements are subject to various risks and uncertainties which are detailed at the end of this document.

Notes to Editors

Debenhams is a leading department stores group with a strong presence in key product categories including womenswear, menswear, childrenswear, health and beauty, accessories, lingerie and home. Debenhams is the second largest department store chain in the UK.

Debenhams has a total of 144 department stores in the UK and the Republic of Ireland and 12 Desire by Debenhams stores, which is a small store concept featuring a mix of womenswear, health and beauty, accessories, lingerie and childrenswear. Debenhams has 52 international franchise stores in 17 countries and an online store, www.debenhams.com, through which much of the Debenhams range is available.

Designers at Debenhams include Ted Baker, Jeff Banks, Jasper Conran, Erickson Beamon, Pip Hackett, Betty Jackson, Ben de Lisi, Julien Macdonald, Melissa Odabash, Jane Packer, Pearce Fionda, Janet Reger, John Rocha and Matthew Williamson.

 

Consolidated Income Statement

For the financial year ended 29 August 2009

 

				For the financial year ended:
		Note		29 August 2009		30 August 2008
				£m		£m
Revenue		2		1,915.6		1,839.2
Cost of sales				(1,650.7)		(1,571.6)
Gross profit				264.9		267.6
Distribution costs				(45.3)		(50.0)
Administrative expenses				(37.4)		(41.5)
Operating profit				182.2		176.1
Interest receivable and similar income		4		1.3		4.8
Interest payable and similar charges		5		(62.7)		(75.0)
Profit before taxation				120.8		105.9
Taxation		6		(25.7)		(28.8)
Profit for the financial year attributable to equity shareholders		9		95.1		77.1

Earnings per share attributable to the equity shareholders
				Pence per share			Pence per share
Basic			8		10.0			9.0
Diluted			8		10.0			9.0

Dividends per share 

			Pence per share		Pence per share
Proposed final dividend per share		7		-		0.5

All Group operations during the financial years were continuing operations.

  

 

Consolidated Statement of Recognised Income & Expenses

For the financial year ended 29 August 2009

							For the financial year ended:
							29 August 2009		30 August 2008
							£m		£m
Profit for the financial year							95.1		77.1
Actuarial loss recognised in the pension scheme							(93.6)		(79.8)
Movement on deferred tax relating to the pension scheme							26.2		22.3
Currency translation							(0.3)		1.3
Change in the valuation of the available-for-sale investments							(2.2)		(9.3)
Cash flow hedges
- net fair value losses (net of tax)							(9.2)		(5.0)
- recycled and adjusted against the initial measurement of the acquisition cost of inventory							(20.1)		0.9
- reclassified and reported in net profit							-		(0.5)
Net expense recognised directly in equity							(99.2)		(70.1)
Total recognised (expense)/income attributable to the equity shareholders of the Group							(4.1)		7.0

Consolidated Balance Sheet

At 29 August 2009		Note		29 August 2009		30 August 2008
				£m		£m
ASSETS
Non-current assets
Intangible assets				839.9		840.8
Property, plant and equipment				669.2		693.3
Financial assets
- Available-for-sale investments				8.8		11.0
- Derivative financial instruments				0.2		8.2
Retirement benefit assets				-		25.0
Deferred tax assets				80.6		57.4
				1,598.7		1,635.7
Current assets
Inventories				270.9		237.5
Trade and other receivables				68.5		58.5
Derivative financial instruments				9.5		10.5
Cash and cash equivalents		11		188.2		42.1
				537.1		348.6
LIABILITIES
Current liabilities
Financial liabilities
- Bank overdraft and borrowings				(92.6)		(144.5)
- Derivative financial instruments				(24.2)		-
Trade and other payables				(458.6)		(470.2)
Current tax liabilities				(34.0)		(29.9)
Provisions for liabilities and charges				(2.1)		(0.7)
				(611.5)		(645.3)
Net current liabilities				(74.4)		(296.7)
Non-current liabilities
Financial liabilities
- Bank overdraft and borrowings				(685.9)		(891.6)
- Derivative financial instruments				(8.0)		(0.7)
Deferred tax liabilities				(78.3)		(95.3)
Other non-current liabilities				(273.0)		(225.8)
Provisions for liabilities and charges				(0.2)		(0.3)
Retirement benefit obligations				(53.6)		-
				(1,099.0)		(1,213.7)
Net assets				425.3		125.3
SHAREHOLDERS' EQUITY
Share capital				0.1		0.1
Share premium				682.9		682.9
Merger reserve				1,504.7		1,200.9
Reverse acquisition reserve				(1,199.9)		(1,199.9)
Hedging reserve				(18.5)		10.8
Other reserves				2.6		5.1
Retained earnings				(546.6)		(574.6)
Total equity		9		425.3		125.3

  Consolidated Cash Flow Statement

For the financial year ended 29 August 2009

							For the financial year ended:
				Note			29 August 2009		30 August 2008
							£m		£m
Cash flows from operating activities
Cash generated from operations				10			241.0		285.8
Interest received							1.1		4.8
Interest paid							(58.4)		(71.6)
Tax paid							(25.3)		(27.6)
Net cash generated from operating activities							158.4		191.4
Cash flows from investing activities
Purchase of property, plant and equipment							(77.0)		(124.9)
Purchase of intangible assets							(7.5)		(4.2)
Proceeds from sale of property, plant and equipment							-		3.5
Net cash used from investing activities							(84.5)		(125.6)
Cash flows from financing activities
Repayment of term loan facility							(150.0)		(100.0)
Repurchase of term loan facility							(35.5)		-
Proceeds from issue of ordinary shares							323.2		-
Share issue costs							(14.7)		-
Dividends paid				7			(2.4)		(44.4)
Purchase of shares by Debenhams Retail Employee Trust 2004 ('DRET')							-		(1.1)
Finance lease payments							(0.1)		(0.7)
Capitalised debt issue costs							(3.3)		(1.8)
Net cash generated/(used) in financing activities							117.2		(148.0)
Net increase/(decrease) in cash and cash equivalents							191.1		(82.2)
Net cash and cash equivalents at beginning of financial year							(2.9)		79.3
Net cash and cash equivalents at end of financial year					11		188.2		(2.9)

Notes to the Accounts

At 29 August 2009

1. Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the European Union and those parts of the Companies Act 2006 applicable to those companies reporting under IFRS. 

The consolidated financial statements have been prepared on the basis of the accounting policies set out in the financial statements of Debenhams plc for the financial year ended 29 August 2009. Accounting policies have been consistently applied. 

The financial information set out in this document does not constitute the statutory accounts of the Group for the years ended 29 August 2009 and 30 August 2008 but is derived from the 2009 annual report and financial statements. The annual report and financial statements for 2008, which were prepared under IFRS, have been delivered to the Registrar of Companies and the Group annual report and financial statements for 2009, prepared under IFRS, will be delivered to the Registrar of Companies in due course. The auditors have reported on those accounts and have given an unqualified report which does not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. Turnover

The Group has one class of business, retailing, and all material operations are in the UK.

3. Gross transaction value

Revenue from concessions is required to be shown on a net basis, being the commission received rather than the gross value achieved by the concessionaire on the sale. Management believes that gross transaction value, which presents revenue on a gross basis before adjusting for concessions, staff discounts and the cost of loyalty scheme points, represents a good guide to the value of the overall activity of the Group.

				29 August 2009		30 August 2008
				£m		£m
Gross transaction value				2,339.7		2,336.0

 

4. Interest receivable and similar income

				29 August  2009		30 August 2008
				£m		£m
Interest on bank deposits				1.3		4.8

 

5. Interest payable and similar charges 

 

							29 August   2009				30 August 2008
							£m				£m
Bank loans and overdrafts								(55.0)			(67.1)
Amortisation of issue costs on loans								(4.4)			(4.2)
Interest payable on finance leases								(3.3)			(3.0)
Charges arising from ineffective cash flow hedges								-			(0.7)
								(62.7)			(75.0)

6. Taxation

Analysis of tax charge for the financial year			29 August 2009		30 August 2008
			£m		£m
Current tax:
UK corporation tax charge on profit for the year			39.8		26.0
Adjustments in respect of prior periods			(10.5)		(0.2)
Current tax expense			29.3		25.8
Deferred taxation:
Origination and reversal of timing differences			(8.5)		(3.6)
Pension cost relief in excess of pension charge			4.2		7.0
Adjustments in respect of prior periods			0.7		(0.4)
Deferred tax (credit)/expense			(3.6)		3.0
Tax charge for the financial year			25.7		28.8

7. Dividends

			29 August  2009		30 August 2008
			£m		£m
Final paid 0.5 pence (2008: 3.8 pence) per £0.0001 share
Settled in cash			2.4		32.6
Settled in scrip issue			1.9		-
Interim paid nil pence (2008: 2.5 pence) per £0.0001 share
Settled in cash			-		11.8
Settled in scrip issue			-		9.7
			4.3		54.1

 

The directors have not proposed a final dividend in respect of the financial year ended 29 August 2009 (2008: 0.5 pence per share). 

8. 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 outstanding during the year.

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 year. 

Basic and diluted earnings per share				29 August 2009		30 August 2008
				Basic	Diluted	Basic	Diluted
				£m	£m	£m	£m
Profit for the financial year after taxation				95.1	95.1	77.1	77.1
				Number m	Number m	Number m	Number m
Weighted average number of shares				950.8	950.8	861.5	861.5
Shares held by ESOP (weighted) (weighted)				(1.4)	(1.4)	(1.1)	(1.1)
Shares issuable (weighted)				-	-	-	-
Adjusted weighted average number of shares				949.4	949.4	860.4	860.4
				Pence  per share	Pence per share	Pence per share	Pence  per share
Earnings per share				10.0	10.0	9.0	9.0

The total number of shares in issue as at 29 August 2009 was 1,286,806,299.

9. Consolidated statement of changes in shareholders' equity

						29 August 2009 £m		30 August 2008 £m
Opening shareholders' equity						125.3		163.0
Profit for the financial year						95.1		77.1
Currency translation differences						(0.3)		1.3
Actuarial loss in pension schemes						(93.6)		(79.8)
Movement in deferred tax relating to pension schemes						26.2		22.3
Change in valuation of available for sale investments						(2.2)		(9.3)
Cash flow hedges						(29.3)		(4.6)
Employee share ownership plans						0.3		0.8
Purchase of treasury shares for DRET						-		(1.1)
Dividends paid						(4.3)		(54.1)
Shares issued in lieu of dividend						1.9		9.7
Merger reserve arising on issue of shares						303.8		-
Discount arising on repurchase of term loan facility (net of tax)						2.4		-
Closing shareholders' equity						425.3		125.3

 

On 4 June 2009 the Company announced a share issue to raise additional funds through a firm placing and placing and open offer to raise gross proceeds of £323.2 million. New ordinary shares issued in respect of the open offer amounted to 73.4 million and 330.6 million new ordinary shares were issued though the placing, both at an issue price of 80 pence per share. This share issue was approved by shareholders on 23 June 2009 and all issued shares had a nominal value of £0.0001 each. The share issue was effected through a structure which resulted in a merger reserve arising under section 612 of the Companies Act 2006.

The Company raised proceeds of £303.8 million, net of issue costs of approximately £19.4 million. The shares were issued and commenced trading on the London Stock Exchange on 26 June 2009. 

10. Cash generated from operations

							29 August 2009	30 August 2008
							£m	£m
Profit for the financial year							95.1	77.1
Taxation (note 6)							25.7	28.8
Depreciation							87.9	87.5
Accelerated depreciation							0.1	0.8
Amortisation							8.1	7.5
Loss/(profit) on disposal of property, plant and equipment							0.2	(3.1)
Employee options granted during the year							0.3	0.8
Fair value gains on derivative instruments							(0.6)	(3.7)
Net movements in provisions for liabilities and charges							1.3	(1.8)
Interest income (note 4)							(1.3)	(4.8)
Interest expense (note 5)							62.7	75.0
Difference between pension charge and contributions paid							(15.0)	(17.5)
Net movement in other non-current liabilities							47.2	18.8
Changes in working capital
(Increase)/decrease in inventories							(33.4)	7.1
(Increase)/decrease in trade and other receivables							(7.3)	8.0
(Decrease)/increase in trade and other payables							(30.0)	5.3
Cash generated from operations							241.0	285.8

11. Analysis of changes in net debt

		At  30 August  2008	Cash flow	Non cash movements	At  29 August  2009
		£m	£m	£m	£m
Analysis of net debt
Cash		42.1	146.1	-	188.2
Bank overdrafts		(45.0)	45.0	-	-
Cash and cash equivalents and bank overdrafts		(2.9)	191.1	-	188.2
Debt due within one year		(96.2)	100.0	(92.7)	(88.9)
Debt due after one year		(844.3)	88.8	112.7	(642.8)
Finance lease obligations due within one year		(3.3)	0.1	(0.5)	(3.7)
Finance lease obligations due after one year		(47.3)	-	4.2	(43.1)
		(994.0)	380.0	23.7	(590.3)

The Group has taken advantage of current credit market conditions to buy back its debt in the market. During the year the Group purchased debt with a par value of £61.4 million.

12. Financial information

The statutory accounts will be filed with the Registrar of Companies and sent to the holders of the Company's listed securities in December. Copies will be available at the Company's registrars, Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA (0870 607 6838), and at the Company's registered office 1 Welbeck Street, London, W1G 0AA from the date of posting.

  Statement of Directors' Responsibilities

The 2009 Annual Report, which will be published on 9 December 2009, contains a responsibility statement pursuant to Disclosure and Transparency Rule 4.1.12. This states that the directors confirm that to the best of their knowledge:

The directors of Debenhams plc are set out in the Group's 2009 Annual Report.

A list of current directors is maintained on the Investors section of the Debenhams website at www.debenhamsplc.com.

By order of the board

Paul Eardley

Company Secretary

22 October 2009

  PRINCIPAL BUSINESS RISKS AND UNCERTAINTIES

Introduction

The board has overall responsibility for risk management and internal control in terms of achieving Debenhams' objectives. This is carried out through a regular and systematic assessment of the risks facing the business in order to provide assurance that strategic targets can be met. The board is responsible for the company's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. 

Both external factors, such as the economic environment, and internal factors, such as the retention of key management, are included in the risks and uncertainties that could substantially impact performance. Whilst it is not possible to list them all, the key risks in no particular order, as determined by the board, their impact and relevant mitigation are detailed in the table below.

Risk	Impact	Examples of mitigation
STRATEGIC RISK
Consistent fall in customer spending as a result of economic downturn, inflation or deflation	Reduction in gross transaction value and a decline in sales on discretionary purchases	Strategic business reviews conducted Business focused on key priorities and costs Brand awareness programme strengthened Growth through new stores, developing strong targeted power brands, accelerating development of multi-channel offer and developing international opportunities with franchise partners
Ineffective brand awareness and marketing programmes	Loss of market share, customer loyalty, reduction in gross transaction value and a decline in sales on discretionary purchases	Range of discrete media used to target specific segments of the market Brand awareness programme strengthened Effectiveness measured regularly by management through key performance indicators
Failure to develop and implement new store roll out successfully	Reduced growth or a decline in gross transaction value and may be required to write down the value of any stock acquired for sale in an uncompleted store	Research of key markets and demographics Cost benefit analysis conducted pre-investment Market and trend awareness Thorough end to end management of project Drive growth through new space and improved visual merchandising
REPUTATIONAL RISK
Failure of ethical trading policy or poor perception in the market on Corporate Social Responsibility (CSR) matters	Negative effect on reputation leading to loss of stakeholder trust and confidence, with subsequent impact on performance and results	Active member of Ethical Trading Initiative (ETI) and expect all suppliers to follow the ETI base code Excellent supplier relationships maintained to ensure ethical sourcing Executive body, the CSR committee, works on the key objectives for the organisation in this area (i.e. Waste Electrical and Electronic Equipment (WEEE), reducing energy usage and transportation costs) Membership of key industry bodies to provide awareness of changes to standards and legislation  Code of Business Conduct Policy in place and compliance noted Whistleblowing policy in place
Negative impact to brand due to product quality, supply chain practices, health and safety etc.	Material adverse effect on the ability to attract and retain third party brands, suppliers, designers, concessionaires and franchisees with subsequent impact on performance and results	Quality Assurance process in place to ensure the integrity of own bought products Active member of Ethical Trading Initiative (ETI) and expect all suppliers to follow the ETI base code Excellent supplier relationships maintained to ensure ethical sourcing and compliance Executive body, the CSR committee, works on the key objectives for the organisation in this area (i.e. WEEE, reducing energy usage and transportation costs) Membership of key industry bodies to provide awareness of changes to standards and legislation  Executive Health and Safety committee works to review compliance for organisation in this area Code of Business Conduct Policy in place and compliance noted
PRODUCT RISK
Inability to predict or fulfil customer demands or preferences	Gross transaction value will be lower, market share reduced and forced to rely on markdowns and sales to dispose of excess or slow moving inventory or inventory shortfalls on popular merchandise	Market, trend and customer awareness Excellent supplier relationships maintained to work towards optimising fulfilment  Close management of slow moving/terminal stocks  Focus on and improve stock file accuracy High operational standards in stores Effectiveness measured regularly by management through key performance indicators
Competitive pressures in existing markets influencing customer behaviour	Place pressure on our pricing strategy, margins and profitability	Promotional activity and implementation reviews Product differentiation through "Design in Every Department" Listening to customers and market intelligence Effectiveness measured regularly by management through key performance indicators
FINANCIAL RISK
The risks associated with currency, hedging, interest rates, credit, counterparties and financial covenants under the credit facilities	Hinder ability to adjust rapidly to changing market conditions and impact earnings and cash flow Hedging strategy may not adequately protect operating results from the impact of exchange rate fluctuations or may limit any benefit caused by favourable movements in exchange rates. May affect available cash and liquidity and could have material effect on the business, results of operations and financial condition	Treasury function in place which is mandated by the board and audited annually Treasury policy in place which includes counterparty limits and hedging for foreign exchange, interest rates and energy Deleverage balance sheet Excellent supplier relationships maintained to work towards optimising costs Close management of costs, capital investment, cash flow, stocks, banks, debtors and creditors Effectiveness measured regularly by management through key performance indicators
Shortfall in the pension fund	Increases in pension related liabilities could impact profit and cash flow	Trustees carefully monitor the pension fund and adjust the investment strategy appropriately with any shortfall being brought to the board's attention
OPERATIONAL RISK
Failure to deliver a business critical project	Divert financial and management resources from their intended use and have an adverse impact on operations	Cost benefit analysis conducted pre-investment Project assurance framework in place for all key projects undertaken Steering committees monitor all key areas involved in project
Risks associated with leasehold properties, or former properties for which Debenhams may have potential liabilities in the event of default by the current tenant	Significant alterations in rental terms could have a material adverse effect on the business, as would failure to re-secure desirable locations Disputes over modernisation of stores may lead to reinstatement costs being incurred and termination of leases may lead to dilapidation costs being incurred Failure to manage asbestos in specific properties may lead to fines or other liabilities affecting Debenhams' reputation and the full or partial closure of such properties	Property team liaises closely with landlords Close management of renegotiation and modernisation processes Cost benefit analysis conducted for modernisations pre-investment Awareness of market rates and trends Membership of key industry bodies to provide awareness of changes to standards and legislation
HAZARD
Loss of business or additional expenditure caused by terrorism, increased energy costs, natural disaster, pandemics or tax/ regulatory changes	Adverse effect on inventory and gross transaction value and will also divert financial and management resources from more beneficial uses In the case of terrorism, customer confidence may also be impacted	Executive body ,the business continuity committee, works on key objectives for the organisation in this area Business continuity plan in place for the organisation Executive Health and Safety committee works to review compliance for organisation in this area Internal audits conducted to assess the degree of Health and Safety compliance Regulatory/legal changes are monitored through specialists i.e. Tax, HR, Legal, and International Insurance placed where appropriate for key risks
Disruptions or other adverse events affecting relationships with or the performance of major suppliers, store card providers, designers or concessionaires	Costs associated with the transfer of the operations, potential of additional operational cost from a new provider  Changes in exclusivity arrangements with designers could affect business financial condition and results of operations, any decline in popularity of one or more of the designers could have a material adverse impact on the business Loss of a number of important concession partners may have an adverse effect on gross transaction value Adverse events within the supply chain could restrict the availability or significantly increase the cost of merchandise Credit insurance difficulties for a significant number of suppliers could lead to a detrimental variation of terms or alternative suppliers used to source some goods	Maintain excellent supplier relationships to work towards optimising fulfilment and costs Maintain excellent designer relationships Market, trend and customer awareness Appropriate contracts in place Financial status monitored and contingency plan in place Grow own bought merchandise Maintain excellent supplier relationships to work towards optimising fulfilment and costs Development of multiple sourcing routes Promote business strategy to suppliers and their providers of financial backing
Abnormal, severe or unseasonal weather conditions	Materially adversely affect gross transaction value and may be required to write down the value of any stock acquired for sale during this period	Maintain excellent supplier relationships to work towards optimising fulfilment and costs
Personal injury or property damage relating to a major Debenhams or supplier location	Injury or loss of life to staff or customers Negative effect on reputation and will divert financial and management resources from more beneficial uses	Executive Health and Safety committee works to review compliance for organisation in this area High operating standards in stores and head office Quality Assurance process in place to ensure the integrity of own bought products
Theft of customer data or breach of payment card industry data security standards	Negative effect on reputation leading to loss of stakeholder trust and confidence, with subsequent impact on performance and results and will also divert financial and management resources from more beneficial uses	Information Security committee reviews projects and key activities for compliance in this area Compliance levels monitored by management and reported to Audit Committee Strategy for full compliance in place Security tools (i.e. encryption) used to protect data
Fraud	Negative effect on reputation and will divert financial and management resources from more beneficial uses	Accounting policies and other procedures/ controls in place which are subject to audit activity Code of Business Conduct Policy in place and compliance for management noted Whistleblowing policy in place Prevention, control and monitoring activities undertaken Risk Management investigates issues and reports findings to the Audit Committee
PERSONNEL RISK
Departure of key personnel	Significantly delay or prevent achievement of business plan	Succession planning throughout the organisation Personal development plans in place Targeted performance related bonus schemes

ENDFR MBBFTMMITBLL

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