17th Apr 2007 07:03
Debenhams plc17 April 2007 17 April 2007 Debenhams plc Interim Results for the 26 weeks to 3 March 2007 Debenhams plc, the leading department stores group, today announces its interimresults for the half year to 3 March 2007. Financial Highlights: • Pre-tax profits £105.5 million, up 34.4% • Sales £1,287.8 million, up 5.8% • Like-for-like sales down 4.5% • Underlying earnings per share 9.5p, down from 11.1p • Interim dividend of 2.5p, payable on 4 July 2007 to shareholders on the register on 8 June 2007 • Free cash flow £98.9 million (2006 £99.1 million) • Net debt £1,031.5m Business Highlights • Store refurbishment programme to be significantly accelerated • New website fully launched • Launch of Mantaray and Gorgeous own brands • Roches store conversions ahead of schedule and performance on track • 132 department stores open and a pipeline of 29 contracted new stores • Seven Desire stores open with 5 new stores contracted • 32 international stores open including new stores in Germany and Russia and 20 further stores contracted Rob Templeman, Chief Executive, said: "Sales from 4th March (the beginning of the second half year) to 15th April were2.9% above last year (6.9% lower on a like-for-like basis). Although thecomparative period last year was particularly strong, sales achieved duringthese weeks are below our expectations. Clearly it is very early in the periodbut given this trend we must plan on the basis that like-for-like salesperformance may be negative in the second half. Any shortfall in sales willinevitably impact on gross margins and we are therefore taking actions tomitigate its effect on profits in the second half. Nevertheless we expect profitfor the year to be below current market expectations. During the last 18 months we have necessarily focused our capital expenditure onnew store openings and acquisitions including Allders and Roches. We are nowplanning to refit around 60 of our stores in the next 18 months. The refits maycause some disruption but this investment will ensure that Debenhams stays atthe forefront of the UK retail market. Throughout the business we are investing in better in-store service levels andmore contemporary presentation. I am confident that our investment in product,value, service and our stores will drive like-for-like sales later in thecalendar year." There will be a presentation for analysts today at 9.30am at the CityPresentation Centre, 4 Chiswell Street, London, EC1Y 4UP. Enquiries: Media College HillAndy Cornelius 020 7457 2822Duncan Murray 020 7457 2823 Analysts Debenhams plc Rob Templeman, Chief ExecutiveChris Woodhouse, Finance Director 020 7408 3302 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/modernisation 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 During the first half of the 2006/07 financial year the Debenhams business hascontinued to grow. A step change in space expansion has been achieved throughthe acquisition from Roches of nine stores in Ireland and we have opened newDesire and international franchise stores and a new Department store in the UK.However, in a difficult retail market, like-for-like sales were 4.5% lower thanthe same period last year. Growth will continue to be driven by the strongpipeline of new space; there is also potential in the core business from thestrength of product and value of our Designers at Debenhams and own-brands andfrom the refurbishment of existing stores. In addition to the nine Roches stores, Debenhams opened a new store in Llandudnoin the first half of the year. Trading footage since last year has increased by10.4%. In total 132 Department stores were trading at the end of the half yearand contracts have been signed for a further 29 stores. Nevertheless, Debenhamsis still under-represented and there is potential to increase to 240 Departmentstores in the United Kingdom. Three new Desire by Debenhams stores opened in the first half and there are nowseven stores trading in the UK. It is a unique concept predominantly sellingDesigners by Debenhams and other exclusive own-brands in stores of 12-18,000 sqft of trading space. The stores are successful, with higher sales densities andmargins than Department stores, and we continue to refine the model to furtherenhance performance. There is a considerably shorter lead time for a new Desirestore than a Department store; two new Desires will open in the second halfyear, contracts have been signed for two further stores to open within the next12 months and we are in various stages of negotiation for a number of furtherstores; it has the potential in total for 100 stores in high street and retailpark locations. The international franchise and internet businesses have the capacity to expandrapidly from the current base. The first stores in Russia, Germany and Romaniaopened this year and we now have 35 franchised stores in 16 countries. Theinternet offers great opportunities to Debenhams through the main transactionalsite, the sale of certain products through micro-sites, and to the wedding giftbusiness. The UK retail market is challenging. Consumer spending has been affected bythree recent increases in interest rates, bringing them to their highest levelin over three years, as well as higher utility and council tax bills and subduedwage increases. In this economic environment, it is even more important that webuild on the strengths of the business. The management team have put together an action plan for 2007 to enhance thestore environment through an increased focus on the refurbishment as well as thenew store programme, increased style and fashion through the growth of designersand other exclusive ranges, and through sharper value-for-money supported bypremium product marketing. I would like to thank all our employees for their continued hard work andenthusiasm over the peak first-half trading period. The strategy for growth over the next few years, outlined in May 2006 at thetime of the IPO, remains unchanged but its execution has been acceleratedthrough increased space expansion from the Roches acquisition and throughincreasing the refurbishment programme to around 60 stores over the next 18months. In light of the actions being taken to improve sales and our confidence in theperformance of the business in the medium term, the board has decided to pay aninterim dividend of 2.5p per share. This will be paid on 4th July toshareholders on the register on 8th June 2007. Chief Executive's Review Gross transaction value for the first half of the financial year increased by£71.0 million to £1,287.8 million, an increase of 5.8% over the correspondingperiod last year. The principal drivers of growth were department store spaceexpansion, the roll-out of the Desire by Debenhams format and the increase inour international franchise stores. Like-for-like sales at 4.5% below last year were below our expectations,predominantly caused by an underperformance in our menswear division anddisappointing sales from our outerwear and knitwear ranges. Debenhams continues to offer a unique and differentiated customer proposition.We have a diverse brand and product mix with a particular focus on style andfashion through our Designer at Debenhams ranges and our own exclusive brands.We have taken action to enhance our product offer across our ranges withparticular emphasis on building on our designer and style heritage andreinforcing our quality and value proposition. Our menswear division has beenstrengthened and the product offer reviewed and re-balanced. Financial Performance In the twenty-six weeks to 3rd March 2007 gross transaction value rose to£1,287.8 million. Underlying operating profit, after adjusting, as at the fullyear, for lease costs and for the costs of share-based payments, was £148.4million, a decrease of £21.2 million compared to last year. Underlying profit before tax was £116.2 million compared to £135.6 million lastyear, and underlying earnings per share 9.5p compared to 11.1p last year. Theunderlying profit before tax and earnings per share measures removenon-comparable items, reflect the number of shares in issue following there-listing and are consistent with how the business is managed internally. On areported basis earnings per share were 8.8p compared to 11.7p last year. Cashinflow from operating activities was £173.4 million and net debt at the end ofthe half year was £1,031.5 million. Products and Supply Chain Although our total sales for the period under review have grown, the underlyingperformance from some of our clothing ranges was clearly disappointing.Menswear sales were poor with a number of our product ranges not achieving theirexpected sell through. A new Head of Menswear has been appointed; the divisionhas also undergone a full product review to ensure that the appropriate actionsare taken to address the issues identified and to rebalance the product mix. Wehave expanded our opening price point participation to approximately 13% of ourranges and re-sourced a number of product lines to support the margin. A newown bought surfwear/leisure brand under the Mantaray label has just beenlaunched for the Spring/Summer season and work continues on addressing some ofthe underperforming brands. Within our clothing divisions we also experienced a large sales decline inouterwear and knitwear sales, which account for some 38% of our own-boughtranges during the Autumn/Winter season. Sales from our other divisions, such as Health & Beauty, Accessories andLingerie continued to demonstrate growth. During the second half of thisfinancial year we are introducing more designer ranges into our Home divisionwith the launch of new collections from Jane Packer and Jeff Banks. Designers at Debenhams have been a success for the Company and will continue toform the basis of our growth and innovation. In the first half year we expandedthe ranges of successful designers such as Betty Jackson and entered into newcontracts with Melissa Odadash for women's swimwear and accessories and withJane Packer for flowers, vases and other home products. The first LimitedEdition collection was launched in the half year. Each season, selecteddesigners, such as Jasper Conran and Julien Macdonald, release a limited numberof fashion and accessory pieces produced from high-quality fabrics. Designersales increased as a proportion of own-bought sales in the first half and ourtarget is to achieve sales in excess of £400 million this year. The actions identified following the review of our supply chain in 2004 continueto be implemented. We focus on fewer, better suppliers, have expanded theproducts directly sourced and have further developed our sourcing hubs throughthe opening in September of an office in Turkey. We are shortening lead timesand so increasing the availability of on-trend merchandise and improving themanagement of markdowns. We have increased the investment in our own designresource and in fabric and production management. Our investment in logistics,particularly the new warehouse in Peterborough, as well as improving the data ondeliveries and the standards of presentation to the stores, has resulted inefficiency gains. Store Portfolio Although Debenhams has a retail heritage of more than 100 years, we only have132 Department stores across the United Kingdom and the Republic of Ireland. Weremain under-represented in many large cities and towns across the country whichpresents us with significant expansion opportunities. Debenhams now trades from 10.2 million square feet of prime retail space. Wecontinue to focus on our programme of expanding our Department store network,alongside investing in the refurbishment of our core stores. New Department Stores One of the key growth drivers for Debenhams is to expand the store portfolioacross the country, particularly into some of the larger retail destinationssuch as Liverpool, Newcastle and Bath where we are not currently represented. Good progress has been made with our store acquisition programme. At the halfyear end we had a new store pipeline of 29 Department stores contracted to open.In the first half of this year we opened a new store in Llandudno, have sinceopened the re-sited Wigan store in an exciting new position and will completebefore the year-end the opening of a new store in Warrington. On 12th September 2006, the Company completed the acquisition from Roches ofnine stores in the Republic of Ireland. These stores are in prime retaillocations and have enabled us to gain critical mass within the country. The integration of the former Roches stores and their conversion to theDebenhams' format is progressing well. Seven of the nine stores have now beenlargely converted and we expect to convert the remaining two stores by the endof the year. New Department stores continue to achieve a high return on capital invested and,alongside our refurbishment programme, represent one of the best areas for thedeployment of capital for shareholders. Desire by Debenhams Three further Desire stores opened in the first half of the year, at BirminghamFort, Merthyr Tydfil and Kirkcaldy, and two more stores, in Altrincham andWalton on Thames, are scheduled to open in the second half. The stores featurewomen's fashion, lingerie, cosmetics and accessories; following analysis of theresults from the initial stores the accessories range has been expanded andchildrenswear now forms part of the core product ranging. Desire has a higherown-bought participation and achieves higher gross margins than the departmentstores. It benefits by leveraging off the existing Debenhams infrastructure butthere are also benefits to the Department store business, for example applyingaspects of the way in which Desire presents own brands in new Department stores(such as Llandudno) and refurbishments. International Our international franchise business continues to extend the global reach of theDebenhams' brand. During the first half of this year we opened our firstfranchise store in Russia, and at the end of the half year there were 32 storesin 15 countries. Since the end of the half year we have opened a third store inGermany, one in Kuwait and our first store in Romania. We have contracted toopen a further 17 stores with identified sites by the end of the 2009 financialyear. Internet The new website was launched before Christmas. It has the capacity to managethe significant demand for our products in this rapidly growing market. Inaddition to increasing the availability of our ranges to a wider audience, thenew site also has enhanced navigation and search features. There has been asignificant increase in orders and average order value since it was launched andour objective is to build on this new platform and develop the internet into oneof our largest stores. Refurbishment Programme During the first half of the year we continued our rolling programme ofrefurbishments. The newly-refitted stores demonstrate strong performancecompared to our un-modernised stores and attractive returns on invested capital. We intend to significantly accelerate our refurbishment programme and in totalover the next 18 months will refit around 60 of our stores. In the latest phaseof refurbishments we will be introducing some visual merchandising and shop-fitelements from our Desire stores into the department store programme CSR Corporate social responsibility issues are integral to all aspects of theCompany's operations. The Company's main focus in this area continues to be onit's supply chain, in particular on compliance with the Debenhams' Supplier Codeof Conduct and the controls, inspections and audits, working with the EthicalTrading Initiative, of the factories in which our goods are made. Other CSRinitiatives in this half include a move to recycled carrier bags (we havechanged the Debenhams core carrier bags to 100% recycled material), the launchof Fairtrade cotton in our lingerie ranges, the serving of Douwe Egberts GoodOrigin Coffee (coffee beans that are certified as deriving from 100% sustainablesources) throughout our 160 restaurants and cafes, and a programme of reducingthe amount of energy used in stores with on-target performance earning a top-upto the store's prize fund. Outlook Sales from 4th March (the beginning of the second half year) to 15th April were2.9% above last year (6.9% lower on a like-for-like basis). Although thecomparative period last year was particularly strong, sales achieved duringthese weeks are below our expectations. Clearly it is very early in the periodbut given this trend we must plan on the basis that like-for-like salesperformance may be negative in the second half. Any shortfall in sales willinevitably impact on gross margins and we are therefore taking actions tomitigate its effect on profits in the second half. Nevertheless we expect profitfor the year to be below current market expectations. During the last 18 months we have necessarily focused our capital expenditure onnew store openings and acquisitions including Allders and Roches. We are nowplanning to refit around 60 of our stores in the next 18 months. The refits maycause some disruption but this investment will ensure that Debenhams stays atthe forefront of the UK retail market. Throughout the business we are investing in better in-store service levels andmore contemporary presentation. I am confident that our investment in product,value, service and our stores will drive like-for-like sales later in thecalendar year. Consolidated Income Statement For the 26 weeks ended 3 March 2007 Unaudited Unaudited Audited 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept Note 2007 2006 2006 £m £m £m Revenue 2 997.5 957.8 1,707.7 Cost of sales (815.0) (755.6) (1,376.3) Gross profit 182.5 202.2 331.4 Distribution costs (23.3) (26.7) (53.0)Administrative expenses (19.6) (22.4) (54.8) Analysed as:Administrative expenses before exceptional (19.6) (22.4) (40.2)itemsExceptional administrative expenses 4 - - (14.6) Operating profit 139.6 153.1 223.6 Analysed as:Operating profit before exceptional items 139.6 153.1 238.2Exceptional operating items 4 - - (14.6) Interest receivable and similar income 5 3.8 4.4 7.3Interest payable and similar charges 6 (37.9) (79.0) (168.8) Analysed as:Interest payable and similar charges before 6 (37.9) (79.0) (132.7)exceptional itemsExceptional interest payable and similar 4,6 - - (36.1)charges Profit before taxation 105.5 78.5 62.1 Taxation 7 (31.4) (23.4) (18.4) Analysed as:Taxation before exceptional items (31.4) (23.4) (32.7)Taxation credit on exceptional items - - 14.3 Profit for the financial period attributable to 11 74.1 55.1 43.7equity shareholders Earnings per share attributable to the equity shareholders (expressed in pence per share) Pence per share Pence per share Pence per share Basic 9 8.8 11.7 7.4 Diluted 9 8.8 11.7 7.4 Underlying earnings per share (non-GAAP 9 9.5 11.1 16.5measures) Dividends per share (expressed in pence per share) Pence per share Pence per share Pence per share Dividends per share 8 2.5 - 2.4 All Group operations during the financial periods were continuing operations. Consolidated Statement of Recognised Income & Expenses For the 26 weeks ended 3 March 2007 Unaudited Unaudited Audited 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Profit for the financial period 74.1 55.1 43.7 Actuarial gain/ (loss) recognised in the 6.6 1.3 (3.0)pension scheme Movement on deferred tax relating to the pension scheme (2.0) (0.4) 0.9 Cash flow hedges - Net fair value gains (net of tax) 6.0 12.1 15.8 - Recycled and adjusted against the initial 2.5 (0.2) (2.0) measurement of the acquisition cost of inventory- Reclassified and reported in net profit - (0.3) 0.8 Net gains recognised directly in equity 13.1 10.7 14.3 Total recognised income attributable to the equity of the Group 87.2 65.8 58.0 Adoption of IAS 32 and IAS 39 (net of tax) - (11.6) (11.6) Consolidated Balance Sheet At 3 March 2007 Unaudited Unaudited Audited Note 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m ASSETS Non current assets Intangible assets 841.2 831.0 836.1 Property, plant and equipment 646.2 652.8 639.5 Financial assets - Available for sale investments 8.2 8.2 8.2 - Derivative financial instruments 15.1 2.3 7.8 Retirement benefit assets 26.1 - 13.8 Deferred tax assets 49.4 65.1 51.1 1,586.2 1,559.4 1,556.5 Current assets Inventories 231.2 226.1 207.8Trade and other receivables 68.7 55.4 63.9Financial assets - Derivative financial 0.4 1.1 -instrumentsCash and cash equivalents 68.3 159.0 34.0 368.6 441.6 305.7 LIABILITIES Current liabilities Financial liabilities - Bank overdraft and borrowings (1.3) (79.3) (33.1) - Derivative financial instruments (1.8) (1.3) (5.3) Trade and other payables (410.6) (403.7) (400.4) Current tax liabilities (48.2) (43.2) (18.8) Provisions (0.8) (6.0) (4.7) (462.7) (533.5) (462.3) Net current liabilities (94.1) (91.9) (156.6) Non current liabilities Financial liabilities - Bank overdraft and borrowings (1,098.5) (1,822.3) (1,097.0) - Derivative financial instruments (0.5) (7.8) (2.3) Deferred tax liabilities (91.1) (78.2) (84.8) Other non-current liabilities (179.9) (175.5) (161.0) Provisions (0.7) (2.0) (1.5) Retirement benefit obligations - (7.6) - (1,370.7) (2,093.4) (1,346.6) Net assets/(liabilities) 121.4 (625.9) 53.3 SHAREHOLDERS' EQUITYShare capital 0.1 - 0.1Share premium 682.9 - 682.9 Merger reserve 1,200.9 1,200.9 1,200.9 Reverse acquisition reserve (1,199.9) (1,199.9) (1,199.9) Hedging reserve 10.0 (5.1) 1.5 Other reserves 1.0 1.0 1.0 Retained deficit (573.6) (622.8) (633.2) Total equity 11 121.4 (625.9) 53.3 Consolidated Cash Flow Statement for the 26 weeks ended 3 March 2007 Unaudited Unaudited Audited Note 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Cash flows from operating activitiesCash generated from operations 12 173.4 203.4 317.0Interest received 3.8 3.9 7.8Interest paid (34.0) (74.7) (147.4)Tax received 0.2 18.0 12.9 Net cash generated from operating activities 143.4 150.6 190.3 Cash flows from investing activitiesPurchase of intangible assets (8.4) - -Purchase of property, plant and equipment (36.1) (51.7) (88.6)Proceeds from sale of property, plant and - 0.2 0.1equipment Net cash used in investing activities (44.5) (51.5) (88.5) Cash flows from financing activitiesDrawdown of Term Loan Facility - - 1,050.0Drawdown of Senior Term Loan - 0.8 -Repayment of Senior Term Loan - (9.5) (1,827.6)Proceeds from issue of ordinary shares - - 700.0Debt issue costs (2.7) - (12.6)Appropriation - settlement of 'B' Loan Notes - (0.8) (50.1)Appropriation - settlement of 'C' Loan Notes - - (22.1)Dividends paid to shareholders (20.5) - -Purchase of shares by Debenhams Retail Employee (0.1) - (2.0)Trust 2004 ("DRET")Appropriation by DRET (9.7) - (1.1) Net cash used in financing activities (33.0) (9.5) (165.5) Net increase/(decrease) in cash and cash equivalents 65.9 89.6 (63.7) Cash and cash equivalents at beginning of financial 0.3 64.0 64.0period Cash and cash equivalents at end of financial 13 66.2 153.6 0.3period 1 Basis of preparation The Group's interim results for the 26 weeks ended 3 March 2007 have beenprepared in accordance with the Listing Rules of the Financial ServicesAuthority using the accounting policies set out in the Group's 2006 AnnualReport and Financial Statements. The Group has chosen not to adopt IAS 34, 'Interim financial statements', inpreparing its 2007 interim statements and, therefore, this interim financialinformation is not in full compliance with IFRS. The Group's interim consolidated financial information is not audited and doesnot constitute statutory financial statements as defined in section 240 of theCompanies Act 1985. Comparative figures for the year ended 2 September 2006 havebeen extracted from the Group's 2006 Annual Report and Financial Statements, onwhich the auditors gave an unqualified opinion and did not include a statementunder section 237(2) or (3) of the Companies Act 1985. The full financialstatements for that year have been filed with the Registrar of Companies. The Directors believe that the underlying operating profit and earnings pershare measures provide additional useful information for shareholders on theunderlying performance of the business, and are consistent with how businessperformance is measured internally. It is not a recognised profit measure underIFRS and may not be directly comparable with underlying profit measures used byother companies. Non-GAAP measure 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Operating profit before exceptional items 139.6 153.1 238.2Leases with fixed annual increments in rent 7.3 7.7 14.9 Share-based payments 1.5 8.8 14.3 Underlying operating profit before exceptional items 148.4 169.6 267.4 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 better guide to the value of theoverall activity of the Group. 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Gross transaction value 1,287.8 1,216.8 2,192.9 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. 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £mOperating exceptional items:Admission to the London Stock Exchange - - 4.6Other exceptional item - - 10.0 Total operating exceptional items - - 14.6Write off of capitalised debt costs on refinancing (note 6) - - 33.5Interest on refinancing (note 6) - - 2.6 Total exceptional items before tax - - 50.7 Financial period 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. As a consequence of the Company's Admission to the London Stock Exchangethe trustees agreed to distribute £10.0 million of this restricted cash to thebeneficiaries of the Trust, creating an exceptional cost of £10.0 million. 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. 5 Interest receivable and similar income 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Interest on bank deposits 3.8 4.1 7.3Fair value gain on interest rate swaps transferred from - 0.3 -equity 3.8 4.4 7.3 6 Interest payable and similar charges 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Interest payable and similar chargesBank loans and overdrafts (33.5) (74.7) (124.1)Amortisation of issue costs on loans (1.9) (2.8) (5.1)Interest payable on finance leases (2.5) (1.5) (3.5)Interest payable before exceptional items (37.9) (79.0) (132.7) Exceptional items - interest payable and similar chargesUnamortised issue costs written off on repayment of the - -senior term loan (note 4) (33.5)Premium on early settlement of the senior term loan (note - - (2.1)4)Cost of restructuring the interest swap portfolio (note - -4) (0.5)Exceptional items - interest payable and similar charges - - (36.1) Interest payable and similar charges after exceptional (37.9) (79.0) (168.8)items 7 Taxation The taxation charge for the 26 weeks ended 3 March 2007 is based on an estimatedeffective tax rate for the full year of 29.8% (year ended 2 September 2006:29.6%). 8 Dividends The Company paid a final dividend in respect of the financial year ended 2September 2006 of 2.4 pence per share on 4 January 2007. The directors areproposing an interim dividend in respect of the 26 weeks ended 3 March 2007 of2.5 pence per share which will absorb an estimated £21.5 million ofshareholders' funds. It will be paid on 4 July 2007 to shareholders who are onthe register of members at close of business on 8 June 2007. 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 period. 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 March 2007and 4 March 2006, the performance criteria for the vesting period of the shareoptions had not been met and consequently the shares in question are excludedfrom the diluted earnings per share calculation. 9 Earnings per share (continued)Basic and diluted earnings per share 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 Basic Diluted Basic Diluted Basic Diluted £m £m £m £m £m £mProfit for the financial period 74.1 74.1 55.1 55.1 43.7 43.7 Number Number Number Number Number Number m m m m m mWeighted average number of shares 859.0 859.0 500.0 500.0 614.4 614.4 Shares held by ESOP (weighted) (16.6) (16.6) (29.7) (29.7) (25.6) (25.6) Shares issuable (weighted) - 3.2 - - - 5.6Adjusted weighted average number of shares 842.4 845.6 470.3 470.3 588.8 594.4 Pence per Pence per Pence per Pence per Pence per Pence per share share share share share share Earnings per share 8.8 8.8 11.7 11.7 7.4 7.4 Underlying earnings per share The underlying earnings per share reflects the underlying performance of thebusiness compared with the prior period and is calculated by dividing underlyingearnings by the number of shares in issue at the period end. 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Profit for the financial period 74.1 55.1 43.7 Exceptional items - - 50.7 Leases with fixed annual increments in rent 7.3 7.7 14.9 Share-based payments 1.5 8.8 14.3 Interest adjustments 1.9 40.6 58.3 Adjustment to tax charge to reflect the above items (3.2) (17.1) (40.5) Underlying profit for the period 81.6 95.1 141.4 Number Number Number m m mIssued share capital at 2 September 2006 and at 3 March 2007 859.0 859.0 859.0 Pence per Pence per Pence per share share shareUnderlying earnings per share 9.5 11.1 16.5 Underlying profit is used by management as a measure of profitability within theGroup. It is defined as profit before exceptional items, the impact of leaseswith fixed annual increments in rent, charges relating to share-based payments,debt amortisation costs and adjustments for 53 week periods (if applicable). Inaddition, in 2006 the Group underwent significant re-financing. In consequence,the statutory interest and related financing costs for 2006 and 2005 are notcomparable. The adjustments for interest in 2006 and 2005 assumes that the 2006re-financing, which took place after the date of Admission, was effective at thebeginning of the year ended 2 September 2006 and that the proceeds of sharesissued on Admission (£700 million) were available at that date. The comparison of performance period on period has also been made complex bycosts incurred as a result of the Company's Admission to the London StockExchange on 9 May 2006 which increased the number of shares issued by theCompany. The underlying earnings per share uses the capital structure as at 2September 2006 (which remains unchanged at 3 March 2007) to eliminate the effectof these changes. 10 Acquisition of a business On 12 September 2006 the Group acquired the business and assets of 9 storesbased in the Republic of Ireland. The consideration for this acquisition was€44.1 million, with €30.1 million payable on completion, €5 million payable onthe first anniversary and €9 million on the second anniversary of completion.The assets acquired included stock, fixtures and equipment at each of the storesand related goodwill. All tangible and intangible assets acquired have been recognised at theirrespective fair values. The provisional fair values of the tangible fixedassets, stock and receivables acquired were €20.7 million, €15.1 million and€0.9 million respectively. The residual excess over the net assets acquired has been recognised as goodwilland provisionally amounts to €7.4 million. Goodwill represents the intrinsicvalue to the Group of being able to trade the Debenhams brand in these stores. 11 Consolidated statement of changes in shareholders' equity 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £m Opening shareholders' equity 53.3 (680.7) (680.7)First time adoption of IAS 32 and 39 - (11.6) (11.6) 53.3 (692.3) (692.3) Profit for the financial period 74.1 55.1 43.7Actuarial gain/(loss) gain in pension schemes 6.6 1.3 (3.0)Movement in deferred tax relating to pension schemes (2.0) (0.4) 0.9Dividends paid (20.5) - -Cash flow hedges 8.5 9.8 16.4Employee share ownership plans (net of tax) 1.5 0.6 2.1'A' Loan Notes held by DRET - - 26.8'C' Loan Notes held by Baroness Employee Limited Partnership - - (22.3)Issue of shares - - 683.0Purchase of treasury shares for DRET (0.1) - (2.0) Closing shareholders' equity 121.4 (625.9) 53.3 12 Cash generated from operations 26 weeks to 26 weeks to 52 weeks to 3 March 4 March 2 Sept 2007 2006 2006 £m £m £mProfit for the financial period 74.1 55.1 43.7Taxation 31.4 23.4 18.4Depreciation 43.6 42.4 86.0Amortisation 3.2 2.3 5.1Loss/(profit) on disposal of property, plant and equipment - 0.4 (0.1)Employee options granted during the year 1.5 - 2.8Appropriation by DRET - - 1.1Fair value (losses)/gains on derivative instruments (0.9) - 1.9Swap costs - - (0.8)Net movements in provisions (3.7) (1.2) (3.0)Interest income (note 5) (3.8) (4.4) (7.3)Interest expense (note 6) 37.9 79.0 168.8Difference between pension charge and contributions paid (5.6) (0.5) (26.2)Net movement in long-term liabilities 18.8 16.7 2.2 Changes in working capital Increase in inventories (23.4) (28.9) (10.6)Increase in trade and other receivables (7.4) (1.6) (8.2)Increase in trade and other payables 7.7 20.7 43.2Cash generated from operations 173.4 203.4 317.0 13 Analysis of changes in net debt At Cash flow Non cash At 2 Sept movements 3 March 2006 2007 £m £m £m £m Analysis of net debtCash 34.0 34.3 - 68.3Bank overdrafts (33.7) 31.6 - (2.1) Cash and cash equivalents 0.3 65.9 - 66.2 Debt due within one year 3.6 - (0.3) 3.3Debt due after one year (1,038.0) 2.7 (4.5) (1,039.8)Finance lease obligations due within one year (3.0) - 0.5 (2.5)Finance lease obligations due after one year (59.0) - 0.3 (58.7) (1,096.1) 68.6 (4.0) (1,031.5) 14 Financial information Copies of the statutory accounts are available from the Company's registrars -Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA (0870 6003970), and at the Company's registered office, 1 Welbeck Street, London, W1G0AA. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Debenhams