RNS Number:9177K
Debenhams plc
24 October 2006
24 October 2006
Debenhams plc
Preliminary Results Announcement
Debenhams plc, the leading department stores group, today announces its
Preliminary 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 new
financial year the retail climate has been volatile, impacted by the
unseasonably warm weather.
Total sales are up by +7.0% compared with the comparable period last year with
like-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 with
the 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 3
Underlying 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 5
ANG, 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 the
current period's gross transaction value (including VAT) for all stores that
have traded for at least 12 months and the internet less the prior period's
gross transaction value for the same grouping.
3 After adjusting for: (i) #14.1m of additional rent year on year
following the British Land property transaction (ii) leases with fixed annual
increments (iii) share-based payments (iv) the 53rd week of the financial year
ended 3 September 2005 (v) proforma interest based on the Groups capital
structure post IPO.
Enquiries:
Media
Gainsborough Communications
Andy Cornelius 020 7190 1703
Duncan Murray 020 7190 1704
Analysts
Debenhams plc
Rob Templeman, Chief Executive
Chris Woodhouse, Finance Director 020 7408 3302
Cautionary Statement
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,
including: Debenhams' ability to accurately predict customer preferences and
demands; the effectiveness of Debenhams' brand awareness and marketing
programmes; the occurrence of weak sales during peak selling seasons or extreme
or unseasonal weather conditions; competitive factors in the highly competitive
retail industry; Debenhams' ability to successfully implement its new store
rollout and department store refurbishment/modernization strategy; Debenhams'
ability to maintain its relationships with certain designers and its significant
concession partners; and currency fluctuations and currency risk.
* * *
Additional risk factors that you may want to consider are: Debenhams' ability
to retain key management and personnel; disruptions or other adverse events
affecting Debenhams' relationship with its major suppliers or its store card
provider; factors outside Debenhams' control, such as changes in the financial
or equity markets, adverse economic conditions or a downturn in the retail
industry, or damage or interruptions due to operational disruption, natural
disaster, war or terrorist activity; and work stoppages; slowdowns or strikes.
Chairman's statement
These first full-year results as a publicly-listed company once again
demonstrate the strength and resilience of Debenhams as we continue to deliver
on our plans to grow the business profitably.
During the year Debenhams has enhanced its position as one of the leading
department store groups in the world, offering stylish products at affordable
prices.
Against a challenging retail backdrop, we have again increased profits, sales
and market share while accelerating our store opening plans, improving the
supply chain and successfully refurbishing our existing stores.
There is still significant growth potential to come from our Designers at
Debenhams and own-label brands, while our unique mix of own, international and
concession brands gives this business huge flexibility.
In addition, we are accelerating plans to expand our portfolio of department
stores, either by acquisition or new store openings, and believe there is
potential to increase our portfolio from 132 up to 240 stores in the UK and
Republic of Ireland.
Separately, we have successfully trialled and opened four of our new concept
women's store, Desire by Debenhams. We now have five stores open and another
four contracted to open and have invested in a new distribution centre and in
upgrading our website.
We also have plans to increase our international store franchises from 30 to
over 70 stores by the end of the 2010 financial year.
Debenhams changed its culture under it's new management team with an increased
emphasis on the needs of our customers. It is no coincidence that we had our
best ever years in the wake of this change.
We are committed to our culture. We know it gives us the best chance to succeed
in an increasingly tough and demanding marketplace.
The board is recommending a final dividend of 2.4 pence per share in line with
the progressive dividend policy outlined at IPO.
Chief Executive's Review
The year under review has been a period of both transformation and expansion for
Debenhams. The Company re-listed its shares on the London Stock Exchange in May
2006, completed the conversion of the eight former Allders stores that were
purchased in the previous year and agreed to acquire nine department stores from
Roches Stores in the Republic of Ireland.
During the year expansion of our store portfolio continued with the opening of
five new department stores in Hemel Hempstead, Ayr, Newbridge, Doncaster and
Workington. We also opened three new Desire by Debenhams stores, our exciting
small store format, in South Shields, Orpington and Falkirk along with 11 new
international franchise stores in five countries which helped extend the global
reach of the Debenhams brand.
Our new distribution centre in Peterborough is now fully operational which
positions us well in terms of our store expansion programme.
At the time of the IPO in May 2006, we outlined our strategy for growth which
revolved around three main drivers: space expansion, supply chain and store
portfolio initiatives as well as new routes to market. As we enter the new
financial year, our strategy remains firmly on track and our space expansion
programme has been accelerated with the recent acquisition of nine department
stores from Roches Stores in the Republic of Ireland and the opening of a
further department store in Llandudno and a Desire by Debenhams store in
Birmingham Fort.
One of Debenhams' key strengths is our multi-category product strategy which
enables us to differentiate ourselves from traditional single-brand high street
retailers and widens our appeal to a larger consumer audience. We have a strong
presence in key product categories such as womenswear, menswear, accessories,
lingerie, childrenswear and homewares. The continued development of our
exclusive own-brand products such as Red Herring, Maine New England , Debut and
Thomas Nash alongside our exclusive Designers at Debenhams ranges has resulted
in our own-bought sales continuing to increase market share and become a greater
proportion of our overall sales.
Performance last year
For the year to 2 September 2006 gross transaction value increased by #106.1
million to #2,192.9 million. As a result of these sales increases, together with
margin gains and a firm focus on our cost base, our underlying operating profit
before exceptional items for the year increased by 21.2 per cent to #267.4
million.
Group profit before tax and exceptional charges rose by 67.9 per cent to #112.8
million.
Like-for-like sales increased by 0.5 per cent for the year, compared to a 2.8
per cent increase in the previous year. Sales were adversely affected during
June. This was predominantly caused by a combination of a delay in the launch of
our summer sale due to the unfavourable weather, the World Cup and the lack of a
strong fashion trend across the summer. Sales progressively improved during the
latter months of the year.
Products and supply chain
Our exclusive Designers at Debenhams ranges are a key differentiator for our
Company. Consumers today are more stylish and design conscious than ever before.
Our strategy of working closely with the designers who create leading
collections enables us to bring exciting and stylish products with designer
branding straight from the catwalk to a wider audience at affordable prices.
During the year, we have continued to extend our exclusive designer ranges into
more stores and into new product areas. New ranges have been developed with a
number of our established designers such as the Jasper Conran "Limited
Collection" which showcases some of the finest fabrics and designs in limited
quantities. The arrival of these new limited collections allows us to stretch
our pricing.
We continue to extend our Designers at Debenhams collection with a new accessory
and home range from Betty Jackson, a children's range from Julien Macdonald and
an exciting new menswear range from Jeff Banks.
Our focus on developing our own exclusive brands alongside our Designers at
Debenhams ranges has led to a stronger sales participation from our own-bought
merchandise 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, together
with the opening of a new sourcing office in Turkey, will allow us to continue
to build on our existing own-brand collections. We will source more of our own
product direct from suppliers improving both our speed to market and stock
availability.
We are extremely proud of our products and brands and during the year Debenhams
was pleased to receive the Department Store of the Year Award, voted by 6,000
readers 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 being
achieved by improved product development, more efficient logistics and
merchandising processes and increased frequency of our buying cycles. We believe
that these initiatives will help Debenhams continue to improve stock
availability, reduce markdowns and drive faster stock-turns.
The #27 million investment in a new 700,000 sq ft distribution centre in
Peterborough has also improved our logistics operations and will underpin the
growth 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 132
stores in the UK and Republic of Ireland, which is substantially less than some
of our competitors. We believe that there is the potential to increase the
number of our department stores to up to 240. Since 4 September 2005, in
addition to the Roches acquisition (see below) we have opened six new department
stores. Currently we have 24 contracts signed for new department stores which
will increase our trading space by 17.5 per cent to 11.8 million sq ft. at the
end of the 2011 financial year.
Our property team continues to focus on developing further opportunities for our
expansion programme and negotiations are progressing on a strong pipeline of new
sites.
Acquisition from Roches Stores
Since the year end, Debenhams has completed the acquisition of nine department
stores in the Republic of Ireland. These leasehold stores were bought from
Roches Stores for a consideration of Euro29 million, payable in three instalments
over 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 convert
these stores into the Debenhams trading format.
Desire by Debenhams
Debenhams opened its first Desire by Debenhams store in Truro in June 2005. This
is a new smaller concept store featuring a mix of women's fashion, accessories,
lingerie and cosmetics which offers a differentiated proposition in locations
which would not sustain a full department store.
Five Desire stores are now trading in Falkirk, Orpington, South Shields, Truro
and Birmingham Fort. They have been tested in challenging markets and are
delivering higher margins and sales densities than the main chain. Contracts for
an additional four stores have also been signed and ultimately Debenhams
believes 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 stores
in 14 different countries. A further 16 stores are contracted to open by the end
of the 2009 financial year.
By 2010 we anticipate that we will have 70 international franchise stores, with
the further potential to develop the Debenhams and Desire by Debenhams concept
overseas.
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 is
designed to improve both the linear conversion and visual merchandising across
the store as well as establishing strong delineation of our brands. Results
achieved 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 10
stores 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. We
believe that this investment will enable Debenhams to make significant
improvements compared to our existing site and allow us to capture a greater
share of this ever-growing market. Our development programme for multi-channel
retailing will extend the availability of our ranges to a wider audience and
provide the necessary platform for the development of niche micro-sites for our
products.
Debenhams already has one of the U.K.'s leading wedding gift services, which can
be further enhanced by the developments being made to our website.
Outlook
Debenhams has over the past 10 years consistently grown its profits, sales and
market share. These results demonstrate that, even in a challenging market, our
Company can continue to grow.
We have an excellent business, have invested in our infrastructure and, with our
store opening programme and other growth initiatives, remain confident about the
outlook for our Company.
Finance Director's Review
Basis of reporting
The results for the year ended 2 September 2006 ("2006") have been prepared in
accordance with International Financial Reporting Standards ("IFRS").
This is the first year that the Group has reported its results in accordance
with IFRS. The biggest impact arises from changes in treatment of operating
lease costs and incentives, business combinations and share-based payments. The
Group has, therefore, restated its results for the year ended 3 September 2005
("2005") to reflect these changes. In relation to financial instruments the
Group 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 238.2 228.0
Leases with fixed annual increments in rent 14.9 9.7
Share-based payments 14.3 5.5
Impact of 53rd week - (8.4)
Lease cost adjustments - (14.1)
Underlying operating profit before exceptional items 267.4 220.7
Net 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 profitability
within the Group. It is defined as operating profit before exceptional items and
the impact of leases with fixed annual increments in rent and charges relating
to share-based payments. . The results for 2005 have been adjusted to remove the
impact of week 53 and lease cost adjustments for the period prior to the British
Land Company property transaction which took place in February 2005. In
addition, in both 2005 and 2006 the Group underwent significant re-financing.
In consequence, the statutory interest and related financing costs are not
comparable year-on-year. The above adjustment for interest assumes that the
2006 re-financing, which took place after the date of Admission, was effective
at the beginning of the year ended 3 September 2005 and that the proceeds of
shares issued on Admission (#700 million) were available at that date.
The comparison of performance year on year has been made complex by costs
incurred 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 interest
charged on the lower levels of borrowings since 30 May 2006.
Sales and margins
During the 52 weeks ended 2 September 2006, our retail business achieved
like-for-like sales growth of 0.5 per cent. This together with strong
performance from our new stores resulted in gross transaction value growing by
5.1 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 sales
growth of 21.1 per cent being achieved through a combination of like-for-like
improvement and the addition of 11 new franchise stores. Week 53 in 2005
accounted for 1.5 per cent of the comparative sales, for the Group. Debenhams
continued to improve its market share across key product categories.
Improvements in the efficiency of the supply chain together with the continued
cost control throughout the business have enabled us to generate a gross profit
margin of #331.4 million (2005 before exceptional items: #315.3 million).
Underlying operating profit before exceptional items increased by 21.2% per
cent 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 on
operating leases with annual fixed increments in rent. The adverse profit impact
from adopting this standard is #14.9 million (2005: #9.7 million).
On 30 May 2006 the Group refinanced its debt position, which resulted in the
repayment of senior credit facilities. As a result of this repayment the Group
wrote-off all unamortised debt issue costs of #33.5 million and suffered an
early repayment interest penalty of #2.1 million. All fees in respect of the new
term loan facility are being amortised over the term of that facility.
The refinancing also resulted in the restructuring of the Group's interest rate
swap portfolio. An interest rate cap was closed out and two forward start
interest rate swaps restructured at a cost of #0.5 million
Interest
Net interest before exceptional items for the 52 weeks ended 2 September 2006
year was #125.4 million, a #35.4 million reduction when compared to the 53 weeks
in 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 2
September 2006 is 29.0 per cent. The Group's tax charge has been adjusted for
the resulting credit on the deductible element of exceptional items, which has
given rise to an overall tax charge of #18.4 million and an effective tax rate
of 29.6 per cent.
Earnings
The basic and diluted earnings per share on the face of the income statement
reflect the weighted average number of shares in issue during the course of the
financial year and similarly for the comparative period. As a result of
significant changes in the Group's capital structure associated with Admission
to the London Stock Exchange an underlying earnings per share figure has been
calculated. The underlying earnings per share reflects the underlying earnings
figure and for both financial periods the number of shares following the
re-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 year
ended 2 September 2006 of 2.4 pence per share. It will be paid on 4 January 2007
to shareholders who are on the register of members at close of business on 24
November 2006.
Capital expenditure
We continue to invest for the long-term growth of the Group. Cash out flow from
net 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 in
improving the infrastructure of the business.
We are committed to investing #7.0 million in the development of a new Debenhams
website which is expected to launch shortly.
A central distribution centre at Peterborough was opened in July 2005, at a cost
of #27 million and has become fully operational during the year. The Group will
generate savings through the introduction of this centralised distribution
centre and through improving the efficiency of logistics operations. Importantly
the Peterborough facility contains capacity to deal with future expansion over a
number of years to come.
Cash flow
Net cash flow from operating activities after outflows on capital expenditure
has shown a strong increase year on year and is derived from the financial
statements as follows:
2006 2005
52 weeks 53 weeks
#m #m
Cash flow from operating activities 317.0 381.9
Net interest paid (139.6) (328.9)
Capital expenditure (88.5) (100.1)
Tax received/(paid) 12.9 (10.4)
Cash flow from operating
activities after capital expenditure 101.8 (57.5)
The cash flow from operating activities of #317.0 million reflects operating
profits of #223.6 million, adjusted by non-cash items of #95.2 million, reduced
by #26.2 million of pension contributions in excess of service charges and an
inflow from working capital of #24.4 million.
This inflow from working capital principally reflects an increase in trade and
other 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 of
new equity was issued and the funds used to repay: part of the senior credit
facility, a contribution of #18 million to the Group pension schemes and costs
associated with Admission and Refinancing of #26.8 million.
On 30 May 2006 the Group refinanced its existing #2.05 billion senior credit
facilities with the proceeds of a new term loan of #1.05 billion and a revolving
credit facility ("RCF") of #0.3 billion. Issue costs of #17.2 million are being
amortised 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 when
compared to 2005. The increase is principally due to the proceeds of the new
share issue of #700 million, the impact of the triennial pension scheme
valuation and new debt structure.
Post balance sheet events
On 12 September 2006, the Company completed the acquisition of nine leasehold
stores in the Republic of Ireland. The consideration on acquisition amounted to
Euro29 million payable in three instalments over two years.
24 October 2006
Consolidated Income Statement
For 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 238.2 228.0
Exceptional operating items 4 (14.6) 113.3
Interest receivable and similar income 5 7.3 7.4
Interest payable and similar charges 6 (168.8) (261.1)
Analysed as:
Interest payable and similar charges before 6 (132.7) (168.2)
exceptional items
Exceptional 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 43.7 123.7
shareholders
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 & Expenses
For 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) 8.5
pension 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 Sheet
At 2 September 2006
2 September 3 September
Note 2006 2005
#m #m
ASSETS
Non current assets
Intangible assets 836.1 829.9
Property, plant and equipment 639.5 650.0
Financial 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 207.8 197.2
Trade and other receivables 63.9 54.5
Cash and cash equivalents 34.0 76.1
305.7 327.8
LIABILITIES
Current liabilities
Financial 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 liabilities
Financial 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' EQUITY
Share capital 0.1 -
Share premium 682.9 -
Merger reserve 1,200.9 1,200.9
Reverse 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 Statement
for 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 activities
Cash generated from operations 11 317.0 381.9
Interest received 7.8 8.1
Interest 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 activities
Net cash received on deemed disposal of - 121.8
subsidiary
Purchase of property, plant and equipment (88.6) (114.2)
Purchase of stores - (34.0)
Proceeds from sale of freehold properties - 22.0
Proceeds from sale of property, plant and 0.1 26.1
equipment
Purchase of investments - (4.2)
Net cash (used)/generated from investing activities (88.5) 17.5
Cash flows from financing activities
Drawdown of Term Loan Facility 1,050.0 -
Drawdown of Senior Term Loan - 1,827.6
Repayment 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 - 12.8
Trust ("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 64.0
year
Notes to the Accounts
At 2 September 2006
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 1985 applicable to those companies
reporting under IFRS.
This is the first year that the Group's consolidated financial statements have
been prepared under IFRS and IFRS 1 'First time adoption of IFRS' has been
applied. In accordance with IFRS 1 the Group has taken the exemption not to
restate comparatives for IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'.
Comparative information in respect of these items are presented on a UK GAAP
basis as previously reported. 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 52 weeks ended 2 September 2006 and within
the previously published prospectus which is available by contacting the Company
Secretary. 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 2 September 2006 and 3
September 2005 but is derived from the 2006 annual report and financial
statements. The annual report and financial statements for 2005, which were
prepared under UK GAAP, have been delivered to the Registrar of Companies and
the Group annual report and financial statements for 2006, 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 237 (2) or (3) of the Companies Act 1985.
The Directors believe that the underlying operating profit before exceptional
items and underlying earnings per share measures provide additional useful
information for shareholders on the underlying performance of the business, and
are consistent with how business performance is measured internally. It is not a
recognised profit measure under IFRS and may not be directly comparable with
underlying 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 238.2 228.0
Impact of 53rd week - (8.4)
Lease cost adjustments - (14.1)
Leases with fixed annual increments in rent 14.9 9.7
Share-based payments 14.3 5.5
Underlying operating profit before exceptional 267.4 220.7
items
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 believe 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.
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 of
the Group and which by virtue of their size or incidence have been disclosed in
order to improve a reader's understanding of the financial statements.
2 September 3 September
2006 2005
52 weeks 53 weeks
#m #m
Operating exceptional items:
Other exceptional cost of sales - 2.6
Admission to the London Stock Exchange 4.6 -
Other exceptional item 10.0 -
Refinancing - 1.8
Profit 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 22.3
Interest 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 include
taxation and restructuring advice of #1.0 million, legal and professional fees
of #1.0 million, bonuses of #1.1 million and other advisory services of #1.5
million, relating to printing costs, marketing and public relations all of which
related to the Admission.
Other exceptional items
Restricted cash of #10.3 million is held by The Debenhams Retail Employee Trust
2004. Following the Company's Admission to the London Stock Exchange the
Trustees agreed to distribute #10.0 million of this restricted cash to the
beneficiaries of the Trust.
Interest on refinancing
On 30 May 2006 the Group refinanced its debt, which resulted in the repayment of
the senior credit facilities. As a result of this repayment the Group wrote-off
all unamortised debt issue costs associated with the senior credit facility,
which amounted to #33.5 million. All fees associated with the new term loan
facility are being amortised over the term of the facility.
Additional interest expense of #2.1 million relating to the early repayment of
the senior credit facility was incurred on refinancing. As a result of the
refinancing the interest rate hedging strategy required the restructuring of the
interest rate swap portfolio. This resulted in the close out of the interest
rate cap and the restructuring of the two forward start interest rate swaps at a
cost 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 payment
guaranteed that all old RLD experiences purchased by the Group prior to RLD
going into administration were honoured by the new management of RLD.
Refinancing
The Group incurred administrative costs totalling #1.8 million in relation to
the refinancing in May and June 2005. These costs include legal costs, taxation
advice and professional costs associated with the dissolution of the Baroness
Group Limited Partnership which was the parent entity of the Group prior to the
May 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 debt
issue costs associated with the previous senior facility and high-yield bonds
amounting to #18.3 million and #4.0 million respectively. Furthermore, the
repayment 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 charges
Bank 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 similar
charges
Unamortised 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 3
September 2005, is #4.3 million which relates to the write-off of the fees
associated 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 8.5
Adjustments 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 2.2
Adjustments 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 the
above 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 37.1
Interest exceptional items 10.8 27.9
14.3 65.0
8 Dividends
The directors are proposing a final dividend in respect of the financial year
ended 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 to
shareholders who are on the register of members at close of business on 24
November 2006.
9 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. At 3 September
2005, the performance criteria for the vesting period of the share options had
not been met and consequently the shares in question are excluded from the
diluted 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 the
business compared with the prior year and is calculated by dividing underlying
earnings 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 43.7 123.7
Exceptional 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 9.7
Share-based payments 14.3 5.5
Interest adjustments 58.3 88.0
Adjustment 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 the
Group. It is defined as operating profit before exceptional items and the impact
of leases with fixed annual increments in rent, charges relating to share-based
payments. The results for 2005 have been adjusted to remove the impact of week
53 and lease cost adjustments for the period prior to the British Land property
transaction, which took place in February 2005. In addition, in both 2005 and
2006 the Group underwent significant re-financing. In consequence, the statutory
interest and related financing costs are not comparable year on year. The above
adjustment for interest assumes that the 2006 re-financing, which took place
after the date of Admission, was effective at the beginning of the year ended 3
September 2005 and that the proceeds of shares issued on Admission (#700
million) were available at that date.
The comparison of performance year-on-year has also been made complex by costs
incurred as a result of the Company's Admission to the London Stock Exchange on
9 May 2006 which increased the number of shares issued by the Company. The
underlying earnings per share uses the capital structure as at 2 September 2006
to 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 43.7 123.7
Actuarial (loss)/gain in pension schemes (3.0) 8.5
Movement 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) 22.3
Issue 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 43.7 123.7
Taxation 18.4 (36.1)
Depreciation 86.0 85.4
Amortisation 5.1 3.8
(Profit)/loss on disposal of property, plant and (0.1) 2.7
equipment
Loss on disposal of intangible assets - 0.3
Profit 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) 168.8 261.1
Difference between pension charge and contributions paid (26.2) (29.5)
Net movement in long-term creditors 2.2 15.3
Changes in working capital
Increase 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 financial
statements for the period ended 3 September 2005. The analysis below shows a
reconciliation of net assets and profit as reported under UK GAAP as at 3
September 2005 to the revised net assets and profits under IFRS as reported in
these financial statements. In addition, there is a reconciliation of net
assets under UK GAAP to IFRS at the transition date for this Group, being the 29
August 2004.
Exemptions from full retrospective application elected by the Group
IFRS 1 provides a number of optional exemptions to the general principles of
full retrospective application of IFRS. The Group has elected to take advantage
of the following optional exemptions from full retrospective application at the
date 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 of
transition to IFRS. The Group has elected to take advantage of this exemption.
Business combinations that occurred before the date of transition have been
consolidated in accordance with UK GAAP. Any unamortised goodwill at 29 August
2004 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 its
comparative information in compliance with IAS 32 and IAS 39. The Group has
elected to take advantage of this exemption. The Group has adopted IAS 32 and
IAS 39 with effect from 4 September 2005.
Reconciliations of UK GAAP to IFRS
The Group has prepared reconciliations between the shareholders' equity
recognised under UK GAAP and under IFRS at 29 August 2004, the date of
transition to IFRS, and as at 3 September 2005. The UK GAAP financial statement
has been extracted from the previously published UK GAAP financial statement for
the period ended 3 September 2005.
Debenhams plc (formerly Debenhams Retail Holdings Limited) was incorporated on
10 May 2005. As a result, there is no UK GAAP consolidated balance sheet for
the Group at 29 August 2004. However, under IFRS, the acquisition of the
Debenhams Group on 24 May 2005 is treated as a reverse acquisition, and
therefore, 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 of
measurement 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
ASSETS
Non current assets
Intangible assets - 800.0 (b) 6.9 (d) - - 806.9
Property, plant and equipment - 1,038.9 (b) (6.9) (d) - - 1,032.0
Deferred 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 assets
Inventories - 167.4 (b) - - - 167.4
Trade and other receivables - 62.4 (b) - - (14.4) (l) 48.0
Cash and cash equivalents - 159.3 (b) - - - 159.3
- 389.1 - - (14.4) 374.7
LIABILITIES
Current liabilities
Financial liabilities - Bank - (43.1) (b) - - - (43.1)
overdraft and borrowings
Trade 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) 1.1
assets
Non current liabilities
Financial liabilities - Bank - (1,829.2) (b) - - - (1,829.2)
overdraft and borrowings
Deferred 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' EQUITY
Share premium - 1.0 (b) - - - 1.0
Retained 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) - - 829.9
Property, plant and equipment 668.0 - (18.0) (d) - - 650.0
Financial assets - Available for 7.2 - - - - 7.2
sale 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 - - - - 197.2
Trade and other receivables 56.4 (1.9) (b) - - - 54.5
Current 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 - - - - 1,200.9
Reverse 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) 160.4
Goodwill amortisation (a) 63.2
Deferred tax adjustments (c,h) 20.1
Lease 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 useful
life of 20 years. Under IFRS 3 'Business combinations', goodwill is considered
to have an indefinite life and so is not amortised, but is subject to annual
impairment testing. The goodwill charge made under UK GAAP has not been recorded
under IFRS from 29 August 2004, the IFRS transition date. The IFRS restatement
results in a reduction in the amortisation charge, within administration
expenses, of #63.2 million for the year ended 3 September 2005, and a
corresponding increase in goodwill as at 3 September 2005.
b) Under UK GAAP, the 2005 Acquisition was accounted for as an acquisition
by the Company of Baroness Group Holdings Limited. Total goodwill of #2,536.0
million was recognised at the date of the acquisition, calculated as the
difference between the fair value of the consideration (comprising the shares
and loan notes issued by the Company) and the fair value of the identifiable net
liabilities of Baroness Group Holdings Limited and its subsidiaries.
Under IFRS 3 'Business Combinations', the 2005 Acquisition has been accounted
for as a reverse acquisition, and for accounting purposes the legal subsidiary,
Baroness Group Holdings Limited, has been deemed to have acquired the legal
parent, Debenhams plc. The net assets of Baroness Group Holdings Limited have
been recognised at their pre-combination carrying amounts, the cost of the
acquisition 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 #22.3
million C loan notes outstanding have been transferred to equity and the #50.1
million B Loan notes outstanding have been reclassified as a current liability.
Fair value adjustments created at the time of the acquisition have been released
resulting in an increase to deferred tax liabilities of #2.3 million, a
reduction in non-current provisions of #9.6 million, and a reduction in other
receivables of #1.9m as at 3 September 2005.
As a result of applying reverse acquisition accounting, the consolidated IFRS
financial information of Debenhams plc is a continuation of the financial
information of Baroness Group Holdings Limited and its subsidiaries. The
retained earnings shown as at 3 September 2005 are those for Baroness Group
Holdings Limited and its subsidiaries and a reverse acquisition reserve of
#1,199.9 million has been created. Adjustments in the Statement of Income and
Expenditure representing the trading prior to the reverse acquisition resulted
in 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 million
lower 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 changes
to the balance sheet: intangible assets increased by #800.0 million, property,
plant and equipment increased by #1,038.9 million, deferred tax asset increased
by #3.9 million, inventories increased by #167.4 million, trade and other
receivables increased by #62.4 million, cash and cash equivalents increased by
#159.3 million, current financial liabilities increased by #43.1 million, trade
and other payables increased by #359.9 million, non-current financial
liabilities increased by #1,829.2 million, deferred tax liabilities increased by
#41.0 million and provisions increased by #13.0 million. The reverse
acquisition also resulted in the creation of a share premium account of #1.0
million.
c) Under IFRS 3 on business combinations, a deferred tax provision is
recognised on the difference between the fair value of an acquired asset and its
equivalent tax value. Under UK GAAP, deferred tax is calculated on timing
differences and therefore no additional deferred tax effect is required on
business combinations where permanent differences exist between the tax value of
an acquired asset and its carrying value. Similarly, IFRS also requires that a
deferred tax asset is created for the fair value of developer incentives
acquired on a business combination which will not be taxed when released to the
income statement. The effect of this difference is an increase in deferred tax
liabilities of #56.5 million as at 3 September 2005 (2004: #58.4 million) and a
reduction 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 been
reclassified from property, plant and equipment to intangible assets. The impact
of the reclassification on transition and at 3 September 2005 was #6.9 million
and #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 3
September 2005 with a corresponding increase in deferred tax liabilities at this
date.
f) Accounting for pensions in accordance with IAS 19 'Employee
benefits' is different from FRS 17 'Retirement benefits'. The main differences
are:
* Under FRS 17, pension balances are presented net of deferred tax on
the face of the balance sheet. Under IFRS these balances are shown separately as
a liability for the pension scheme and as an asset for deferred tax. As a
result, the Group's retirement benefit obligation at 3 September 2005 increased
by #9.5 million and the non-current deferred tax asset increased by the same
amount.
* Pension assets are valued at bid value under IFRS, whereas a mid
market valuation is used under FRS 17. The impact of this change is not
material.
g) In accordance with IFRS provisions have been split between current
and non-current on the face of the balance sheet. As at 3 September 2005 #6.8
million (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 held
at values that differ from their tax base cost. The basis of this calculation
varies depending on whether value is expected to be achieved from the asset
through sale or through retention in the business. On the date of transition, a
deferred tax liability of #18.2 million was created under IFRS to reflect the
capital gains tax that would become payable in respect of a portfolio of
properties that the Group expected to sell. This liability was subsequently
released to the income statement in the year ended 3 September 2005 when the
properties left the accounting corporate group without tax becoming payable.
(i) As part of the operating lease agreements for buildings, the Group
receives a number of lease incentives in the form of rent-free periods and
developer contributions. Under IFRS, lease incentives are spread over the lease
term. Under UK GAAP, they were spread over the shorter of the lease term or the
period to the first rent review, and the resulting liabilities of #4.6 million,
relating to rent free periods, and #39.6 million, relating to developers
contributions, were shown within current trade and other payables. On transition
to IFRS at 29 August 2004, current trade and other payables were reduced by #3.5
million and #33.5 million for rent free periods and developers contributions
respectively and liabilities of #18.3 million and #124.6 million respectively
were created in other non-current liabilities. This resulted in a decrease in
current 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 million
as at 3 September 2005 (2004: #142.9 million) and an increase in cost of sales
of #10.9 million in the year ended 3 September 2005. The tax effect of these
adjustments was an increase in deferred tax assets of #38.0 million as at 3
September 2005 (2004: #38.3 million) and an increase in the tax charge for the
year ended 3 September 2005 of #0.4 million.
(j) A number of operating lease agreements contain fixed incremental
rental charges. In accordance with IAS 17 the total committed cost has been
calculated and is charged on a straight-line basis. Under UK GAAP the fixed
increments have been charged to the income statement on a basis consistent with
the amounts incurred each year. The impact of adopting IAS 17 for the leases has
been to increase other non-current liabilities by #10.3 million as at 3
September 2005 (2004: #0.6 million), to increase non-current deferred tax asset
by #3.1 million as at 3 September 2005 (2004: #0.2 million) and to increase cost
of sales and reduce the tax charge by #9.7 million and #2.9 million respectively
in 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 'Share
based payments' a charge is required in the income statement to recognise the
fair value of shares and options awarded to employees over the period to which
the employees' services relate. In the year ended 3 September 2005, the effect
of this adjustment was to increase cost of sales by #4.7 million, increase
administration 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 to
increase deferred tax assets by #5.9 million as at 3 September 2005 (2004: #0.8
million) and to increase trade and other payables by #19.7 million as at 3
September 2005 (2004: #2.8 million).
Other Items
(l) Costs relating to the Groups pension schemes were accounted for
under SSAP 24 prior to the reverse acquisition. The UK GAAP financial
statements for the period ended 3 September 2005 applied FRS 17. Applying FRS
17 to the period prior to the reverse acquisition resulted in an increase in
cost of sales of #5.9 million, an increase in administration expenses of #1.3
million and an increase in other finance income of #1.0 million on for the year
ended 3 September 2005. The impact on the balance sheet for the year ended 28
August 2004 was to increase the defined benefit obligation by #47.4 million, to
increase deferred tax assets by #14.2 million and to reduce trade and other
receivables by #14.4 million. The balance sheet at 3 September 2005 is
unaffected.
(m) In the UK GAAP accounts for the year ended 3 September 2005 the
Debenhams Retail Employee Trust was not consolidated. An adjustment relating to
the consolidation of the Debenhams Retail Employee Trust resulted in an increase
in cash and cash equivalents of #12.8 million for the year ended 3 September
2005 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 stores
based in the Republic of Ireland from Roches Stores, an unlimited company
incorporated and registered in Ireland. The consideration for this acquisition
was Euro29 million plus the value of the stock, with Euro15 million payable on
completion, Euro5 million payable on the first anniversary and Euro9 million on the
second anniversary of completion. The assets acquired include fixtures and
equipment 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 to
the holders of the Company's listed securities in November. Copies will be
available at the Company's registrars - Lloyds TSB Registrars, The Causeway,
Worthing, West Sussex, BN99 6DA (0870 600 3970), and at the Company's registered
office, 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 Exchange
END
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