Directors' report

Principal activities

Debenhams is a leading international department store group which was established over 200 years ago. The Company has a strong presence in key product categories including womenswear, menswear, childrenswear, home and health & beauty and offers its customers a unique and differentiated mix of exclusive own bought and international brands.

Debenhams has 169 stores in the UK, Republic of Ireland and Denmark, as well as 65 international franchise stores in 25 countries. Debenhams trades over approximately 12.4 million square feet of trading space and has around 30,000 employees. Debenhams extends its customer reach via its online stores at www.debenhams.com and www.debenhams.ie and through iPhone, Android and Nokia apps.

This Business review has been prepared in accordance with the Companies Act 2006 which requires the Company to set out in this report a fair review of the business of the Group during the 53 week year ended 3 September 2011, including an analysis of the position of the Group at the end of the financial year and the trends and factors likely to affect the future development, performance and position of the business. The purpose of the Business review is to enable shareholders to assess how the directors have performed their duty under Section 172 of The Companies Act 2006.

The contents of this Directors’ report, together with the Chairman’s statement, the Chief Executive’s review, the Finance Director’s review, the Sustainability report, the board of directors, the Corporate governance report, the Remuneration report and the Directors’ responsibility statement here constitute the Business review and are therefore incorporated into this report by reference. Any liability is restricted to the extent prescribed by the Companies Act 2006.

Events since the year end

It was announced on 20 October 2011 that Chris Woodhouse would be stepping down from the board at the Annual General Meeting on 10 January 2012. Simon Herrick will succeed Chris Woodhouse. He joins Debenhams on 1 November 2011 and takes up his appointment of Chief Financial Officer on 10 January 2012. In addition, since the year end Debenhams has opened an international franchise store in the Philippines.

Profit and dividends

The profit after tax for the 53 week year ending 3 September 2011 was £117.2 million (2010: £97.0 million). The directors recommend the payment of a final dividend of 2.0 pence per ordinary share, to be paid on 13 January 2012 to members of on the register at the close of business on 9 December 2011. This, together with the interim dividend of 1.0 pence per share paid in July, gives a full year dividend of 3.0 pence per share.

Interests in voting rights

In accordance with Listing Rule 9.8.6(2), the following investor interests have been disclosed to the Company pursuant to the Disclosure and Transparency Rules:

As at 3 September 2011:

The following notifications have been received since 3 September 2011:

Share capital and control

The issued share capital of the Company is shown in Note 28 to the Financial Statements here and consists of ordinary shares of 0.01 pence each. All the shares rank pari passu. The rights and obligations attaching to the Company’s ordinary shares, in addition to those conferred on their holders by law, are set out in the Company’s Articles of Association, a copy of which can be obtained by writing to the Company Secretary. The Company was authorised by shareholders at the January 2011 Annual General Meeting to purchase in the market up to 128,680,629 ordinary shares. Although this authority was not utilised by the Company during the last financial year, approval will be sought from shareholders at the forthcoming Annual General Meeting to renew this standard authority for a further year. It is the Company’s present intention, should shares be bought back, for them to be cancelled or retained in treasury pending a subsequent sale, cancellation or transfer. The Company does not currently hold any shares in treasury. The Company will only buy back shares if the directors believe that it is in shareholders’ best interests and will increase earnings per share.

The Debenhams Retail Employee Trust 2004 (the “Trust”) holds 1,195,042 ordinary shares in the Company (0.09%). Of those shares, 471,506 shares relate to Invested Shares held by the Trust on behalf of the participants of the Deferred Bonus Matching Plan who exercise voting rights in relation to those shares. Any voting or other similar decisions relating to the balance of shares held by the Trust would be taken by the trustees, who may take account of any recommendations of the Company.

There are no significant agreements to which the Company is a party which take effect, alter or terminate in the event of change of control of the Company except that the supplier agreements with certain major cosmetic suppliers contain termination provisions on change of control and the multicurrency credit facility dated 16 July 2010 (as amended by supplemental agreement dated 13 July 2011) contains mandatory prepayment. There are no agreements providing for compensation for directors or employees on change of control. Details concerning the impact on share options and share awards held by directors or employees in the event of a change of control are set out here.

Essential contracts

Debenhams has contractual arrangements with many organisations but no one contract is so material as to be essential to the business, with the exception of the warehouse operators.

Board of directors

The membership of the board and biographical details of the directors are given here. The rules governing the appointment and replacement of the board members are set out in the Company’s Articles of Association.

Directors’ indemnities

In addition to the indemnity provisions in their Articles of Association, the Company and other Group companies have entered into a direct indemnity agreement with each of the directors and certain other officers or senior employees of the Group. The Company also maintains directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its directors.

Directors’ interests

The beneficial and non-beneficial interests of the directors and their connected persons in the shares of the Company are shown here. Their interests in options and awards over shares in the Company are shown here.

No director had, during or at the end of the year, any material interest in any contract of significance in relation to the Group’s business.

Employees

Business information and key messages are cascaded to all employees throughout the business via personal briefings and email. Briefings are also held by the Chief Executive and members of the board to update employees on the performance of the Company and the Company’s strategy. The Employee Consultation Forum, which is attended by elected representatives from stores and head office, is another medium by which employees receive information on the Company as well as giving employees the opportunity to be consulted on certain activities of the business.

Debenhams is committed to ensuring that employees or applicants for employment are treated equally regardless of gender, race, ethic or national origin, religious, political or philosophical beliefs, disability, marital or civil partnership status, sexual orientation, gender reassignment and age. Through our equal opportunities policy we aim to create an environment that offers all employees the chance to use their skills and talent.

As part of the Company’s policy on equality of opportunity, decisions on recruitment, training, promotion, pay, terms and conditions and leavers are based solely on objective, job-related criteria and personal competence and performance. The Company seeks wherever possible to make reasonable adjustments to ensure that an employee who becomes disabled during the course of his or her employment is able to continue working effectively. This includes: providing equipment or altering working arrangements; providing additional training; reallocating on a temporary or permanent basis some of the employee’s duties to other members of staff; transferring the employee to a suitable alternative role; and adjusting working times. Any such adjustment will be monitored and reviewed on a regular basis to ensure it continues to be effective.

Payment of suppliers

It is the Company’s policy to pay suppliers in accordance with the agreed payment terms provided that the invoice is properly presented and not subject to dispute.

The ratio, expressed in days, between the amounts owed by the Company to trade creditors at the end of the year and the amounts invoiced by suppliers in the financial year ended 3 September 2011 was nil days (2010: nil days). The ratio, expressed in days between the amounts owed by the Group to trade creditors and the amount invoiced by suppliers in the financial year ended 3 September 2011 was 60 days (2010: 61 days).

Financial instruments

Debenhams does not enter into financial instruments for speculative trade. Details of financial instruments entered into to manage underlying risks are set out in note 23 here.

Political donations

There were no disclosable expenses made during the financial year which fall within the definition of a political donation under the Political Parties, Elections and Referendums Act 2000. It is the Group’s policy not to make donations to political organisations or independent election candidates or incur political expenditure.

Charitable giving

During the year the Group made charitable donations totalling £1.1 million (2010 £0.7 million). The Company supports various charities. Key donations made during the year were £260,334 to the NSPCC, £249,382 to the Breast Cancer Campaign, £64,541 to the Estée Lauder MAC Aids campaign and £25,298 to the Marine Conservation Society.

Going concern

After making enquiries, the directors consider that the Group has adequate resources to continue in operation for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the financial statements.

Corporate governance statement

In accordance with the Financial Services Authority’s Disclosure and Transparency Rule (“DTR”) 7.2.1, the disclosures required by DTR 7.2.2R to DTR 7.2.7 and DTR 7.2.10 are within the Corporate governance review here and Risk review here and are therefore incorporated into this report by reference.

Disclosure of information to auditors

Each of the directors of the Company at the time when the Directors’ report was approved confirms that:

1. so far as the director is aware, there is no information needed by the Company’s auditors in connection with preparing their report of which the Company’s auditors are unaware; and
2. s/he has taken all the steps that s/he ought to have taken as a director in order to make herself or himself aware of any information needed by the Company’s auditors in connection with preparing the report and to establish that the Company’s auditors are aware of that information.

Auditors

PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution dealing with their reappointment as auditors of the company will be proposed at the forthcoming Annual General Meeting.

Annual General Meeting

The Annual General Meeting of Debenhams plc will be held at Holborn Gate, 26 Southampton Buildings, London WC2A 1PB on Tuesday 10 January 2012 at 2.00pm. The Notice is given, together with explanatory notes, in the booklet which accompanies this report.

By order of the board

Paul Eardley
Company Secretary
20 October 2011