The document provides instructions for an assignment analyzing the 2018 financial statements of Debenhams plc. It asks students to calculate various financial ratios to analyze Debenhams' liquidity, inventory management, profitability, and financial risk in 2018. It also asks students to discuss the major financial mistakes that led to Debenhams' decline and other contributing internal and external factors, justifying arguments with examples and figures. The assignment is due by April 26, 2021 and should be between 1,500-2,000 words for part B.
ECS3019 Financial Decisions for Business – Assignment 2(A) Use
1. ECS3019 Financial Decisions for Business – Assignment 2
(A) Use the financial information provided in Debenhams’ 2018
Financial Statements to answer the following questions.
1. Work out Debenhams liquidity ratios in 2018. What do these
ratios tell us about Debenhams’ liquidity position?
(15 marks)
a. Quick ratio
b. Current ratio
2. Work out Debenhams Inventory turnover ratios in 2018.
What does this ratio tell us about Debenhams’ inventory
management? (10 marks)
3. Work out Debenhams profitability ratios in 2018. What do
these ratios tell us about Debenhams’ profitability state?
(15 marks)
a. Return on capital employed
b. Net profit ratio
4. Work out Debenhams Debt/Equity ratio in 2018. What does
this ratio tell us about Debenhams’ financial risk level?
(10 marks)
(B) Read Debenhams’ 2018 Financial Report and research on
relevant information about this company. What was the major
mistake it made in relation to its financial decision in recent
years that had led to its downfall? Were there any other
internal and external factors contributing to the failure of this
business? Use examples and concrete figures to justify your
arguments.
Word limit for Part B is between 1500 to 2000.
17. sociable and fun
2018 has been a tough year for UK retail and this is reflected in
our results for the year. However we are seeing the first positive
signs of results from our Debenhams Redesigned strategy. We
have built a plan that allows us to focus on priorities within our
strategy that are scalable and will help us to mitigate the
challenging retail environment.
We are taking decisive action to drive further cost savings and
generate cash whilst addressing the structural challenge of our
store
estate. This will create a solid financial platform for us to invest
behind
our strategy and create value for our shareholders and
stakeholders.
Our strategy is to deliver growth by becoming a Destination
for Social
Shopping and offering exciting new products and services;
being
driven by Digital, with mobile unifying our channels and our
interaction with customers, as well as broadening our reach; and
being
Different in how we create and manage our brands and product,
supported by a more innovative culture.
This will be combined with a focus on driving efficiency
by removing barriers to shopping both online and instore;
Simplifying and Focusing our store estate and operating model;
and making more effective use of our resources.
18. Financial highlights Strategic highlights Shareholder returns
Gross transaction value1,*
£2.9bn
Digital sales growth*
12.3%
Underlying EPS2,*
2.2p
Profit before tax2,*
£33.2m
Beauty sales decline*
(0.8)%
Dividend per share
0.5p
Net debt
£321.3m
UK Food sales growth*
9.6%
ROCE (lease-adjusted)*
9.4%
1 Compares to £3.0bn for FY2017.
2 Pre exceptional items of £524.7m, statutory loss before tax of
£491.5m, refer to page 36 for further detail.
* Alternative performance measures are defined in the Glossary
section of the Annual Report on pages 156 to 159.
19. 20 Doing our bit: Equality, Community & Environment
Strategic report
Business model and strategy 2
Market context 4
CEO’s strategic perspective 6
Strategy in action 10
Resources, relationships 20
and sustainability
Key performance indicators 28
Risk management 30
Principal risks and uncertainties 32
Financial review 35
Viability statement 41
Corporate governance
Chairman’s Introduction to Governance 42
Leadership 43
Board of directors 44
Corporate governance report 46
Nomination Committee report 52
Audit Committee report 54
Chair’s introduction 58
to Remuneration
Remuneration policy 60
The annual report on remuneration 64
Directors’ report 76
Statement of directors’ 79
responsibilities
Financial statements
Independent auditors’ 80
report to the members
of Debenhams plc
20. Consolidated income statement 90
Consolidated statement of 91
comprehensive income
Consolidated balance sheet 92
Consolidated statement 93
of changes in equity
Consolidated cash flow statement 94
Notes to the financial statements 95
Five year record income statements 144
Five year record balance sheets 145
Company balance sheet 146
Company statement of 147
changes in equity
Notes to the Company 148
financial statements
Additional information
Store list 155
Glossary and references 156
Additional information 1606
CEO’s strategic
perspective
10 Strategy in action: Destination, Digital, Different branding,
Simplify & Focus and International
Financial review
of the year 35
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23. Our resources
and relationships
How we create
value today
Innovation and culture
We are developing a culture that puts our customers first,
enabling product creation and development in an inspiring
environment, supported by data-informed decision-making
Developing and managing brands
Approximately half our sales come from our own or exclusive
brands. We use the insight from 19 million customers to inform
brand development, and to edit and curate the choice of
products and brands we sell
Serving our customers
We have worked hard to make shopping easier and more fun
for our customers: reducing colleague tasks; equipping them
with technology and data; and giving them more time in front
of customers
Creating inspiring places to shop
We are reducing clutter in our stores, reducing stock options
and
improving visual merchandising. We have continued to upgrade
our digital presentation for mobile display, to improve
conversion
Leveraging partnerships
We continue to strengthen our relationships with third parties to
broaden our reach. This includes accessing new customers both
in the UK and overseas through partners for our own brands,
and
working with service providers to exploit growth categories,
such
24. as food and beauty services in our stores
The value we create
We create value for our stakeholders and our business
by carefully managing the use of, and the return on, our
resources and relationships
Gross transaction
value
£2.9bn
Digital sales
growth
12.3%
EBITDA*
£157.3m
Return on capital**
9.4%
Underlying EPS*
2.2p
Direct employment
c26,000
* Before exceptional charges. ** Lease-adjusted.
People
We employ around 26,000 colleagues in the UK, the
Republic of Ireland, Denmark and in our sourcing
offices in Hong Kong and Bangladesh. They support
our own-operated stores in the UK and Europe and
our digital operations, and serve around 19 million
25. customers
Read more on page 20
Expertise and insight
We recruit and train experts in design, buying and
merchandising, supported by excellent creative,
marketing, logistics, financial and administrati ve
functions. Our customer insight unit provides us
with valuable feedback on our customers’ spending
habits and their view of our offer
Read more on page 5
Channels
We have 182 stores across major retail locations in
the UK, the Republic of Ireland and Denmark. We also
have franchised stores across a number of international
markets, particularly in the Middle East. We have a
flagship digital store in the UK and a localised online
service in a number of overseas markets. Our UK
website is one of the top online UK retail destinations
with over 300 million visits each year
Read more on pages 6 and 7
Suppliers and partners
We have a well-established network of more than 1,000
suppliers, as well as concession, logistics and franchise
partners, who provide us with high quality product,
logistical support and local market expertise in
locations where we trade with a partner
Read more on page 22
Finance
26. We have a strong balance sheet, with flexible financing
provision through a £320 million financing facility and
a £200 million bond, which are available until 2020
and 2021 respectively. These resources are more than
adequate to provide working capital and support our
capital spending programme including investment
in our strategic priorities.
Read more on pages 38 and 39
Our value creation
is underpinned by
Risk management
A systematic approach to managing risk
to ensure strategic goals are met
Read more on pages 30 and 31
Governance
A governance framework designed to
safeguard long-term shareholder value
Read more on pages 46 to 51
Strategic report
2
Debenhams plc Annual Report & Accounts 2018
What we do
We aim to make shopping confidence-boosting, sociable and fun
for our customers, through our 240
27. department store destinations and online in more than 90
countries. We give our customers around the
world a unique, differentiated and exclusive mix
of own brands, international brands and concessions.
The value
we share
How we aim to maximise
value through our strateg y
Destination
By making Debenhams more of a Destination, especially
for Beauty and beauty services; Fashion and accessories;
and Food and events, we will grow “Social Shopping” and
increase frequency of visits
Digital
By using mobile to integrate our channels and become
the primary means of interacting with our customers, we will
increase loyalty and personalisation and broaden our reach
Different
By being different in how we create and manage
our brands and product, we will increase innovation
and differentiation, building the desirability and
value of our brands
Underpinned by Simplify & Focus
By simplifying our operations and processes and
focusing on doing fewer things better, we will
increase the efficiency of our business
Read more on pages 10 to 17
By running a profitable, sustainable, responsible
28. business, we create value which is used to
strengthen our financial position, invested to enable
growth and shared with all of our stakeholders
Customers
We invest in our stores and integrated digital offer
(2018 capex of £143.5 million in order to provide our
customers with an inspiring environment and a
convenient customer journey
Read more on page 39
Shareholders
We have paid a dividend (2018: £35.6 million)
although the board has decided not to pay a final
dividend to retain cash in the business and reduce
debt at this time
Read more on page 38
Colleagues
We invest in training and support for our colleagues
in order to enable them to create and manage
brands and to serve our customers well
Read more on page 20
Suppliers
We source globally from more than 1,000 suppliers
adopting ethical trading principles. We have
increased our business through direct sourcing
operations in Hong Kong and Bangladesh
Read more on page 22
Communities
29. We raised £1.3 million through Group activities
in 2018 to support charitable giving and
community involvement
Read more on page 24
Environment
We seek to operate our stores, logistics and
sourcing operations in a way that minimises
the use of energy and resources
Read more on page 25
Sustainability
Introducing “doing our bit”, Debenhams’
new approach to CSR
Read more on pages 20 to 27
Culture
Taking a customer first approach, fostering innovative
thinking underpinned by data
Read more on page 15
Social Shopping
Simplify & Focus
Destination Digital Different
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32. Our market context commentary
comes from a research report, from
broker Citi, published on 25 July 2018.
“Two years on from the Brexit vote, we
take a more positive view on Citi’s UK
measure of Household Available Cashflow
(HAC) for 2019 and 2020 although we
expect disposable income to remain
subdued for the remainder of 2018.
So far in 2018, the UK has seen extreme
weather conditions, from snow in March
to a summer heatwave. This has had more of
an impact on retail sales than any underlying
change in consumer behaviour. Given the
long-standing structural headwinds of online
challenging the store-based retail model,
we have remained cautious on the more
traditional retailers, and sentiment has
been negatively affected by high profile
retail failures.
Very weak footfall in 2018
-20
-15
-10
-5
0
35. n
1
8
Total consumer
BRC Footfall (Total UK Retail)
Source: Citi Research, BRC
Online growth is slowing but the shift
from instore to online continues
0
5
10
15
20
25
%
2
0
0
9
2
0
1
37. 6
2
0
1
7
2
0
1
8
y
td
Growth
Penetration
Source: Citi Research, BRC
For the majority of UK consumers, the
only real impact from Brexit has been higher
inflation due to weak sterling and an increased
cost of holidays. Arguably the economy has
proven more resilient than many feared, albeit
still at a slightly lower growth rate than would
otherwise have been the case. However, given
the impending deadline for an agreement,
large domestic employers are now calling
for information on exactly how Brexit will
be enacted before they can confirm
investment plans.
Consumer confidence has bounced off
38. its recent lows but is still lower than the
pre-Brexit vote level
-20
-15
-10
-5
0
5
10
%
Ju
n
0
7
Ju
n
0
8
Ju
n
0
9
40. Ju
n
1
6
Ju
n
1
7
Ju
n
1
8
Total consumer
Source: Citi Research, GFK
0.3%
growth in Household
Available Cashflow
in 2018
Strategic report
4
Debenhams plc Annual Report & Accounts 2018
UK consumers feeling better about
43. Compared to 12m ago
Expectations in next 12m
Source: Citi Research
Looking at the data from our regular UK
consumer survey of 1,200 respondents on
their spending intentions, it supports a positive
outlook for online and discount retail, while
indicating continuing weakness in home-related
spending. It does indicate an improving outlook
for UK clothing – where spending intentions
are better than expected. However, we believe
that trends in spend still favour online and value
players rather than the traditional retailers.
Specific spending intentions by category
-0.1
0.0
0.1
0.2
0.3
N
e
t
ch
an
47. s
Previous 12 months
Next 12 months
Source: Citi Research
The demand environment remains
uncertain for 2018 with the final Brexit
agreement creating significant volatility in
terms of the outlook for the important peak
trading period for retailers. As we look into
2019, a better demand and operating cost
environment than in the previous two years
should help offset any incremental gross
margin pressure.
• UK consumer demand likely to rebound
in 2019 – 2018 is likely to be the low point for
consumer disposable income with a recovery
as inflation fades. The UK HAC points to just
+0.3% implied like-for-like improvement in
2018 before a projected rebound to +1.3%
in 2019 and +1.5% in 2020. Over the next
year, by category the UK consumer survey
sees net intentions to spend more in Food,
Discount retail and Clothing with less in other
categories. However, we are not expecting a
strong increase in consumption compared to
history and much of this spend will likely be
transferred online. The direction of Brexit
negotiations will also affect confidence and,
therefore, willingness to spend
48. • Store closures are starting to see
a benefit in terms of sales transfer
both from own estate and competitor
closures – The upside of the structural
challenges for the remaining retailers is the
benefit of a pick-up in sales from retailers
such as House of Fraser, Homebase and
Toys’R’Us closing stores as well as the
benefit from sales transfer from reducing
the size of their own store estates (Dixons
Carphone, M&S)
• Gross margin headwind for 2019 on FX
and commodities – However, we assume
a negative outlook for gross margins for
UK clothing retailers as foreign exchange,
cotton prices and freight have all moved
against the sector
• Less operating cost pressure than we
have seen in recent years – This should
be mitigated by the lower level of minimum
wage inflation at c+4.5%, lower average
rents as lease renewals drive downwards
pressure, a possible freeze on business
rates for retailers, and less of a step-up
in IT and warehousing investment
Where could we be wrong?
The main risk to our more constructive view
for 2019 is the increased political uncertainty
over Brexit. This would likely delay investment
and curtail employment growth, as well as
negatively impact sterling. Citi’s view is
that GBP/USD is the single most important
macro driver of the UK retail sector followed
49. by consumer confidence, and both of these
could be under pressure without a satisfactory
Brexit agreement.
There is also a risk that increasing
employment fears drive an increase in the
savings rate given its historic low level and the
high level of consumer debt. This would see
any increase in disposable income revert to
shoring up personal finances. An upside risk
is post-Brexit inward investment stepping
back up given the removal of uncertainty, or a
reversal of leisure spend back towards retail.”
+4.5%
National Minimum
Wage inflation
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51. d
d
itio
n
a
l in
fo
rm
a
tio
n
C E O ’ S S T R A T E G I C P E R S P E C T I V E
“After a huge
amount of change
behind the scenes,
we’re starting to
see evidence
of progress.”
Sergio Bucher
Chief Executive Officer
ear shareholder,
It has been a tough
year for UK retail
and our trading
52. performance in
FY2018 reflects
that. Nevertheless,
we are encouraged
by the signs that our
transformation is gaining
traction. We have been reshaping
our business, taking some hard decisions,
including announcing more store closures,
to make sure that Debenhams is in a strong
financial position to trade successfully in
a highly competitive and promotional
marketplace. I would like to thank all my
colleagues for their resilience and support in
delivering the necessary changes and building
the foundations for our transformation
of Debenhams.
We announced our new strategy, Debenhams
Redesigned, in April 2017. see the framework
of our strategy below and Strategy In Action
(SIA) pages 10 to 19. The strategy aimed to
address the challenges that face department
store retailing and to create a business that
makes shopping confidence boosting,
sociable and fun for our customers. In order
to deliver our strategy, we needed to
restructure the organisation to make it
simpler, leaner and more nimble. We
have made huge progress with this
reorganisation and we have assembled
a strong management team.
53. Five key priorities identified
At our interims in April, acknowledging the
rapid change in our industry, we identified
five priority actions within our strategy that will
help mitigate the trading environment; that are
scalable; and that will deliver positive returns.
These priorities are:
• Delivering above-market digital sales
growth driven by technological change
focused on mobile
• Sustaining leadership in Beauty through
innovative customer engagement both
instore and online
• Revitalising fashion product under new
leadership, with [email protected]
reinvention under way
• Changing the instore experience
for customers through our redesigned
service model and store presentation
• Accelerating cost reduction activity to
underpin announced annualised savings
of £20 million
Strategic report
6
Debenhams plc Annual Report & Accounts 2018
54. A strategy that aims to create shareholder value
Debenhams Redesigned
Our objective is to build a successful future for Debenhams
against a fast changing
background, with a mission to make shopping confidence-
boosting, sociable
and fun. Our plan is to transform the shopping experience at
Debenhams, creating
great reasons for our customers to come to us whether they are
sitting at home,
commuting to work or enjoying leisure time browsing in stores.
The strategic
framework illustrates our Debenhams Redesigned strategy:
Destination 2
We aim to make Debenhams a destination for Social Shopping
by focusing on three key areas to grow: Beauty and beauty
services; Fashion via accessories; and food and events – which
we call Meet me @ Debenhams. If we can be higher in our
customer’s consideration for these categories, this will increase
frequency of visits. Our customers visit us less frequently than
some of our peers and by exploiting our market-leading position
in premium beauty; encouraging cross-shopping between
fashion and accessories and creating exciting places to eat
and drink, we can increase traffic and spend per customer.
Different 3 4
We are redesigning the culture at Debenhams, from being
process-driven, to customer-led. We aim to foster creativity
and innovation, underpinned by data-driven decision-making.
We are reinventing [email protected], making the
proposition more relevant and managing our brand portfolio
more robustly. We are building ranges for our online customers
first. By being different in how we create and manage our
55. brands and products; we will build their desirability and value.
Digital 1
Growth in mobile demand is driving growth in UK non-food
retail sales and is a significant opportunity overseas. We saw
continuing rapid growth in mobile demand in 2018 of 20%,
and it now accounts for almost 60% of UK Group digital sales.
By using mobile to integrate our channels and become the
primary means of interacting with our customers, we will
increase loyalty and personalisation and broaden our reach.
We intend to increase our digital distribution both through
our own infrastructure and via strategic partnerships.
Strength in digital sales growth
Debenhams is one of the top ten most
visited retail websites in the UK and a clear
destination at peak shopping dates in the
calendar. We have delivered strong growth in
digital sales in FY2018, up 12% to £530 million.
This accelerated well ahead of the wider market
in H2, driven by continuing agile development
focused on mobile. The smartphone is
increasingly the centre of our interaction with
customers and mobile demand accounts for
over half our digital sales. Our partnership
with Mobify, a digital experience platform,
has successfully delivered a faster, more
responsive mobile website and improved
customer experience. We plan to extend this
to our customers shopping via their desktops
and expect to continue to drive profitable,
above-market growth in the coming year.
Sustaining leadership in Beauty
Debenhams is a leader in the UK premium
beauty market, which has slowed this year
56. after several years of strong growth. Our
Beauty Redesigned strategy aims to sustain
our leadership through making our beauty
halls even more of a Destination, through
driving Digital engagement with our
customers and offering Different brands
and categories where we see growth
opportunities. We took a minority stake in
digital beauty services provider blow LTD.
Our Beauty Hall of the Future has opened in
two locations; our new store in Watford and
our modernised store at Meadowhall, with
elements of our new thinking being rolled
out to more stores. We have launched the
BeautyClub Community, a social media
platform for beauty devotees, where our
1.3m BeautyClub members and instore
beauty consultants can share advice, tips
and recommendations, building content and
gaining rewards based on their participation.
This is an exciting development, the first of
its kind in the UK, that brings our channels
together, tapping into a highly socially-
engaged customer.
Revitalising fashion product
Under the leadership of Steven Cook (see
overleaf), we have restructured the organisation
of our Fashion & Home business unit: reducing
complexity, aligning the management of the
trading divisions and improving accountability.
1 Above market growth
2 Growth in beauty through digital/social
57. 3 Improve fashion product
4 Change instore experience
5 Deliver cost reduction activity
Underpinned by Simplify & Focus 5
We have reviewed our processes and the way we do business in
all areas to simplify them and improve our flexibility, with the
aim
of making more effective use of our people, our inventory and
our infrastructure, including how we generate and deploy our
cash. We have now started to address the structural challenge
within our store estate: segmenting the portfolio between the
investable core; those markets we plan to exit; and a low cost
model for the balance of the UK chain.
This strategy will deliver growth and efficiency over the next
three years and beyond, delivering an enhanced experience for
our customers, helping our colleagues to serve our customers
better and creating value for our shareholders.
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60. the John Lewis
Partnership.
Read more
on page 44
C E O ’ S S T R A T E G I C P E R S P E C T I V E
C O N T I N U E D
This will underpin our work to differentiate our
brands better. We are revitalising [email protected]
Debenhams, which remains an important asset
of the business, with some changes to our
portfolio of Designers. The first collection from
our newest partner, Richard Quinn, winner of
the London Fashion Week Queen Elizabeth II
award, was very well received. In those brands
where our work is most advanced, we have seen
a strong improvement in full price sell-through.
Changing instore experience
We started our work on instore experience
by addressing some of the issues that have
hindered our customers from enjoying their
shopping experience with us. We introduced
customer service measures to our KPIs
and in FY2018 we have seen a significant
improvement in our net promoter scores.
Building on the lessons from our store
“test-lab” at Stevenage we restarted our
store investment programme, with six stores,
Uxbridge, Westfield, Reading, Cambridge,
Leicester and Meadowhall, being modernised
in time for the autumn season. We have opened
our “store of the future” at Watford, which
brings together our latest thinking instore
61. presentation and layout. We are assessing how
to focus our investment plans, within a lower
capex budget to deliver the best returns.
Accelerating cost reduction activity
We announced in January that we were
working on a new, more flexible operating
model that would result in reorganisation
and restructuring activity both in our stores
and support centre. We have reduced the
layers of management, taking out 320 roles
in stores and c300 roles in the support centre,
delivering £12 million of cost savings in FY2018,
and secured further efficiencies to deliver
the annualised £20 million identified. Market
conditions remain volatile and challenging.
We are therefore taking a prudent approach
and assume no improvement in the trading
environment for the foreseeable future. We
have identified a further £30 million of cost
savings for FY2019, annualising to c£50 million
by FY2020.
Strengthening our financial position
As well as driving out further cost opportunities
beyond those already announced, we are
focusing on self-help and prioritising cash
generation. In order to give us maximum
flexibility amidst difficult trading conditions we
are taking the opportunity to strengthen our
balance sheet further. Whilst still pushing ahead
with key strategic initiatives, we are planning for a
material reduction in FY2019 capital expenditure
to £70 million. As a result, we expect net debt to
be lower in FY2019 than in FY2018. We are also
conducting a strategic review of non-core assets,
62. aiming to focus investment behind our strategy.
Debenhams management team
The team delivering the transformation of Debenhams
Executive
committee
(left to right):
David Smith
MD of International
Angela Morrison
Technology and Supply
Chain Director
Sally Hyndman
HR Director
Ross Clemmow
MD of Retail, Digital,
Food & Events
Steven Cook
MD of Fashion & Home
Sergio Bucher
CEO
Rachel Osborne
CFO
Richard Cristofoli
MD of Marketing &
Beauty Services
Read more
63. on page 47
8
Debenhams plc Annual Report & Accounts 2018
Strategic report
Putting Debenhams on firmer foundations
Early evidence of strategic progress
SEPTEMBER 2017
Debenhams announces
partnership with blow LTD to
drive beauty services growth
Opens first southern hemisphere
store in Melbourne, Australia
JANUARY 2018
Steven Cook joins
as MD, Fashion
& Home
Debenhams reports
tough Christmas
trading, but strong
digital performance
Initiates move
towards new
operating model and
confirms £20 million
cost saving target
64. MAY 2018
New Designer
collaboration with
Richard Quinn
launches
MARCH 2018
Furniture trials with
partners Maisons du
Monde and Swoon
open in Westfield
JUNE 2018
Q3 trading update notes
deterioration in market
environment
Announce strategic review
of non-core assets
APRIL 2018
Interims introduce
five priority actions
under Redesigned
strategy
Confirms de-
layered management
structure both
in stores and at
support centre
AUGUST 2018
First Sweat! gym
opens at Sutton, Surrey
65. Appointment
of new CFO,
Rachel Osborne
OC TOBER 2017
Preliminary results
and strategic update
introducing new KPIs
First downsized store
launched at Uxbridge
Looking different
The Debenhams Redesigned strategy sets
out to reinvent the shopping experience
for customers. Whilst we have made real
improvements to our stores and continue
to improve our product offering, we also
want to signify clearly to customers that
Debenhams is changing and give them
more reasons to come instore – our new
brand identity signals the next phase in our
continued transformation. You will see it
on our website, in all our communications,
especially on social and digital platforms,
and in our new and modernised stores.
Store of the future
I am as convinced as ever that the high street has
a big role to play in the future of retail. We invited
some of our stakeholders to see our vision of the
future of department stores, as displayed at our
new store in Watford. It is obvious that online
platforms, including ours, provide a very
convenient way of shopping. However, shopping
66. is one of the favourite hobbies for many people
around the world and particularly in the UK. If
the high street wants to compete, we need to
make sure that every shopping trip has a little
something that is memorable: the product, the
experience, the service, the environment, the
food, the drinks, the friends. Watford brings
to life what we call Social Shopping: that is,
shopping as a fun experience you can do on
your own or share with friends, with family,
wrapped in a set of digital experiences.
Watford will form the template for the future
revitalisation of our store portfolio, which will
underpin the transformation of your company.
Changes to the senior team
We have said Hello and Goodbye to some
members of the senior team. In January, we
welcomed an important new member of the
executive committee, Steven Cook, who
has joined from Holt Renfrew as Managing
Director of Fashion & Home. I would like to
take a moment to thank Matt Smith, our CFO,
who left in August 2018, for his contribution
to Debenhams over the past three years
including developing and shaping the strategy
and strengthening our financial position. I am
delighted that we have appointed a very able
successor to Matt in Rachel Osborne, who has
joined us from Dominos plc, with invaluable
experience across retail and consumer-facing
businesses. I’d also like to thank Paul Eardley,
who served most ably as Company Secretary
for 11 years. We all hope he enjoys his
well-earned retirement.
67. Sergio Bucher
Chief Executive Officer
25 October 2018
1 Above market
growth
2 Growth in beauty
through digital/
social
3 Improve fashion
product
4 Change instore
experience
5 Deliver cost
reduction activity
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estination
Our priority actions to sustain leadership in Beauty and to
improve
the shopping experience for our customers underpin our mission
to make shopping fun, social and easy, as well as being key
to encouraging our customers to visit us more often.
Strategic report
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Debenhams plc Annual Report & Accounts 2018
70. 2 Growth in beauty through digital/social
Beauty products
and services
What we have done
Our first two Beauty Halls of the Future
have opened at Watford and Meadowhall.
We have trialled a new multi-brand format –
#beautyhub – that will extend choice in smaller
stores. We launched three blow bars offering
beauty services in our stores at London Oxford
Street, Birmingham and Manchester.
What we are going to do
We plan to roll out elements of our Beauty Hall
of the Future to 40 further stores before peak
trading. We see opportunities in mini beauty
products (for travel and gift) and growth in
categories such as skincare and male grooming.
3 Improve fashion product
Fashion via
accessories
What we have done
Debenhams has maintained a 5% share
in the UK clothing market, supported by
leading market positions in important
accessories categories (eg bags, swimwear,
branded lingerie). We have assembled a
new leadership team in Fashion & Home,
with a restructured organisation.
71. What we are going to do
We will see a step forward in product this
autumn, particularly in womenswear. We
are increasing the emphasis on newness,
introducing new brands, “new this week”
hubs and more capsule collections in our
own brands. We have seen a strong customer
response to trials of an enhanced service
proposition in footwear and lingerie.
4 Change instore experience
Meet me @
debenhams
What we have done
We have continued to roll out new food and
drink offers with exciting new brand partners,
such as Franco Manca and Nando’s. This has
driven a record year in food sales. We trialled our
own in-house developed fresh and healthy food
offer, Loaf & Bloom, and upgraded menus and
service in our instore restaurants. As well as our
established VIP evenings before Christmas, we
hosted a national “Summer School of Beauty”
event in June.
What we are going to do
We are adding 75 pop-up food offers before
Christmas, including gin bars, as seen at
Watford. We are testing another in-house
developed concept, The Kitchen, for a
different customer demographic. As the
nationwide destination for shopping events,
we are expanding our event programme with
privileged access for our VIP customers.
74. S T R A T E G Y I N A C T I O N
igital
One of our five priority actions is to continue to deliver
above market growth in digital. Mobile is becoming
the primary means of interacting with our customers;
we aim to increase loyalty and personalisation.
Strategic report
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1 Above market growth
[email protected]
everywhere
What we have done
FY2018 growth in UK digital sales of 10%
compares with UK market growth of c7%
(according to the BRC) and was powered by
strong mobile demand, which now accounts for
c60% of online orders. Through our partnership
with progressive web application Mobify, our
work to improve the customer journey has
grown smartphone conversion rates by 17%.
What we are going to do
Our progressive web application development
will gradually replace functionality in our
75. existing web platform and give us all the
flexibility of an app. All our development work
is mobile first as this is the focus of how we are
building customer loyalty and personalisation.
4 Change instore experience
Click & Collect
What we have done
Next day click & collect accounts for over 30%
of online orders and drives store footfall. We
have been testing a partnership with Doddle
in 50 stores, providing collection services for
other retailers’ orders. We have announced
this will be extended to all stores.
What we are going to do
Our modernised stores show how we can
transform the click & collect service to be
engaging and sociable as well as a convenient
and reliable service. Linking the service with
personal shopping and other activities will
make click & collect a leisure experience in
its own right.
2 Growth in beauty through digital/social
BeautyClub
Community
What we have done
Our BeautyClub card loyalty scheme
has more than 1.3m members and we have
over half a million followers on Facebook
and Instagram. We also have more than
6,000 beauty experts in our stores. We have
developed our own social media platform
76. using an established software provider to
access the community of highly digitally-
engaged beauty consumers.
What we are going to do
We are creating a digital destination, accessed
via Debenhams.com, bringing together beauty
beginners, enthusiasts and experts in a fun,
rewarding and safe space to connect and share
their passion by asking questions, offering
knowledge and giving authentic advice.
Users will be able to earn rewards from their
participation. The BeautyClub Community is
the first of its kind in the UK and has met with
an enthusiastic early response.
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S T R A T E G Y I N A C T I O N
ifferent
branding
We aim to foster creativity and innovation,
underpinned by data-driven decision-making. We have launched
new branding and marketing which is consistent across all our
communications and acts as a call to action to customers
signalling
changes to product, presentation and environment.
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79. do a bit of
4 Change instore experience
Innovation
and culture
What we have done
We have reorganised the way we operate into
three business units that are aligned with our
strategy: Beauty & Beauty services; Fashion &
Home; and Food & Events. With clearer lines of
responsibility and a holistic view of each division
we are already seeing better collaboration and
visibility of data. Our “Service Redesigned”
programme included dedicated training and
incentives and a mystery shopper programme.
As a result we have delivered a significant
improvement in net promoter scores.
What we are going to do
Our new structure for Fashion & Home is
buyer-led and design-driven, supported
by a centralised planning function. This will
improve accountability, align activity across
channels and markets and lead to faster
decision-making.
3 Improve fashion product
Brand matrix
What we have done
We have a strong track record of brand creation,
with a number of our brands generating annual
80. turnover of over £100 million, making them
sizeable businesses in their own right. We have
taken some of these brands back to their roots,
restoring a clear brand identity, with positive
early results, for example at Principles and Star
by Julien Macdonald.
What we are going to do
We are rolling out a new brand identity –
our first for 20 years – which aims to alert our
customers to the changes at Debenhams and
encourage brand reappraisal. We are proud
of the Debenhams brand and are bringing
together our entry level product in home
under this label. We are managing our gift
offer differently, with 70% of the range
changed for this Christmas. We are starting
to build ranges online first, editing store
ranges based on online catchment data.
3 Improve fashion product
[email protected]
Debenhams
What we have done
Our long-standing collaboration with
designers remains a core attraction for
customers and an important point of
differentiation for Debenhams. In line with
a more robust portfolio approach, we are
phasing out Ben de Lisi and John Rocha
and have introduced a capsule collection
from London Fashion Week award-winner
Richard Quinn.
What we are going to do
81. Following positive early results from
upgrading fabric quality for some of our
newer designers, we are extending this
further across the portfolio. We plan to offer
“little black dresses” from each designer to
make Debenhams the destination for
partywear this season.
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Simplify
& Focus
In light of rapid market change, we accelerated our cost
reduction programme
to deliver annualised savings of £20 million. A leaner operating
model,
with fewer management layers, is delivering faster decision-
making
and potential to drive out further efficiencies.
Strategic report
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5 Deliver cost reduction activity
New operating
model
What we have done
84. We identified the opportunity for £20 million
cost savings. We reduced the number of roles
across our store estate by 320 whilst increasing
customer-facing hours. At our support centre, we
have streamlined the number of management
layers from 17 to nine and reduced the space and
occupancy cost in our London office by 20%.
What we are going to do
We have identified further cost opportunities
that should deliver additional cumulative annual
savings of c£70 million by FY2020. Whilst the
market remains volatile and uncertain, we will
continue to look for further efficiency savings
to offset inflationary headwinds.
5 Deliver cost reduction activity
More efficient
use of resources
What we have done
We have created two key sourcing hubs
in Hong Kong and Bangladesh to drive
standard and efficient ways of working
that support a leaner and more flexible
UK sourcing structure.
What we are going to do
Our aim is to achieve a more flexible
and customer-led supply chain, supporting
more frequent product newness whilst also
delivering better availability on continuity
lines. We are maintaining our investment in
warehouse automation, which will reduce
fulfilment costs.
85. 4 Change instore experience
Store estate
What we have done
We closed two stores of the ten that we
had identified for potential closure as a
result of our initial portfolio review. We have
modernised six stores, including a downsized
store at Uxbridge, building on the lessons
from our award-winning Stevenage store.
What we are going to do
We have again reviewed our store estate in light
of the rapidly-changing market environment.
As a result we have segmented our stores into
those locations that will deliver a good return on
investment, in line with the principles embodied
at our “store of the future” in Watford; those
locations in lower-performing markets where we
see risk that they will become unprofitable and
so will exit; and the balance which remain
profitable but are unlikely to justify future
investment. We are working closely with
landlords to align rents to the market.
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International
We are adapting Debenhams Redesigned to our International
operations,
looking to leverage and grow successful partnerships through
both franchised
and wholesale relationships, and increasing our digital presence.
88. We continue to exit lower-growth, lower-potential markets.
Strategic report
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Debenhams plc Annual Report & Accounts 2018
Leverage and
grow successful
partnerships
What we have done
We have strong partnerships in markets such
as the Middle East, which account for around
half our franchise operations. We opened a
flagship store in Kuwait, and a new store in
Riyadh. Wholesale customer sales grew over
50%, with strong growth via our digital partner
Zalando. We have launched a mobile site for
international e-commerce.
What we are going to do
Our international teams have been
reorganised to align with our new business
unit structure and this will underpin our
future franchise service model. As we focus
on fewer partners, we will be able to pursue
our ambition to develop a multi-channel
offering in key international markets.
Simplify
What we have done
We are continuing to review our international
market presence. In FY2018 we closed a net
89. five franchise stores, exiting two markets,
mainly in Eastern Europe.
What we are going to do
We are testing and learning from
marketplace and wholesale models in order
to prioritise investment. We are working
with our international partners to introduce
customer-led methodology for product
selection and we are developing an agile
design, sourcing and buying operation to
support targeted international product.
Denmark
What we have done
Magasin du Nord remains the largest
profit-generating entity within International. It
has invested in its flagship Copenhagen store
and introduced 75 new brands. Digital growth
has continued to be exceptionally strong.
What we are going to do
Our first new store for 12 years opened in
Aalborg in September, taking the chain to
seven. We plan to take Magasin beyond its
domestic market, as the destination for the
best of Scandinavian design, with digital entry
to another Nordic market planned this year.
Debenhams Avenues, Kuwait
Beauty Hall, Copenhagen, Kgs Nytorv
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our bitEquality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
93. Equality Community Environment
doing
our bit
Equality Community Environment
doing
our bit
“ We are committed
to five of the United
Nation Sustainable
Development Goals of
the BRC Better Retail,
Better World Initiative.”
R E S O U R C E S , R E L A T I O N S H I P S A N D S U S
T A I N A B I L I T Y
This year we have launched our CSR strategy
“Doing our bit” which is focused on three
strands: Equality – striving for equality and
diversity throughout our workforce and supply
chain; Community – being an active part of the
communities in which we serve; and Environment
– reducing, reusing and recycling all that we
do to the best of our abilities.
We have executive committee sponsorship
for the overall programme as well as members
focusing on specific strands. We have
underpinned our strategy by signing up to the
BRC Better Retail, Better World Initiative which
concentrates on five of the 17 United Nation
Sustainability Development Goals which align
94. to our three strands (see diagram above).
EQUALITY
To ensure we strive for equality and diversity
throughout our workforce and supply chain,
we are focusing on our colleagues and our
partners colleagues.
Our colleagues
We directly employ around 26,000
colleagues globally. We work hard at ensuring
our colleagues are kept informed and offer
two-way communications through a regular
drumbeat of messages. These include
newsletters, video diaries from our CEO and
broader leadership group, leadership events
and cascades, weekly huddles, live Yammer
Q&A with the members of the executive
committee, regular floor walks on major
announcements and breakfast sessions.
We also organise activities for colleagues,
such as bring your dogs to work days
and wellbeing days.
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Our behaviours
We have worked with colleagues from across
the business to redefine our culture through
95. creating a set of behaviours (see above
diagram) to support the delivery of Debenhams
Redesigned, harnessing the best of what we
have today together with the cultural shifts
needed to achieve our mission of making
shopping confidence-boosting, sociable and
fun. Our new behaviours complement the
customer service behaviours rolled out
to stores which are designed to drive a
customer-led business.
Equal opportunities
We are committed to ensuring that
colleagues are treated equally, regardless
of gender, sexual orientation, religion or
belief, age, mental status, social class, colour,
race, ethnic origin, creed, disability, political
or philosophical beliefs, or marital or civil
partnership status.
Through our equal opportunities policy, we
aim to create an environment that offers all
colleagues the chance to use their skills and
talent. Decisions on recruitment, training,
promotion and employment conditions are
based solely on objective, job-related criteria,
and personal competence and performance.
We seek wherever possible to make reasonable
adjustments to ensure that a colleague 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; re-allocating on a temporary
or permanent basis some of the colleague’s
96. duties to other members of staff; transferring
the colleague 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.
We are confident that our men and women are
paid equally for doing equivalent jobs across
our business and have an equal opportunity to
participate in and earn incentives. Our current
recruitment, progression, performance, reward
and benefit policies and practices are not
gender biased and we will continue to monitor
them to ensure they remain fair and equitable.
We use gender pay data to inform talent
targets, policies and processes to support the
progression of women into more senior roles.
Our gender pay and bonus gap calculations
include all UK colleagues employed by
Debenhams Retail plc and in the spirit of
being open and transparent we have chosen
to include executive directors to give a
complete picture. Our next gender pay gap
report will be published in March 2019.
Building a pipeline of future leaders
We adopt a consistent approach to identify
and develop talent across the stores and the
support centres. We also use a consistent
framework to develop our leaders of the
future. We participate in the 30% club
mentoring scheme, delivered by Women
Ahead. This aims to develop a broader
pipeline of women and achieve a gender
97. balance at all levels. We also have three
female leaders taking part in Retail Week’s
Be Inspired Senior Leadership Academy.
Diversity of candidates is key to us. We
are growing followers on our social media
recruitment channels, including LinkedIn, and
the launch of a Debenhams Facebook Careers
Page to build engagement and stay connected
with a diverse audience of potential candidates
for roles within Debenhams.
ENERGY
We are proud to work
here; we’re passionate
about our products
and passionate
about customers.
ONE TEAM
Together we are
stronger, we trust and
support each other
to deliver results.
OWNERSHIP
We take personal
responsibility for results,
we thrive on change and
make things happen.
98. AMBITION
We love a challenge;
we stretch ourselves to
be successful; we’re
bold, we’re brave,
we’re creative.
OUR BEHAVIOURS
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During FY2018 the Ethical Trade team
conducted over 450 factory visits, to support
remediation, conduct training and support
implementation of corrective actions identified
within the third party audit. This would have
included: critical non-compliances, indicators
of Modern Slavery, young workers, health and
safety issues, wage violations, excessive working
hours, lack of legal employment contracts and
discrimination against migrant labour.
Top ten sourcing countries
Countries Factory Count Total workers
China 486 125,081
Bangladesh 67 165,043
India 122 44,608
Cambodia 23 17,200
Turkey 45 11,262
101. Sri Lanka 34 19,003
Vietnam 24 8,003
Romania 18 4,555
Pakistan 16 31,368
United Kingdom 23 2,198
Source: Aug 2018
34
sourcing
countries
475
suppliers
450+
visits to factories
We continue to support suppliers through
training and awareness so that they can take
ownership of their remediation plans, which
would include collaboration with other retailers
and local actors to work on key issues.
We have achieved this by providing training
on the empowerment of women and their
communities, focusing on:
• Challenging gender stereotypes
• Health & wellbeing
• Financial literacy & inclusion
102. Open to both male and female employees,
with the aim to educate and reduce gender
inequality, whilst promoting diversity
and inclusion.
R E S O U R C E S , R E L A T I O N S H I P S A N D S U S
T A I N A B I L I T Y
C O N T I N U E D
Apprenticeships
We continue to support apprenticeships
in retail with 50 colleagues in England now
getting ready for end point assessment
in spring 2019, when they will achieve
the Level 3 Team Leader Standard.
In line with our plan, we have started to explore
the introduction of apprenticeships in specialist
areas in the support centres, creating career
paths for school leavers, with the appropriate
skill set, who prefer a work-based learning
programme to university.
Recruiting externally and upskilling existing
colleagues through apprenticeships provides
us with a pipeline of talent for the future.
We continue to feed back to the National
Apprenticeship Service on the development
of occupational standards and quality
of apprenticeships.
Our partners’ colleagues
Our partners’ programme is primarily
supported by the Ethical Trade and
Corporate Responsibility teams who sit
103. within the sourcing division, forming part
of the wider business function Fashion &
Home. This structure supports alignment
of the Ethical Trade strategy with the over-
arching Sourcing strategy, focusing on the
salient risks and labour rights issues,
therefore embedding responsible sourcing
into the companies purchasing practices.
We operate a continuous monitoring
programme which assesses all factories
making own brand product, against the
Supplier Code of Conduct. This is done
through either an independent third party
ethical audit or a remediation visit by
Ethical Trade team members based in
the UK, Hong Kong and Bangladesh.
China Capacity programme
• sharing working best practices
• 39 factories
• 16,000 workers in China
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HUMAN RIGHTS & MODERN SLAVERY
As a fundamental part of our Supplier Code
of Conduct, we respect International principles
of Human Rights, including but not limited to
104. those expressed in our Human Rights Policy,
UN Declaration of Human Rights, United
Nations Guiding Principles, Sustainable
Development Goals and those principles
contained within the Modern Slavery Act 2015.
All Ethical Trade policies have ownership
at company board level, with the aim to
protect the employee welfare and basic
human rights within our supply chains.
These policies have been made in line
with the UN guiding principles and are
influenced by civil society, unions, NGOs,
multi-stakeholder and brand collaboration.
Over the past 12 months we have made the
following changes to our company policies and
processes, to support improvement of Human
Rights within the supply chain:
• Modern Slavery clause is now integrated
into all contracts (Conditions of Trading),
including those made with our supplier
partners and service providers
• We re-evaluated the Supplier Code
of Conduct and made amendments
referring to conventions related to
International Principles of Human Rights,
United Nation Guiding Principles and
Modern Slavery Act
• The scope of our policies has been
expanded to include goods not for
resale (GNFR), service and labour
providers, who support and operate
105. within our business
• Continued the use of the Fast Forward
programme to assess our own brand
manufacturing sites in the UK, including
warehouses and GNFR. The assessment
programme helps us identify indicators
of Modern Slavery and includes worker-
voice feedback
• The full Tier 1 factory list is now publicly
disclosed on our website as part of our
ongoing pledge to support transparency
• Reinforce our partnership with our
suppliers by providing capacity building
through programmes such as China
Capacity Building and ILO Better Work
A full version of Debenhams’ statement
on Modern Slavery is on our website at
www.sustainability.debenhamsplc.com.
SWASTI LIFE
• Focuses on Health & Wellbeing, Financial
Literacy and Gender Violence Awareness.
• Impacts 5,000 workers in India
We have already seen positive results with the
current SWASTI LIFE women empowerment
programme in India, which we now plan to
expand into other sourcing countries within
the supply chain. Other existing programmes
include, HER Finance supporting digital
106. banking for Bangladesh factory workers and
sexual harassment training conducted by ILO
Better Work in Vietnam and Cambodia.
For more information, visit our webpage at
www.sustainability.debenhamsplc.com/
ethical-trade.
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COMMUNITY
Supporting the local communities in which we
serve is very important. For many years we have
raised funds for national charity partners that
have a presence across the UK and ROI and
more recently, we have built on this foundation
as part of our Doing Our Bit strategy.
Fundraising
This year we raised £1.3 million for our
national charity partners: Look Good Feel
Better; Help For Heroes; Breast Cancer Now;
Children In Need; and Make A Wish Ireland.
These funds are generated from a variety of
activities including: a donation of profits from
the sale of exclusive products; the sale of
charity partners’ merchandise; an annual
supplier and business partner funded charity
ball; as well as a range of colleague
challenges from a 500km bike ride to bake
sales. Customer and colleague donations
raised throughout the year, linked to specific
events and causes, complete the effort in
both stores and our support centres.
We also raise funds and make donations
109. to the Debenhams Retirement Association, the
retailTRUST and Regent’s Place Community
Fund. In addition, outdated and surplus stock is
donated to the Salvation Army Trading Company.
Volunteering
This year we have developed a number
of volunteering initiatives to enable our
colleagues to support our partner charities.
Over 400 of the beauty sales consultants have
voluntarily completed training with Look
Good Feel Better to advise those undergoing
treatment for cancer on how to deal with
physical side effects.
A number of our London Support Centre
colleagues have more recently volunteered
to become mentors for the C4WS Jobs Club
as part of its support for the Regent’s Place
Community Fund. In addition, colleagues are
also invited to support fundraising activities
in stores on a voluntary basis.
Local communities
We have a number of initiatives in place to
support activities taking place in the areas that
we serve including hosting Look Good Feel
Better workshops in a number of our stores
where customers can receive advice and
support from trained colleagues. In addition,
we have worked with Help For Heroes to
support the Band of Sisters programme,
creating respite areas in our restaurants for
partners of service personnel who have been
wounded, injured or sick as a result of their
service, to meet and socialise.
110. Colleague awards
This year we invested in recognising our
colleagues for the work that they do to raise
funds, reduce our impact on the environment
and support the local community with the
first Doing Our Bit Awards. Colleagues were
presented with awards by our Chief Executive
at our annual charity ball in recognition for
their efforts in these areas.
R E S O U R C E S , R E L A T I O N S H I P S A N D S U S
T A I N A B I L I T Y
C O N T I N U E D
£1.3m
raised for national
charities
Strategic report
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Debenhams plc Annual Report & Accounts 2018
ENVIRONMENT
Reducing, reusing and recycling all that we
do to the best of our abilities is a far reaching
challenge. We have created five focus areas
to ensure we minimise our impact on the
environment, namely: energy; emissions;
waste; water; and sustain.
111. Energy
We are committed to continuously
improving the energy efficiency of our
buildings and operations. This has driven
a material reduction in this year’s carbon
footprint. In FY2018; we invested over
£3 million and retrofitted LED lighting in
12 stores. These projects have not only
delivered excellent results in reducing energy
use, but have also led to a more comfortable
customer environment. For FY2019 we will
be focusing on energy savings that can
be achieved through behavioural change,
primarily through the use of energy alerts
that will be sent to store management
teams if they breach energy thresholds.
Emissions
We cover emissions in three ways: greenhouse
gas; carbon; and chemicals.
We have reported our greenhouse gas
(GHG) emissions for our UK, Irish and Danish
operations since FY2008. Since then, our
footprint boundary has evolved to include
areas such as other international offices,
packaging, production of hangers, and
manufacture of catalogues, brochures
and direct mail. This section provides
a breakdown of our GHG emissions for
this year. Further details of our GHG
emissions can be found on our website
www.sustainability.debenhamsplc.com.
With the support of Ricardo Energy &
112. Environment, we have applied the GHG
Protocol Corporate Accounting and
Reporting Standard (revised edition), and
the UK Government Conversion Factors for
Company Reporting, 2018, to calculate our
carbon emissions. Our annual reporting year
is 3 September 2017 to 1 September 2018 and
we report GHG emissions in line with this
period. We have followed the GHG Protocol’s
new, scope 2 emissions reporting guidance
and used two different quantification
methods: location-based1 and market-based,
as in previous years. Scope 2 emissions, using
the market-based method, are lower than
with the location-based approach, mainly
because of our decision to purchase 100%
renewable electricity in the Republic of
Ireland and Northern Ireland.
This year, our overall carbon footprint has
decreased by 21%, from 177,611 tonnes CO2e
in FY2017 to 140,352 tonnes CO2e (using the
location-based approach). Table 1 below
provides a breakdown of these figures.
1 The location-based method reflects the average
emissions intensity of grids on which energy
consumption occurs, whereas the market-based
method reflects emissions from the electricity that
companies have chosen in the market (or their lack
of choice).
Table 1: Absolute GHG emissions from scope 1, 2 and 3 shown
in tonnes CO2e
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
113. Scope 1 17,786 15,989 19,668 14,241 13,721 9,135
Scope 2 (location-based) 139,607 149,068 139,354 125,453
103,754 81,887
Scope 2 (market-based) Not calculated; market-based method
was introduced in FY2016
113,134 81,914 78,091
Scope 3 16,687 28,308 31,908 64,442 60,137 49,329
Total 174,080 193,365 190,930 204,136* 177,611* 140,352*
* Total emissions calculated using the location-based scope 2
emissions figure.
Carbon footprint down
21%
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Emissions data are made more meaningful when compared to a
core business variable. We
have used intensity ratios, alongside the absolute figures
provided above, to report our GHG
emissions in the context of our annual turnover and premises
floor area.
Table 2 (below) shows the total annual turnover and floor area
for the whole business.
The total absolute emissions are then divided by these figures to
provide tonnes of CO2e per
million pounds of turnover and tonnes of CO2e per m2 of floor
area, respectively, as shown
116. in Table 3 (below).
These tables show that the tonnes CO2e for both intensity
metrics have also decreased.
Table 2: Data used for intensity measurements
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
Turnover (GTV £m) 2,777 2,824 2,860 2,939 2,954 2,900
Total floor area*(m2) 1,808,398 1,850,874 1,867,291 1,876,533
1,873,568 1,904,937**
* This total floor area includes back of store, offices and
distribution centres.
** For FY2018 the accuracy of the calculation of the back of
store areas was improved, causing an increase in total
floor area.
Table 3: Assessment of absolute footprint emissions
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
Absolute emissions
(tCO2e) 174,080 193,365 190,930 204,136* 177,611* 140,352*
Absolute tCO2e / £m
Turnover 63 68 67 69 60 48
Absolute tCO2e / m2 0.096 0.104 0.102 0.109 0.095 0.074
* Total emissions calculated using the location-based scope 2
emissions figure.
117. The carbon footprint has decreased across
all three scopes this year compared to FY2017.
The main reasons for the decrease in the overall
emissions is due to a reduction in: electricity
consumption, including the associated grid
losses (32% reduction) and air imports
(27% reduction).
We have a carbon reduction target to
reduce Group-wide scope 1 and 2 absolute
operational CO2e emissions by 10% by
FY2020 against our FY2008 baseline. The
FY2018 scope 1 and scope 2 total emissions
have reduced by 47% compared to the scope
1 and 2 CO2e emissions in FY2008.
Overall, the progress on improvement and
monitoring management remains stringent
and during the next few years towards
FY2020, we aim to continue to positively
contribute to the Better Retail Climate
as part of our drive to save energy and
protect the environment.
Our aim is to further reduce and or eradicate
harmful chemicals where industry alternatives
are available.
Restricted Substances List is available for
suppliers whereby limit values are stated
in line with REACH (Registration, Evaluation,
Authorization and Restriction of Chemicals)
and governed by global regulations.
Waste
As a business 97% of our waste doesn’t go
118. to landfill, the majority of this is a result of
recycling our product packaging. To further
improve this, we have a number of initiatives
to reduce, reuse and recycle all that we touch.
This year we introduced 100% recycled bags
for Life and also standardised our hangers,
reducing the number of types from 1000 to
50, enabling much easier reuse.
We have a relationship with Salvation Army to
recycle our stores’ “not quite perfect” product.
In FY2017 we donated 6.3 tonnes of product.
Within our support centres, TRAID collected
6.9 tonnes of samples in FY2018. Going forward
the Salvation Army will cover both stores and
the support centres.
R E S O U R C E S , R E L A T I O N S H I P S A N D S U S
T A I N A B I L I T Y
C O N T I N U E D
100%
Bags for life are
made from 100%
recycled plastic
Reused
and
recycled
Hangers have been
standardised and are
reused and recycled
back into the supply
chain several times
Strategic report
119. 26
Debenhams plc Annual Report & Accounts 2018
Water
As part of our supply chain mapping
programme, we will be reviewing the
environmental impact of manufacturing,
including reducing the consumption of water.
The priority will be to focus on beyond Tier 1
supplier production sites, that require heavy
water use, such as fabric mills, tanneries
and other wet processing units, to actively
work with our supplier partners to monitor
and reduce their water usage through
sustainable alternatives.
For denim production we are already using
Avol oxy white, which reduces water usage
and eliminates use of hazardous chemicals.
Sustain
We aim to continue the work around responsible
sourcing and consumption through:
• Purchasing practices: Creating
improvements around purchasing
practices to provide a positive social and
environmental impact within our supply
chains. This will be done through education
of our support centres’ colleagues and
engagement with collaborative industry
initiatives, such as ACT Living Wage and
120. the ETI (Ethical Trading Initiative)
• Sustainable Product Initiatives:
Establishing the Sustainable Product
Working group, with an aim to focus on
sustainable CSR initiatives from a product
perspective with a shared approach across
Fashion & Home. The first activity for
the working group was to research the
current sustainable cotton initiatives, and
to recommend the most suitable initiative
for us. Future projects are to focus on
other sustainable materials and fibres.
Sustainable product is already within the
business – REPREVE Denim. This contains
recycled materials such as plastic bottles
and so results in the reduction of the
use of petroleum and the emission of
greenhouse gases
• Educating our customers: We continue
to share information around sustainability
via our public website and as of FY2019
we will be introducing instore CSR
Ambassadors, who will engage with
our customers to promote Debenhams
sustainability initiatives. Debenhams
carries out testing to ensure all products
we sell are fit for purpose, also educating
our customers on caring for their items
post purchase. This is with the aim to
significantly and positively extend the
longevity of the product life cycle
NON-FINANCIAL REPORTING COMPLIANCE STATEMENT
The following table lists the policies we have in place to
121. support and govern our CSR strategy,
“Doing our bit”. In accordance with the Non-Financial
Reporting regulations, details of each
policy, our governance, their implementation and management,
can be found on our website
www.sustainability.debenhamsplc.com.
Non-financial
reporting matter Our policies
Environmental Matters • Environmental and Chemical •
Supplier Code of Conduct
Employees • Code of Business Conduct
• Health & Safety at Work
• Bullying and Harassment
• Colleague Privacy
Human Rights • Human Rights
• Modern Slavery Statement
• Information Security
• Data Protection
Social Matters • Supporting Charities
Anti-corruption
and anti-bribery
• Anti-bribery and Corruption • Whistleblowing
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124. linked to the Destination categories
where Debenhams is targeting
growth. More information on how
management remuneration is linked
can be found in the remuneration
report starting on page 64. We have
also maintained sustainable KPIs that
ensure that the management of
resources and relationships remains
core to our business model.
All income statement numbers
for FY2016 are given on a
52 week basis.
Group financial KPIs Strategic KPIs Sustainability KPI
Like-for-like sales
change (%)
2016 0.6
2017
2018 (2.3)
2.1
Underlying profit
before tax* (£m)
2016 114.1
2017
2018 33.2
126. 2018 140
178
Rationale
Like-for-like (LFL) is a measure of the
annual performance of stores that have
been open for at least one year, plus
digital sales growth, from our UK and
international business.
2018 performance
Group LFL sales decreased by 2.3%.
When adjusted for foreign exchange
translation, constant currency LFL
decreased by 2.7%, with a UK LFL
decrease of 3.4% and international
LFL growth of 0.2%.
Rationale
Underlying profit before tax (PBT) is
our principal measure of profitability,
and excludes items that are one-off
in nature.
2018 performance
Underlying PBT* declined by 65.1%
to £33.2 million. This follows a 27.5%
decline in EBITDA, with an increase
in depreciation charges as a result
of previous capital investment.
* Before exceptional items (FY2018:
£524.7 million; FY2017: £36.2 million;
FY2016: £12.4 million).
127. Rationale
Core destination category in
which Debenhams will sustain
market leadership.
2018 performance
In a market where growth has slowed,
Beauty category sales declined by 0.8%.
This reflected a decline in the make-up
market, mitigated by growth in perfumery
and skincare, and a strong performance
in digital.
Rationale
“Meet me @ Debenhams” is a core
destination category that drives
frequency of visits.
2018 performance
UK Food and drink gross transaction
value (GTV) grew by 9.6% driven
by further new third party brand
introductions, and improved performance
from our own in-house restaurants.
Rationale
CO2e is used as a measure of
environmental impact. It takes into
account harmful emissions from the
six greenhouse gases identified by
the Kyoto Protocol.
2018 performance
Emissions declined by 21%. This reflects
a reduction in electricity consumption,
supported by rolling out LED store
128. lighting, and reduced air freight.
Underlying earnings
per share* (pence)
2016 7.5
2017
2018 2.2
6.4
Return on
capital employed* (%)
2016 11.8
2017
2018 9.4
11.1
Net debt (£m)
2016 279.0
2017
2018 321.3
275.9
Growth in mobile
penetration – mix
129. of demand (%)
2016 48.2
2017
2018 58.0
55.0
Accelerating warehouse
automation – online cost
improvement (bps
improvement to GTV)
2016 40
2017
2018 80
70
Rationale
Basic earnings per share (EPS) divides
earnings attributable to ordinary
shareholders by the weighted average
number of ordinary shares outstanding
during the financial year.
2018 performance
Underlying EPS* declined by 65.6% to
2.2p, after a reduction in profit after tax.
* Before exceptional items (FY2018:
£524.7 million; FY2017: £36.2 million;
130. FY2016: £12.4 million).
Rationale
Return on capital employed (ROCE)
measures the profitability of the
Company relative to the size of assets
used to generate returns.
2018 performance
Underlying ROCE declined from 11.1%
to 9.4% reflecting the fall in profitability
in the year.
* Lease-adjusted before exceptional items.
Rationale
Net debt measures Group borrowings
net of cash held at the balance sheet
date, and reflects the movement in
cash generated by the business after
cash expenses.
2018 performance
Including cash outflow relating to
the exceptional restructuring charges,
year end net debt has increased to
£321.3 million.
Rationale
[email protected] will be the primary
form of customer interaction unifying
channels and building loyalty.
2018 performance
Mobile demand grew by 20%,
outpacing desktop demand and
131. accounting for 58% of digital orders.
Rationale
Driving efficiency through investment
in warehouse automation to improve
digital profitability.
2018 performance
Fulfilment cost ratios improved by
80 bps as a result of efficiencies made.
K E Y P E R F O R M A N C E I N D I C A T O R S
Strategic report
28
Debenhams plc Annual Report & Accounts 2018
We established Key Performance
Indicators (KPIs) under the
Debenhams Redesigned strategy,
linked to the Destination categories
where Debenhams is targeting
growth. More information on how
management remuneration is linked
can be found in the remuneration
report starting on page 64. We have
also maintained sustainable KPIs that
ensure that the management of
resources and relationships remains
core to our business model.
All income statement numbers
for FY2016 are given on a
133. 6.0
4.8
Growth in UK Food, drink &
events – gross transaction
value growth (%)
2016 13.1
2017
2018 9.6
8.6
Carbon emissions
(CO2e 000 tonnes)
2016 204
2017
2018 140
178
Rationale
Like-for-like (LFL) is a measure of the
annual performance of stores that have
been open for at least one year, plus
digital sales growth, from our UK and
international business.
2018 performance
Group LFL sales decreased by 2.3%.
134. When adjusted for foreign exchange
translation, constant currency LFL
decreased by 2.7%, with a UK LFL
decrease of 3.4% and international
LFL growth of 0.2%.
Rationale
Underlying profit before tax (PBT) is
our principal measure of profitability,
and excludes items that are one-off
in nature.
2018 performance
Underlying PBT* declined by 65.1%
to £33.2 million. This follows a 27.5%
decline in EBITDA, with an increase
in depreciation charges as a result
of previous capital investment.
* Before exceptional items (FY2018:
£524.7 million; FY2017: £36.2 million;
FY2016: £12.4 million).
Rationale
Core destination category in
which Debenhams will sustain
market leadership.
2018 performance
In a market where growth has slowed,
Beauty category sales declined by 0.8%.
This reflected a decline in the make-up
market, mitigated by growth in perfumery
and skincare, and a strong performance
in digital.
135. Rationale
“Meet me @ Debenhams” is a core
destination category that drives
frequency of visits.
2018 performance
UK Food and drink gross transaction
value (GTV) grew by 9.6% driven
by further new third party brand
introductions, and improved performance
from our own in-house restaurants.
Rationale
CO2e is used as a measure of
environmental impact. It takes into
account harmful emissions from the
six greenhouse gases identified by
the Kyoto Protocol.
2018 performance
Emissions declined by 21%. This reflects
a reduction in electricity consumption,
supported by rolling out LED store
lighting, and reduced air freight.
Underlying earnings
per share* (pence)
2016 7.5
2017
2018 2.2
6.4
136. Return on
capital employed* (%)
2016 11.8
2017
2018 9.4
11.1
Net debt (£m)
2016 279.0
2017
2018 321.3
275.9
Growth in mobile
penetration – mix
of demand (%)
2016 48.2
2017
2018 58.0
55.0
Accelerating warehouse
automation – online cost
improvement (bps
137. improvement to GTV)
2016 40
2017
2018 80
70
Rationale
Basic earnings per share (EPS) divides
earnings attributable to ordinary
shareholders by the weighted average
number of ordinary shares outstanding
during the financial year.
2018 performance
Underlying EPS* declined by 65.6% to
2.2p, after a reduction in profit after tax.
* Before exceptional items (FY2018:
£524.7 million; FY2017: £36.2 million;
FY2016: £12.4 million).
Rationale
Return on capital employed (ROCE)
measures the profitability of the
Company relative to the size of assets
used to generate returns.
2018 performance
Underlying ROCE declined from 11.1%
to 9.4% reflecting the fall in profitability
in the year.
138. * Lease-adjusted before exceptional items.
Rationale
Net debt measures Group borrowings
net of cash held at the balance sheet
date, and reflects the movement in
cash generated by the business after
cash expenses.
2018 performance
Including cash outflow relating to
the exceptional restructuring charges,
year end net debt has increased to
£321.3 million.
Rationale
[email protected] will be the primary
form of customer interaction unifying
channels and building loyalty.
2018 performance
Mobile demand grew by 20%,
outpacing desktop demand and
accounting for 58% of digital orders.
Rationale
Driving efficiency through investment
in warehouse automation to improve
digital profitability.
2018 performance
Fulfilment cost ratios improved by
80 bps as a result of efficiencies made.
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ISO 31000)
Risk
Reporting
Risk
Treatment
Risk
Evaluation
Risk
Identification
Set Risk
Appetite
The board of Debenhams considers
it important that there should be a
regular and systematic approach to
the management of risks in order to
provide assurance that strategic and
operational goals can be met and the
Group’s reputation is protected.
The board has conducted a review of
the effectiveness of internal controls
and is satisfied that those in place
remain appropriate.
An overview of the risk management
process including clearly defined roles
and responsibilities is outlined in the
risk management framework (figure 1).
142. R I S K M A N A G E M E N T
Optimising our risk
management processes
The board
Sets strategic objectives
Agrees risk framework and risk appetite
Identifies principal risks and ensures appropriately managed
Sets delegation of authority
Approves Group policies and procedures
Executive Committee
Monitors performance and
changes in key risks facing the
business and provides regular
reports to the board
Agrees key actions
to manage risks
Audit Committee
Monitors assurance and risk
management arrangements
Heads of function
Management and employees
are responsible for the
143. identification, evaluation,
treatment and reporting
of local risks
Maintenance of individual
department risk registers
Implementation of key risk
mitigation plans
Effectiveness of risk
and control processes
Reviews of the effectiveness
of key risk management and
control processes through:
– Risk Committee
– Internal audit
– External audit
– Whistleblowing
Risk
management
Guidance and advice to Heads
of Function and specialist teams
to help them with the following:
Figure 1: Risk management framework
Strategic report
30
144. Debenhams plc Annual Report & Accounts 2018
Principal
risks
Economic
environment
Financial,
liquidity
and credit
Systems
availability
and cyber
security
Competition
for customers
Business
strategy and
transformation
Supply
chain and key
suppliers
Legal and
regulatory
145. Key
personnel
Property
Whistleblowing
Two main routes are available to colleagues
and direct supply chain workers to raise
concerns over malpractices. The first encourages
colleagues to talk to their line manager, their
manager’s manager or the human resources
team. The second route is a confidential
reporting line via which colleagues can speak to
the Group’s anti-fraud team. If a colleague feels
that the matter is so serious that it cannot be
discussed in any of these ways, they can contact
the Company Secretary or the Director of
Internal Audit and Risk Management. The Group
policy on whistleblowing and the methods to
raise issues are reviewed annually by the Audit
Committee and any serious matters are raised
with the chairman of the Audit Committee.
Principal risks and uncertainties
The risks detailed on pages 32 to 34 are
the principal risks and uncertainties that
may impact the Group’s ability to achieve
its strategic and operational goals. They are
reviewed on, at least, an annual basis as part
of the risk management process and are
ranked based on overall risk to the business.
Whilst the impact of the UK’s decision to
exit the European Union (EU) cannot yet be
fully quantified, a number of existing risks
146. have already been identified as sensitive to
Brexit and continue to be monitored carefully,
with appropriate levels of mitigating action
being considered as details emerge.
It should be noted that any system of
risk management and internal control is
designed to manage rather than eliminate
the risk of failure to achieve business
objectives and can only provide reasonable
and not absolute assurance against material
misstatement or loss.
Figure 2: Principal risks
Risk management activities
Risk appetite
The Group’s risk appetite is defined by
the board, and provides guidance on
any requirement for additional controls,
implementation timeframes and
authority levels.
Risk identification
Risks are identified through a number of
routes, including a regular organisation-wide
review facilitated by the risk management
team across each operating division on an
ongoing cyclical basis. All senior managers
participate in the exercise, including the
executive committee.
Risk evaluation
In order to understand the impact specific risks
would have on the Group, risks are evaluated
based on the likelihood of occurrence and
severity using a standardised scoring model,
147. which considers the degree of change across
one or more performance indicators.
Risk treatment
The organisation-wide review captures
the controls used by management to
mitigate identified risks, with the risk
score determining if additional treatment is
required based on the Group’s risk appetite.
Risk reporting
The outputs from these processes are
collated into the Group’s risk register
and linked together to define the principal
risks faced by the Group. Performance
is monitored by the board, executive
committee, Audit Committee, Risk
Committee, and other key governance
groups. The overall risk profile is taken
into consideration when setting the
annual internal audit plan.
Viability assessment
The principal risks and uncertainties
identified through these risk management
activities are taken into consideration as part
of the directors’ assessment of ongoing
viability, described in more detail on page 41.
Anti-Bribery and Corruption
Debenhams is committed to conducting
its business affairs so as to ensure that it does
not engage in or facilitate any form of bribery
or corruption in any part of its supply chain.
Expected standards of behaviour are outlined
in the anti-bribery policy, which also provides
148. guidance on the giving and receiving of gifts and
hospitality, and is supported by an e-learning
training programme for selected roles.
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150. n
1
Competition for
customers
2
Business strateg y
and transformation
3
Supply chain and
key suppliers
4
Economic
environment
5
Financial, liquidity
and credit
6
Systems availability
and cyber security
Risk
151. • Inability to predict accurately or
fulfil customer preferences or
demand through competitive,
economic and profitable channels
• This is an increasing risk given the
ongoing market conditions faced
Risk
• Failure to deliver Debenhams’
redesigned strategic priorities
• This is an increasing risk due to
the importance of fully delivering
the strategy
Risk
• Adverse events influencing either
the sustainability of the supply
chain or Debenhams’ relationship
with any of its major suppliers,
service providers, international
partners, designers, or
concessionaires
• This is an increasing risk due to
the potential of reduced access
to credit insurance for our
supply base
Risk
• Continuing adverse
152. economic conditions
Risk
• Exposure to market rates, liquidity
and credit risks have an adverse
impact of the Group’s financial
position or performance
• This is an increasing risk due to
the recent fall in profitability and
the reduction in credit insurance
available for Debenhams’ suppliers
Risk
• Systems failure, external attack
of systems, or data inaccuracy
• Inability to continue smooth
operations following a major incident
Potential impact
• Sales will be lower, market share
will be reduced and the Group
may be forced to rely on additional
markdowns or promotional sales to
dispose of excess or slow-moving
inventory or may experience
inventory shortfalls on popular
merchandise
• Channel shifts away from stores
to online could lead to higher
operational costs within the online
153. channel and lower profitability, or
even impairment, of store assets
Potential impact
• Could significantly delay or prevent
the achievement of Debenhams’
business plan and could have
a material adverse effect on
Debenhams’ business, financial
condition or results of operations
Potential impact
• Place pressure on margins and
profitability or require the Group
to divert financial and management
resources from more beneficial uses
• Additional unplanned costs required
to transfer operations between
providers or additional operational
costs from a new provider
• Changes in exclusivity arrangements
with designers or any decline in their
popularity
• The loss of a number of key
concession partners
Potential impact
• A decline in sales on discretionary
purchases leading to a reduction in
profit alongside a material adverse
154. effect on Debenhams’ results
Potential impact
• A material reduction in cash and
liquidity could affect the financial
position and/or performance of
the Group
• Hinder ability to adjust rapidly to
changing market conditions and
impact earnings and cash flow
Potential impact
• Failure in the stability, integrity or
availability of information systems
could adversely affect Debenhams’
business operations and results or
could cause inappropriate decisions
to be made using wrong, missing
or ambiguous information
• Cyber attack resulting in reduced
availability of Debenhams’ systems,
loss of reputation and customer
trust, and regulatory fines
Examples of mitigation
• Making shopping confidence-
boosting, sociable and fun is at
the heart of Debenhams’ strategy,
which is outlined on pages 10 to 19
• In developing its strategy, the Group
155. takes into consideration market,
trend and customer research, with
the customer insight team providing
valuable intelligence on any changes
in customer priorities
• An understanding of customers and
their needs is developed by listening
to their views, market intelligence
and reviewing KPIs which ensures
that pricing is competitive and
promotional activity is appropriate
• The UK exiting the European Union
may generate foreign exchange rate
volatility, lead to delays at ports, or
changes to trade agreements and
duty rates, which could impede the
organisation’s ability to compete
effectively, meaning this is a risk
that is carefully monitored
Examples of mitigation
• Debenhams is reviewing and
updating its business change
roadmap to ensure its project
portfolio focuses on the five key
strategic areas outlined on pages
10 to 19
• Management supplies detailed
updates on progress within the
transformation programme, which
are closely reviewed by the board to
ensure that management is focused
156. on key priorities, cost control and
benefit realisation
• The UK exiting the European Union
may lead to loss of access to the
free movement of goods, services,
people and capital, making this a
risk that is closely monitored
• The volume and complexity of
change being implemented, its
importance to the business plan,
and our reliance on third party
specialist resource to support
delivery make this a risk that
is monitored carefully
Examples of mitigation
• Debenhams fosters close and
collaborative relationships with
its suppliers. Both parties work
towards the objective of optimising
sustainable fulfilment and costs,
which is measured regularly by
management through KPIs. You
can read more about how the
Group builds relationships with
our suppliers on page 22
• Debenhams continues to develop
its supplier base to mitigate the
potential of cost-price inflation
without compromising the quality
of its products. In addition, the
sourcing division has been
157. strengthened to include additional
expertise which assists with
sourcing decisions, production
consolidation and lead time
reduction, amongst other things
• Loss of supplier confidence
impacts on quality or availability
of key product
Examples of mitigation
• The board conducts strategic
business reviews which ensure that
management is focused on key
priorities and cost control. These
reviews also focus on the Group’s
strategy to make shopping
confidence-boosting, sociable
and fun
• The continued volatility of the
consumer environment make this
a risk that is monitored carefully
Examples of mitigation
• Committed funding lines are
regularly reviewed for headroom
and refinanced significantly in
advance of expiry. Current facilities
expire in June 2020 and July 2021
• Regular cash and liquidity forecasting
supports proactive management of
cash flows to meet the Group’s
158. obligations as they fall due
• Hedging policies are in place to
manage interest and exchange rate
risk to minimise the impact of any
material market movements
• Further details on financial risks
are included in the notes to the
financial statements
Examples of mitigation
• A robust systems infrastructure is
required to support the delivery of
our strategic objectives which are
outlined on page 7
• Information systems developments
are key enablers and critical to
ensure we can compete effectively,
and these are monitored through
a business change roadmap
• The overall governance framework
has been further enhanced, and
includes committees that focus
on areas such as general data
protection regulation and payment
card industry compliance
• A business continuity policy and
processes, ensure an effective
framework is in place to enable the
swift recovery and continuation of
normal business operations, and this
159. has been improved through the
introduction of a new data centre
• This continues to be an area of
high management focus given the
rising levels of cybercrime globally
and the increasing reliance on
information assets
Strategic focus
Strategic focus
Strategic focus
Strategic focus
Strategic focus Strategic focus
P R I N C I P A L R I S K S A N D U N C E R T A I N T I E
S
Strategic report
32
Debenhams plc Annual Report & Accounts 2018
1
160. Competition for
customers
2
Business strateg y
and transformation
3
Supply chain and
key suppliers
4
Economic
environment
5
Financial, liquidity
and credit
6
Systems availability
and cyber security
Risk
• Inability to predict accurately or
fulfil customer preferences or
demand through competitive,
economic and profitable channels
• This is an increasing risk given the
161. ongoing market conditions faced
Risk
• Failure to deliver Debenhams’
redesigned strategic priorities
• This is an increasing risk due to
the importance of fully delivering
the strategy
Risk
• Adverse events influencing either
the sustainability of the supply
chain or Debenhams’ relationship
with any of its major suppliers,
service providers, international
partners, designers, or
concessionaires
• This is an increasing risk due to
the potential of reduced access
to credit insurance for our
supply base
Risk
• Continuing adverse
economic conditions
Risk
• Exposure to market rates, liquidity
and credit risks have an adverse
impact of the Group’s financial
162. position or performance
• This is an increasing risk due to
the recent fall in profitability and
the reduction in credit insurance
available for Debenhams’ suppliers
Risk
• Systems failure, external attack
of systems, or data inaccuracy
• Inability to continue smooth
operations following a major incident
Potential impact
• Sales will be lower, market share
will be reduced and the Group
may be forced to rely on additional
markdowns or promotional sales to
dispose of excess or slow-moving
inventory or may experience
inventory shortfalls on popular
merchandise
• Channel shifts away from stores
to online could lead to higher
operational costs within the online
channel and lower profitability, or
even impairment, of store assets
Potential impact
• Could significantly delay or prevent
the achievement of Debenhams’