Jay's Case Study

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Making shopping 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.

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.

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 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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www.debenhams.com

B U S I N E S S M O D E L A N D S T R A T E G Y

Creating value for our stakeholders

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 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 customers

Read more on page 47

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

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

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 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.

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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S T R A T E G Y I N A C T I O N

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

Debenhams plc Annual Report & Accounts 2018

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.

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.

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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

Debenhams plc Annual Report & Accounts 2018

1 Above market growth

Mobile@ 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 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 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.

Strategic report

Debenhams plc Annual Report & Accounts 2018

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 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

Designers@ 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 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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S T R A T E G Y I N A C T I O N

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

Debenhams plc Annual Report & Accounts 2018

5 Deliver cost reduction activity

New operating model What we have done 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.

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.

We continue to exit lower-growth, lower-potential markets.

Strategic report

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 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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Equality Community Environment

doing our bitEquality Community Environment

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Equality Community Environment

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Equality Community Environment

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Equality Community Environment

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Equality Community Environment

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Equality Community Environment

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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 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.

Strategic report

Debenhams plc Annual Report & Accounts 2018

Our behaviours We have worked with colleagues from across the business to redefine our culture through 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 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 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.

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

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

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 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

Strategic report

Debenhams plc Annual Report & Accounts 2018

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 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 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 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 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.

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

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.

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 & 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

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 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.

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 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

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 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 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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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 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

95.2

Beauty & beauty services – gross transaction value growth (%)

2016

2017

2018 (0.8)

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%. 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.

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

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 improvement to GTV)

2016 40

2017

2018 80

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.

* 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 Mobile@everywhere 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.

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