Debenhams moved to reassure investors over its near-£1bn of net debt yesterday as it revealed a sharp fall in annual profits, a halving of its dividend and deteriorating sales ahead of the Christmas trading period.


Rob Templeman, the chief executive, vowed to cut its debt over the coming year, partly in response to concerns in the City. He said: "In this environment, the market does not like a lot of debt."

Over the 52 weeks to 30 August 2008, Debenhams reduced its net debt to £994m from £1.02bn.

Mr Templeman said that if Debenhams' profitability holds up, it has the "ability to deleverage a lot faster than people think". Debenhams plans to cut capital expenditure to £90m, from £129.1m the previous year, by opening fewer stores and tighter stock control. It expects to deliver a further £10m to £15m of cost savings this year, following the £20m already delivered. The department store chain is to cut its full-year dividend to 3p from 6.3p last year.

Over the year to 30 August, Debenhams posted full-year profits before tax and exceptionals down by 16.9 per cent to £105.9m. It increased total sales from £1.77bn to £1.84bn, but its like-for-like sales fell by 0.9 per cent over the year. Underlying sales fell 4.2 per cent in the six weeks to 11 October, against strong sales for the same period last year, reinforcing the view that retailers are heading for one of their toughest Christmas trading periods since the 1970s.

Mr Templeman said that fears over rising unemployment were hitting consumers' confidence more than the banking crisis. He added: "It is incredibly volatile at the moment. We are seeing big swings from week to week, which is making it difficult to forecast."

According to TNS Worldpanel, Debenhams grew its total share of the clothing market by 0.3 per cent for the 26 weeks to 17 August. Mr Templeman said that sales of its designer ranges were "holding up". He said that sales of gifts such as pasta sets, jelly beans, flying toys and iPod cases are "incredibly strong". He added: "This is partly because our ranges are a lot better, but people could be shopping a bit earlier before the big bills start hitting."

Internationally, Debenhams is putting on hold plans to enter the Russian retail market in order to focus on the booming markets of the Middle East and India. During 2008, Debenhams opened 10 new international franchise stores overseas, including in India, Jordan, Saudi Arabia and the United Arab Emirates.

Mr Templeman said that Debenhams was not interested in purchasing the debt of fashion retailers such as Karen Millen or Coast, which are backed by the beleaguered Icelandic investor Baugur. "Where Debenhams is today I would not want to add to the debt structure – unless it is a slam-dunk deal."



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