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www.next.co.uk
www.nextplc.co.uk
A n n uA l R e p oR t A n d Ac co un t s
J A n uA R y 2013
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Proof 3
NEXT IS A UK BASED
RETAILER OFFERING
EXCITING, BEAUTIFULLY
DESIGNED, EXCELLENT
QUALITY CLOTHING,
FOOTWEAR,
ACCESSORIES AND
HOME PRODUCTS.
NEXT distributes through three
main channels: NEXT Retail, a
chain of more than 500 stores in
the UK and Eire; NEXT Directory,
a home shopping catalogue
with over 3 million active
customers and websites serving
around 60 countries; and NEXT
International, with almost 200
mainly franchised stores around
the world.
Business reports
01 Highlights
02 Chairman’s Statement
03 Directors’ Report and
Business Review
04 Chief Executive’s Review
16 Key Performance
Indicators
17 Risks & Uncertainties
19 Employees
19 Social & Environmental
Matters
21 Annual General Meeting
& Other Matters
Governance
26 Directors’ Responsibility
Statement
27 Directors and Officers
28 Corporate Governance
33 Remuneration Report
54 Independent Auditor’s
Report
Consolidated accounts
55 Consolidated Income
Statement
56 Consolidated Statement
of Comprehensive
Income
57 Consolidated Balance
Sheet
58 Consolidated Statement
of Changes in Equity
59 Consolidated Cash Flow
Statement
60 Accounting Policies
64 Notes to the
Consolidated Financial
Statements
Parent Company accounts
91 Company Balance Sheet
92 Company Statement of
Changes in Equity
92 Company Cash Flow
Statement
93 Notes to the Parent
Company Financial
Statements
Additional information
95 Half Year and Sector
Analysis
95 Five Year History
96 Notice of Meeting
102 Other Information
04
This document contains Forward Looking Statements
— please see the important information on page 103.
HIGHLIGHTS:
Revenue
Underlying continuing
business
+3.1%
• Sales up 3.1% to over £3.5bn and
underlying profit growth of 9% to
£622m.
• Strong net cash inflow of £324m before
share buybacks.
Jan 13
Jan 12
Jan 11
Jan 10
Jan 09
£3,548m
£3,441m
£3,298m
£3,261m
£3,110m
• £241m
to
returned
shareholders
through share buybacks, contributing
to underlying EPS of 297.7p, up
16.6%.
• Full year dividend up 16.7% to 105p;
remains covered 2.8 times.
• The
year ahead will
remain
challenging, but we will continue with
our strategy of investing in the Brand
and improving our products.
Profit before tax
Underlying continuing
business
+9.0%
Jan 13
Jan 12
Jan 11
£622m
£570m
£543m
0.000000491.571381983.1427611474.714142
1966.285522
Jan 10
2457.856903
£499m
2949.428284
3440.999664
Jan 09
£424m
Earnings per share
Underlying
+16.6%
Jan 13
Jan 12
Jan 11
297.7p
255.4p
221.9p
0.00000082.714294165.428589248.142883330.857178413.571472496.285767
188.5p
Jan 10
Jan 09
156.0p
Dividend per share
Total for the year
+16.7%
Jan 13
Jan 12
Jan 11
105p
90p
78p
0.00000036.48569972.971397109.457096145.942795182.428493218.914192255.399891
Jan 10
66p
Jan 09
55p
01
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Proof 3
0.00000012.85710025.71419938.57129951.42839864.28549877.14259789.999697
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 CHAIRMAN’S STATEMENT
The year to January 2013 was another good year for NEXT. Underlying earnings per share before exceptional gains
grew by 16.6% to 297.7p and we propose to increase our full year dividend to 105p. This is the fourth consecutive
year that our earnings per share and dividend have grown by over 15%, at a time when the UK economy has
continued to struggle for growth.
NEXT Directory, our online and catalogue business, continued to grow and its sales increased by 9.5%. The growth
differential between NEXT Directory and NEXT Retail, where sales were level, narrowed. The two businesses continue
to work well together and support each other in many ways. For example, over 20% of Directory sales are delivered
through our stores and over 60% of the returns come back that way. Both businesses increased their operating
margins during the year and the Group’s underlying profit before tax rose by 9.0% to £622m.
Cash flow was particularly strong, helped by the timing of capital expenditure and stock intake at the year end.
We continued with share buybacks, buying 7.5 million shares at an average price of £32.13. During the year we
returned £390m to shareholders through share buybacks and dividends.
Our share price again performed well during 2012, in both absolute and relative terms. Over the last two financial
years the share price has risen by over 100%.
As ever, our success is built on the stability and effectiveness of our management across the Group. They
performed well in challenging economic conditions. I would like to thank them and all the NEXT employees for
their outstanding contribution during the year.
We anticipate another challenging year ahead, with little if any growth in the UK retail economy. In these
circumstances we again aim to achieve growth by investing in the Brand, improving our products, controlling costs
and returning cash to our shareholders.
John Barton
Chairman
02
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
The Directors present their annual report and audited accounts for the financial year ended 26 January 2013.
PRINCIPAL ACTIVITIES AND BUSINESS MODEL
NEXT is a predominantly UK based multi-channel retailer offering exciting, beautifully designed, excellent quality
clothing, footwear, accessories and home products. The Group is primarily comprised of:
❚ NEXT Retail, a chain of more than 500 stores in the UK and Eire.
❚ NEXT Directory, a home shopping catalogue and website with over 3 million active customers and international
websites serving approximately 60 countries.
❚ NEXT International Retail, with almost 200 mainly franchised stores around the world.
❚ NEXT Sourcing, which designs, sources and buys NEXT branded products.
❚ Lipsy, which designs and sells its own branded younger women’s fashion products.
A review of the Group’s businesses is set out in the Chief Executive’s Review and in the sections headed Business
Strategies & Objectives, Key Performance Indicators, Risks & Uncertainties, Employees and Social & Environmental
Matters.
Business strategies & objectives
The primary financial objective of the Group is the delivery of sustainable long term growth in earnings per share
(“EPS”), a key driver of shareholder value. Underlying EPS increased by 16.6% from last year, and over the last
ten years both EPS and share price have increased by more than 300%. This long term value has been created
through the consistent pursuit of the following strategies:
❚
Improving and developing NEXT product ranges, success in which is measured by sales performance.
❚ Profitably increasing retail selling space. New store appraisals must meet demanding financial criteria before
the investment is made, and success is measured by achieved sales and profit contribution against appraised
targets. The store portfolio is actively managed, with openings and closures based on store profitability and
cash payback.
❚
Increasing the number of NEXT Directory customers and their spend, both in the UK and through international
online sales.
❚ Managing gross and net margins through efficient product sourcing, stock management and cost control.
❚ Maintaining the Group’s financial strength through an efficient balance sheet and secure financing structure.
❚ Generating cash to increase dividends and purchase NEXT shares, when it is earnings enhancing and in the
interests of shareholders generally.
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03
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
CHIEF EXECUTIVE’S REVIEW
OVERVIEW
NEXT has had a good year, achieving 3.1% growth in sales and 9.0% growth in underlying profit before tax. Strong
cash generation allowed us to buy back 4.5% of shares outstanding which, along with a lower tax rate, resulted in
EPS growing much faster than profits.
In the year to January 2013 post-tax EPS grew by 16.6%. Our full year dividend has been increased in line with EPS
to 105p.
REVENUE excluding VAT
Underlying business excluding exceptionals
NEXT Retail
NEXT Directory
NEXT BRAND
Other
Continuing business
PROFIT and EPS
Underlying business excluding exceptionals
NEXT Retail
NEXT Directory
Other
Operating profit – underlying
Net interest
Profit before tax – underlying
Taxation
Profit after tax – underlying
EPS – underlying
Dividends per share
NEXT PLC ECONOMICS
January
2013
£m
2,190.9
1,192.6
3,383.5
164.3
3,547.8
January
2013
£m
331.1
302.1
17.0
650.2
(28.6)
621.6
(148.5)
473.1
January
2012
£m
2,191.4
1,088.7
3,280.1
161.0
3,441.1
January
2012
£m
323.7
262.6
12.4
598.7
(28.4)
570.3
(142.9)
427.4
297.7p
105.0p
255.4p
90.0p
0.0%
+9.5%
+3.2%
+2.0%
+3.1%
+2.3%
+15.1%
+8.6%
+9.0%
+10.7%
+16.6%
+16.7%
Five straightforward profit drivers
The table below sets out the five main drivers of the Group’s Profit and Loss account. It shows how the profit from
(1) new Retail space and (2) Online sales, more than offset the profit lost as a result of (3) declining sales in the
existing store base. It also shows how (4) cost inflation has been more than offset by (5) cost savings.
Profit Year Ending Jan 2012
Profit from sales increases/decreases
(1) Profit from new space
(2) Profit from additional online sales growth
(3) Cost of lost sales in existing stores
Cost increases and savings :
(4) Inflation in cost base
(5) Cost savings
Profit Year Ending Jan 2013
04
+27m
+40m
- 29m
- 50m
+64m
£570m
+38m
+7%
+14m
£622m
+2%
+9%
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 2011/12
£570m
2012/13
£622m
490 500 510 520 530 540 550 560 570 580 590 600 610 620 630
Cost Increases
-£50m
Cost Savings
+£64m
Retail LFLs
-£29m
New Space
+£27m
Directory
+£40m
Five straightforward objectives
The Company has five core operational objectives, as set out below. Underlying these operational goals is the
ever present and overriding financial objective of delivering long term, sustainable growth in earnings per share.
Develop the NEXT
Brand
Develop, improve and expand our product ranges, focusing on being better by design.
Rigorously control
costs
Control costs through constantly developing more efficient ways of operating. This must be
done without detracting from the quality of our products and services.
Invest in profitable
new space
Open profitable new retail space, maintaining the Company’s strict payback and
profitability hurdles of 15% net store profit (before central overheads) and payback on net
capital invested in 24 months.
Invest in online
growth
Invest in growth from our online business, through improving UK services and new overseas
markets.
Generate and return
cash
Focus on cash generation. Return funds that are not needed to develop the business
to shareholders through share buybacks. This must be earnings enhancing and in the
interests of shareholders generally.
PRODUCT AND THE NEXT BRAND
Without great product, all our other activities are in vain. We believe there is the opportunity to further improve and
expand our product ranges, particularly at the more aspirational end of our collections.
NEXT has always maintained that, if we are to succeed, our products must be better by design. Additional time and
money has been invested in the design process for Autumn Winter 2013. We hope to see continuing improvements
in the fashion content and quality of our ranges as the year progresses.
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013
DIRECTORS’ REPORT AND BUSINESS REVIEW
COST INFLATION AND COST CONTROL
We are very clear that we must not compromise service or quality to save money, nor should we stop taking on
new costs that improve our service offer. So we must control costs through operational innovation and improved
purchasing. The tables below outline the main contributors to cost increases and cost savings over the last year.
Cost Increases
Cost of living awards and other wage related inflation
Costs of Directory delivery service improvements
Rent, rates & other occupancy inflation
Retail in-store design, online overseas and additional brochure
Systems investments and other
Total
Cost Savings
Gross margin improvements
Retail manpower efficiencies and other cost savings
Directory operating efficiencies
Lower freight costs
Non-stock purchasing improvements (e.g. paper)
Other
Total
£m
17
15
7
6
5
50
£m
22
19
10
3
3
7
64
Looking at the year ahead we expect cost inflation to be less challenging at around £35m. Once again, we
believe that we can offset all these increased costs through saving initiatives.
RETAIL
Retail sales were level with last year. New space added 3.2% to Retail sales and 2.1% to total Brand sales. Retail
profit of £331m was 2.3% higher than last year, representing a 0.3% improvement in the Retail net margin.
RETAIL SPACE
Retail Expansion in 2012/13
During the year we added 250,000 square feet to our store portfolio. This was less than the 300,000 we had
budgeted at the start of the year. The shortfall was because it has taken longer than expected to get planning
permission for new projects and because a fire delayed one of our new large sites.
The table below sets out the change in store numbers and space since January 2012.
January 2012
New stores, re-sites (6) and extensions (9)
Closures
Home stand-alones
January 2013
Store
Numbers
536
+5
- 6
+5
540
Sq. ft.
(000’s)
6,475
+196
- 28
+85
6,728
06
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Healthy Returns on Capital and High Profitability
New store profitability and payback on net capital invested are both comfortably within Company targets. Forecasts
for stores opened in the last 12 months, shown in the table below, are based on sales since their dates of opening.
Mainline
Home
Total
Sales
vs target
+9%
+5%
+8%
Forecast
profitability
Forecast
payback
24% 17 months
19% 22 months
23% 19 months
Space Expansion in the Year Ahead
There continue to be good opportunities to profitably increase UK retail selling space. Our expansion programme
is built bottom-up, on a location by location basis, and there remain many towns and cities where we believe there
is the potential to offer wider ranges in larger stores.
Planning remains a problem, though often more of a delay than a brick wall. We are actively working with planning
officers, councillors and local communities to deliver new shops, investment and jobs. We continue to make a
greater investment in the external architecture of our new stores, particularly on Retail Parks. Our aim is to transform
the quality of construction associated with out-of-town retail and create the sort of buildings that communities will
see as an asset, not an eyesore.
In our dealing with local councils it is noticeable that some are much more pro-growth and pro-jobs than others.
Many local councils are enthusiastic and efficient; but a few remain an unhealthy mix of Luddite intransigence
and incompetence. Going forward, in areas where councils traditionally have got away with just saying “no”, we
will be more active in harnessing the law and the full weight of public opinion to campaign for growth.
Next year we expect to add at least 250,000 sq. ft. of trading space (net of closures).
Store Portfolio Profitability
We continue to closely monitor the profitability of our store portfolio. Underperforming stores are actively managed
with a view to possible closure before they become uneconomic. On average our store leases have 7 years to run
before expiry or a break clause.
Our portfolio remains extremely profitable, with 89% of our sales coming from stores delivering more than 15% profit
contribution on sales.
Store
profitability
>20%
>15%
>10%
>5%
>0%
Percentage
of turnover
71%
89%
95%
99%
99.4%
Over the last five years the steady process of opening new space and refitting existing stores has transformed our
portfolio. Of the 6.7 million square feet of trading space we have today, 3.7 million (54%) is in stores that are either
brand new or enlarged. Of the remaining 3 million square feet, 2.2 million has been refitted, leaving just 800,000
(13%) square feet of the portfolio unchanged from 2007.
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
RETAIL PROFIT ANALYSIS
Operating margin improved slightly on last year. The table below details the margin movement by the major
heads of costs.
14.8%
+0.3%
+0.3%
- 0.1%
- 0.4%
Net operating margin last year
Increase in bought-in
gross margin
The improvement in bought-in gross margin was driven by an improved USD
exchange rate. This improvement was partly offset by selling a higher
proportion of Home and Childrenswear; these product categories have a
lower gross margin than the average.
Reduction in freight
and faulty
The cost of freight fell and in addition we used less unplanned air freight.
Faulty stock rates also reduced.
Increase in store
payroll
Increase in store
occupancy
Warehouse and
distribution
The annual cost-of-living pay award and staff bonus would have pushed
wage costs up by 0.5%, however this cost was almost completely offset by
in-store efficiency initiatives.
Rents and rates increased as a percentage of sales mainly as a result of
negative like for like sales. Rental inflation was minimal and continued to
decline. Business rates inflation, which is linked to September RPI, was very
high at 5.6%.
Electricity costs also increased significantly in the first half.
The annual cost-of-living pay award was offset by cost saving initiatives.
+0.0%
Central overheads
Central overheads reduced as a percentage of sales.
Net operating margin this year
+0.2%
15.1%
DIRECTORY
NEXT Directory sales were up 9.5% and profit increased by 15.1%.
UK SERVICE
NEXT Directory continues to provide good opportunities for growth. In the UK, growth is driven by the wider online
market and by improving delivery services. Last year we added Same-Day, Evening, Sunday and Next-Day to Store
delivery services, all at a £2.99 premium to the standard service.
In 2013 we have already improved our delivery services further:
❚ The cut off for standard next day delivery to home has been moved back to 10pm.
❚ Next-Day delivery to stores has been improved to allow collection after 12.30pm (as opposed to 4.00pm) and
the price of this service has been reduced from £2.99 to 50p.
INTERNATIONAL ONLINE
International sales grew from £33m to £54m. We now sell direct to 60 international territories, and also through 6
partners in 14 of those countries. Our international online business contributed £10m to profit. In the year ahead
we expect our overseas online business to grow to at least £70m, adding a further £4m to profit.
08
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 SALES ANALYSIS
The increase in sales came from four main sources which are set out in the table below.
UK full price sales
Clearance Tab
Markdown sales
International online
Total sales growth
Contribution to growth
5.2%
2.2%
0.1%
2.0%
9.5%
CUSTOMER ANALYSIS
Directory active average customers increased year on year by 10.3% to 3.3 million. Customer growth is set out
below, broken down into credit and cash customers.
Average customers ‘000s
Total credit customers
Total cash customers
Total active customers
January
2013
2,663
641
3,304
January
2012
2,557
438
2,995
Increase in
customer
base
+3.5%
+6.8%
+10.3%
Change
+106
+203
+309
DIRECTORY PROFIT ANALYSIS
Operating margin increased by 1.2% to 25.3%. The table below details the margin movement by the major heads
of costs.
Net operating margin last year
Increase in bought-in
gross margin
The improvement in bought-in gross margin was driven by an improved USD
exchange rate. In addition Directory sold a higher proportion of Womens
and Menswear, these product categories have a higher gross margin than
the average.
Reduction in freight
The cost of freight fell and in addition we used less unplanned air freight.
Higher markdown &
obsolescence
Directory took more drop stock from Retail for its Clearance Tab. The
additional obsolescence charge on this stock was the main cause for this
adverse movement in margin.
24.1%
+ 1.0%
+ 0.2%
- 0.4%
Decrease in bad debt
& increased service
charge
The continued improvement in bad debt rates increased margin by +0.3%.
Service charge growth increased margin by a further +0.2%.
+ 0.5%
Decrease in marketing The improvement is mainly due to non-recurring costs incurred last year for
+ 0.3%
the development of our new website software.
Decrease in call
centre
Call centre costs increased margin through improved processes, including
automatic credit scheduling, (+0.2%) and a reduction in call volumes &
length (+0.1%).
Decrease in
catalogue production
Photography costs reduced, improving margin by +0.3%. More customers
elected to trade without a catalogue; this reduced print costs as a
percentage of sales.
Increase in warehouse
and distribution
International distribution costs, to service our growing overseas business,
eroded margin by -0.5%. We added new processes in our warehouses to
enhance our delivery offer; this eroded margin by a further -0.8%.
Central overheads
Overhead costs increased at a lower rate than sales.
Net operating margin this year
+ 0.3%
+ 0.5%
- 1.3%
+ 0.1%
25.3%
09
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
INTERNATIONAL RETAIL
We have a profitable franchise business, with partners operating 170 stores in 33 countries. Our 19 directly owned
stores (in 7 countries) made a small loss. We do not intend to open any new directly owned international stores
going forward. Revenue and income for our international business is set out below.
£m
Franchise income
Owned store sales
Total revenue
Operating profit
2013
61.5
16.2
77.7
8.4
2012
58.7
17.6
76.3
7.9
+1.8%
+6.2%
We are budgeting for International Retail to make a profit of £10m in the year ahead, the improvement coming
mainly from the closure of loss making stores.
NEXT SOURCING
NEXT Sourcing profit recovered from the previous year, when a significant provision was required against unshipped
faulty stock. That issue has been resolved and £1m of excess provision has been released this year. NEXT Sourcing
competes for business against the many other suppliers to NEXT Retail and NEXT Directory, it provides around 40%
of NEXT Brand stock.
£m
Sales
Operating profit
Operating margin
We are forecasting NEXT Sourcing profits to be around £30m in the year ahead.
OTHER PROFIT AND LOSS ACTIVITIES
£m
Lipsy
Property management
Central costs
Pension variation
Unrealised foreign exchange
Associates
Total
2013
507.1
30.8
6.1%
2012
519.0
21.1
4.1%
2013
2.0
3.5
(35.3)
3.6
3.4
0.6
(22.2)
2012
1.3
5.6
(30.6)
6.7
(1.1)
1.5
(16.6)
LIPSY
The full year sales of £58m and profit of £4m, before amortisation and profit share of £2m, was the best performance
under the four years of our ownership. Internet sales, through Lipsy’s own site and the NEXT Directory, doubled to
£17m and are now ahead of wholesale sales. Lipsy’s retail sales were £22m, taken from 51 stores trading 60,000 sq. ft.
PROPERTY MANAGEMENT
Underlying profit was down by £2m to £3.5m. We now own very few retail freeholds. At the end of the year we
sold a development property occupied by Ventura (a business we divested in 2011): the £9m profit is shown as
exceptional. We do not anticipate any property management profit in the year ahead.
10
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 CENTRAL COSTS
The charge has increased by £5m mainly due to performance-related pay and Company wide share-based
incentives. We expect central costs to decrease by £1m in the year ahead.
PENSION SCHEME
The actuarial pension credit fell from £7m to £4m. We expect this credit to be around £3m in the coming year.
During the year we made changes to our final salary pension scheme (which has been closed to new entrants
since 2000). This change gave a credit adjustment which was partially offset by the cost of hedging out a tranche
of pension liabilities. The net effect of these two changes was an exceptional post-tax credit of £28m.
INTEREST AND TAXATION
The interest charge was £28m. For the year ahead we expect net debt to range between £400m and £600m,
resulting in a similar interest charge.
Our tax rate reduced as expected to 23.9%, following the reduction in headline UK corporation tax rates. On the
assumption that tax rates continue to reduce as announced, we expect our effective rate to be no higher than
23% in each of the next two years.
BALANCE SHEET
The balance sheet remains strong with year end net debt of £493m and forecast peak borrowing requirements
being very adequately financed by our bonds and bank facilities of £923m, as set out in the table below.
2013 bonds – repayment due September
2016 bonds
2021 bonds
Total bonds nominal value
2016 committed bank facility
Total debt facilities available
£m
85
213
325
623
300
923
We believe NEXT will generate around £250m of cash in the year ahead after capital expenditure, interest, tax and
dividends, but before share buybacks.
CASH GENERATION, NET DEBT AND SHARE BUYBACKS
STRONGER THAN EXPECTED CASH FLOW
Cash generation was significantly ahead of our expectations. Operational cash flow, before buybacks and before
additional cover in the ESOT, was £376m. This was a long way ahead of our original £240m forecast, the variance
has been driven by higher profits, lower capital expenditure and year end stock levels, higher Directory customer
payments and a number of other one off factors.
During the year we used surplus cash to buy 7.5 million shares (4.5% of shares outstanding as at Jan 2012) at an
average price of £32.13 and a cost of £241m. In addition we used £52m to increase the share option cover in our
Employee Share Ownership Trust: this had the effect of reducing net shares in issue by a further 0.7%.
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013
DIRECTORS’ REPORT AND BUSINESS REVIEW
BUYBACKS, EPS AND SHARE PRICE
Despite their increasing popularity, share buybacks are still widely misunderstood. There are still those who wrongly
believe that they are some sort of share support scheme. This, of course, would be futile as any attempt to support
a share price would evaporate as soon as the money ran out.
The only reason share buybacks can deliver long term value is because they permanently reduce the number
of shares in issue and so increase the amount of profit attributable to each share (EPS). An important part of the
logic of share buybacks is the implied link between growth in EPS and growth in share price. Whilst, in the short
term there might appear to be no link, in the long run share prices tend to reflect the fundamental value of the
earnings and dividend stream. If the share price did not rise with EPS, the buyback programme would eventually
leave a single share owning all the profits and dividends!
The graph below illustrates the long term correlation of share price to EPS for NEXT plc over the period we have
been buying back shares. The blue boxes indicate earnings per share and the black line shows the share price.
The boxes at the top of the chart show the historic price/earnings (PE) ratio.
12.7
16.7
16.3
11.1
13.8
13.2
13.3
13.3
8.2
7.0
10.4
9.0
10.3
13.4
THE LONG GAME – THE NEXT PLC RULES OF BUYBACKS
Over the long term, we have been following these rules when considering buybacks:
1. Share buybacks must be earnings enhancing and make a healthy Equivalent Rate of Return (see below).
2. Only use the cash the business does not need. NEXT has always prioritised investment in the business over
share buybacks.
3. Use surplus cash flow, not ever-increasing amounts of debt. We have never allowed our share buyback
programme to threaten our investment grade credit status and will not do so going forward.
4. Maintain the dividend at a reasonable level through growing dividends in line with EPS. NEXT will continue to
increase dividends in line with EPS.
5. Be consistent. NEXT has been buying shares every year for more than 10 years, reducing the shares in issue by
more than 50%.
6. For share buybacks to be an effective use of shareholder cash, the core business must have the prospect of
long term growth.
12
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 20131999 00 01 02 03 04 05 06 07 08 09 10 11 2012■ P/E Ratio■ EPS■ Share priceEarnings Per Share and Share Price History39p46p58p69p94p£1.20£1.27£1.46£1.69£1.56£1.88£2.22£2.55£2.98£40£35£30£25£20£15£10£5 EFFECT ON BUYBACKS OF A RISING SHARE PRICE
The graph above demonstrates that the relationship between our EPS and share price has recently returned to its
near historical average. It is important to recognise that this relative rise in the PE ratio reduces the benefit of share
buybacks. The more expensive the shares become, the smaller the share of the business can be bought with the
same amount of surplus cash.
For example, two years ago when our share price was £21, our operational free cash flow of £200m enabled us
to buy 5.2% of the Company. Today with the shares around £40 our expected surplus cash flow of £250m will only
buy 3.9%.
The overall effect is simple: as the PE ratio rises the earnings enhancement of buybacks falls. So, given our current
PE ratio, how should NEXT assess the desirability of share buybacks?
Essentially there are two measures we look at. The first is the earnings enhancement of a buyback when compared
to the enhancement to earnings from keeping the cash in the bank and earning interest. The second is the
comparison between the earnings enhancement of a buyback compared to the return that would have to be
achieved from investing the cash in an alternative investment, the equivalent rate of return (ERR).
With long term borrowing rates for NEXT at around 4%, a share buyback of £250m at £40 would be 2.5% earnings
enhancing. The problem with this method of assessing buybacks is that at low interest rates buybacks remain
earnings enhancing beyond £60, so we consider the equivalent rate of return measure to be more helpful.
EQUIVALENT RATE OF RETURN (ERR)
The tables below set out the maths used to calculate ERR. The top table shows the enhancement achieved from
acquiring £250m of shares at £40, which is 4%. The second table shows that if we were to increase our profits by 4%
we would have to invest in an asset yielding 10%. Given that share buybacks carry no additional operational risk,
the returns at 10% remain very attractive.
Enhancement £250m Buyback (pre interest costs)
Share price
Market capitalisation
Cash used for buyback
% Acquired (250/6400)
EPS Enhancement 1/(1–3.9%)
Calculating ERR
Company profits
Additional profit required for 4% growth in EPS
Additional profit as a percentage of £250m invested in buyback (ERR)
£40.00
£6,400m
£250m
3.9%
4.1%
£622m
£25.3m
10.1%
(These workings are shown as an explanation of Equivalent Rate of Return. Of course, a simpler way of calculating
ERR is to divide profit before tax into market capitalisation!)
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013
DIRECTORS’ REPORT AND BUSINESS REVIEW
The graph below shows how ERR falls as the share price rises. As the yield approaches the Market’s expected
return on equity (say 8%), the buyback becomes less attractive. If the returns dropped much below 9% we would
become less enthusiastic, so to a certain extent the share price provides a natural moderator of a disciplined
buyback programme.
%
n
r
u
t
e
R
f
o
e
t
a
R
t
l
n
e
a
v
u
q
E
i
10.3%
10.0%
9.8%
9.5%
9.3%
9.0%
8.8%
8.5%
8.3%
8.0%
7.8%
7.5%
9.6%
9.4%
9.2%
8.9%
Equivalent Rate of Return %
8.7%
8.6%
8.4%
£40
£41
£42
£43
£44
£45
£46
£47
£48
£49
£50
Share Price £
OUTLOOK FOR 2013
THE CONSUMER ECONOMY
The consumer environment looks set to remain subdued. The inevitable deleveraging of public and private
finances means that the nation must slowly work its way back to affording the lifestyle it was already enjoying
before the financial crisis.
This process of retrenchment is manifesting itself in earnings growth running below the rate of inflation. This decline
in real earnings looks set to continue for at least one, if not several more years to come. Indeed the outlook for 2013
inflation has worsened since this time last year.
The graph below shows the difference in CPI and wages. The black dotted line is the Bank of England central
inflation forecast as at January 2013, the grey dotted lines are the equivalent estimates in January and November
2012. Estimates for inflation steadily rose last year, leaving the outlook for real earnings as difficult as 2012, if
not slightly worse. So we are planning on there being very little if any improvement in the underlying consumer
economy.
5%
4%
3%
2%
1%
0%
CPI
CPI Estimate, BoE
Wages
Nov 12
Jan 13
Jan 12
Source: ONS, Feb 13
2010
2011
2012
2013
2014
14
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013
OUTLOOK FOR NEXT BRAND SALES 2013
In this environment we will continue to budget for our existing stores to take moderately less than the previous year.
Any growth in sales must come from investment in profitable new space and the continuing growth in the online
market, both in the UK and overseas. In the year ahead we expect these avenues of growth to continue to exceed
underlying declines.
We are budgeting for total NEXT Brand sales for the full year to rise within a range of +1% to +4%.
The first few weeks of the year have been quiet and serve to reinforce a more cautious approach. At present,
sales are at the bottom of our target range, though we expect this situation to improve. We will get a better
understanding of the underlying consumer environment once temperatures return to seasonal levels. We will issue
further guidance with our May trading statement.
OUTLOOK FOR GROUP PROFITS AND EPS
Assuming sales fall within our budgeted range, we expect Group profits before tax, for the full year, to be in a
range of £615m to £665m, which would represent a year on year movement of between -1% to +7%. Assuming we
achieve our buyback plan, EPS would rise by between +4% and +13%. The table below sets out our guidance for
the full year:
Total Brand sales % growth (E)
Profit before tax (E)
Profit before tax % growth (E)
EPS % growth (E)
Lower
end of
guidance
+1%
£615m
-1%
+4%
Upper
end of
guidance
+4%
£665m
+7%
+13%
OUTLOOK FOR RETAIL SELLING PRICE INFLATION 2013 AND BEYOND
Overall factory gate prices are stable. Any increases in Far Eastern wages have generally been offset by
manufacturing productivity improvements or the development of new Far Eastern sources of supply, in particular
Bangladesh and Cambodia.
The recent sharp fall in the value of sterling will have very little impact on this year’s pricing as we have bought
forward most of our foreign currency requirement for the current year. If the pound remains at its current rate of
exchange against the dollar, we would expect our prices to rise in 2014.
INTERIM MANAGEMENT STATEMENT
Our next statement will cover the first fourteen weeks of the year, to 4 May 2013, and is provisionally scheduled for
Wednesday 8 May 2013.
IN SUMMARY
NEXT has performed well in a difficult year, delivering good growth in sales and profits along with exceptional
advances in earnings per share and dividends. The year ahead looks no less challenging but the Group is well
prepared and has further opportunities for growth. We remain strongly cash generative and have every chance
of delivering another year of increased sales and earnings per share.
Lord Wolfson of Aspley Guise
Chief Executive
21 March 2013
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
KEY PERFORMANCE INDICATORS
KPI’s of earnings per share, group cash flows and divisional revenues and profits are detailed in the Chief Executive’s
Review and elsewhere in this Annual Report. Details of other key performance indicators used in the management
of the business are provided below:
NEXT Retail selling space
Store numbers
Square feet 000’s
2013
540
6,728
2012
536
6,475
Annual change
+0.7%
+3.9%
Selling space is defined as the trading floor area of a store which excludes stockroom and administration areas.
NEXT Retail stores and sales
Total like for like
Underlying
2013
2012
No. stores
530
473
LFL %
-3.8%
-3.2%
No. stores
512
432
LFL %
-6.3%
-5.7%
NEXT defines like for like stores as those that have traded for at least one full year and have not benefited from significant capital expenditure. Sales from these stores for the
current year are then compared with the same period in the previous year to calculate like for like sales figures. Underlying like for like sales applies the same calculation
but excludes stores impacted by new store openings.
NEXT Retail operating margin
Net operating margin last year
Increase in achieved gross margin
Increase/decrease in store payroll
Increase in store occupancy
Decrease/increase in other costs
Net operating margin this year
2013
14.8%
+0.6%
-0.1%
-0.4%
+0.2%
15.1%
2012
14.8%
+0.7%
+0.3%
-0.4%
-0.6%
14.8%
Gross margin is the difference between the cost of stock and the initial selling price; achieved gross margin is after markdown and stock related costs. Net operating margin
is profit after deducting markdowns and all direct and indirect trading costs. All are expressed as a percentage of achieved VAT exclusive sales.
NEXT Directory customers and pages
Average active customers
Average sales per customer
Number of printed pages
2013
3,304,000
£361
4,204
2012
2,995,000
£363
4,180
Annual change
+10.3%
-0.6%
+0.6%
Active customers are defined as cash and credit customers who have placed an order or made a payment in the last 20 weeks, calculated as a weighted average of each
week’s figure. Average sales per customer are calculated as VAT exclusive sales, including service charge, divided by the average number of active customers.
NEXT Directory operating margin
Net operating margin last year
Increase in achieved gross margin
Decrease in bad debt
Increase/decrease in service charge income
Increase/decrease in other costs
Net operating margin this year
Share buybacks
Number of shares purchased (‘000)
% of opening share capital
Total cost
Average cost per share
Total cost of shares purchased includes stamp duty and associated costs.
16
2013
24.1%
+0.8%
+0.3%
+0.2%
-0.1%
25.3%
2013
7,510
4.5%
£241.3m
£32.13
2012
23.7%
+0.8%
+0.4%
-0.9%
+0.1%
24.1%
2012
12,482
6.9%
£289.7m
£23.21
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 RISKS & UNCERTAINTIES
The Board has a policy of continuous identification and review of key business risks and oversees the development of
processes to ensure that these risks are managed appropriately. Executive directors and operational management
are delegated with the task of implementing these processes and reporting to the Board on their outcomes. The key
risks identified by the Board are summarised below:
❚ Business strategy development & implementation
If the Board adopts the wrong business strategy or does not implement its strategies effectively, the business may
suffer. The Board needs to understand and properly manage strategic risk in order to deliver long term growth
for the benefit of NEXT’s stakeholders. The Board reviews business strategy on a regular basis to determine how
sales and profit budgets can be achieved or bettered and business operations made more efficient. This process
involves the setting of annual budgets and longer term financial objectives to identify ways in which to increase
shareholder value. Critical to these processes are the consideration of wider economic and industry specific
trends that affect the Group’s businesses, the competitive position of its product offer and the financial structure
of the Group.
❚ Liquidity & credit risk
The Group has adequate medium and long term financing in place to support its business operations. The Board
continues to assess its exposure to counterparty risk in the light of the prevailing economic climate both in the
UK and globally and its treasury policy is amended as necessary to manage counterparties with which deposits,
investments and other transactions may be made.
NEXT is exposed to credit risk in respect of its Directory and other business customers. Rigorous procedures are
in place with regard to the Group’s credit customers and these are regularly reviewed and updated as required.
Key suppliers whose services are essential to the successful running of the business also face credit risk. These
include the production of the Directory, provision of IT systems and certain systems and suppliers to the Group’s
warehouse and distribution network. The Group’s risk assessment procedures for key suppliers identify alternatives
and develop contingency plans in the event any of these suppliers fail.
❚ Management team
The success of NEXT relies on the continued service of its senior management and technical personnel and on its
ability to continue to attract, motivate and retain highly qualified employees. The retail sector is very competitive and
NEXT staff are frequently targeted by other companies. The Remuneration Committee identifies senior personnel,
reviews remuneration at least annually and formulates packages to retain and motivate these employees. In
addition, the Board considers the development of senior managers to ensure adequate career development
opportunities for key personnel, with orderly succession and promotion to important management positions.
❚ Product design & selection
The success of NEXT depends on providing exciting, beautifully designed, excellent quality clothing and homeware.
Success also depends upon its ability to anticipate and respond to changing consumer preferences and trends.
Many of NEXT’s products represent discretionary purchases and demand for these products can decline in periods
of negative consumer confidence. As a consequence, NEXT may be faced with surplus stocks that cannot be sold
at full price and have to be disposed of at a loss. Executive directors and senior management continually review
the design and selection of NEXT’s product ranges. This ensures, so far as possible, that there is a well-balanced
product mix that is good value for money, and available in sufficient quantities and at the right time to meet
customer demand.
❚ Key suppliers & supply chain management
NEXT relies on its supplier base to deliver products on time and to the quality standards it specifies. It continually
seeks ways to develop its supplier base so as to reduce over-reliance on individual suppliers of product and
services, and to improve the competitiveness of its product offer. If input costs rise, for example raw materials or
labour costs, NEXT will work with existing suppliers to mitigate the inflationary impact. New sources of supply will be
developed in conjunction with NEXT Sourcing, external agents and direct suppliers.
Non-compliance by suppliers with the NEXT Code of Practice may increase reputational risk. NEXT carries out
regular inspections of its suppliers’ operations to ensure compliance with the standards set out in this code,
covering production methods, employee working conditions, quality control and inspection processes. NEXT also
monitors and reviews the financial, political and geographical aspects of its supplier base to identify any factors
that may affect the continuity or quality of supply of its products.
17
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
RISKS & UNCERTAINTIES (CONTINUED)
❚ Retail store network
Growth of NEXT Retail is dependent upon developing the trading space within its store network and customers
spending more. NEXT will continue to invest in new stores where its financial criteria are met and refurbish its
existing portfolio when appropriate. New store appraisals estimate the effects of sales deflection from existing
stores, although the performance of new stores and sales deflection may differ from estimates.
Successful development of new stores is dependent upon a number of factors including the identification of suitable
properties, obtaining planning permissions and the negotiation of acceptable lease terms. Notwithstanding there
have been a number of retail failures in recent years, prime sites will generally remain in demand, and increased
competition can result in higher future rents.
❚ Directory customer base
Growth of the NEXT Directory depends upon the recruitment and retention of customers and increasing the
average spend per customer. NEXT will continue to recruit new credit customers where they satisfy its credit score
requirements. However, there can be no assurance that new customers will result in higher sales per customer or
lower incidence of bad debts, compared with the existing customer base.
In addition, NEXT requires its internet website to attract new customers and encourage existing customers to
continue ordering from the Directory. Management continually review the configuration, content and functionality
of the website to ensure it provides a positive customer shopping experience. Service levels and response times
are monitored to ensure that the website is both resilient and secure at all times.
❚ Warehousing & distribution
NEXT regularly reviews the warehousing and distribution operations that support the business. Risks include
business interruption due to physical damage, access restrictions, breakdowns, capacity shortages, inefficient
processes and delivery service failures. Planning processes are in place to ensure there is sufficient warehouse
handling capacity for expected future business volumes over the short and longer terms. In addition, service levels,
warehouse handling and delivery costs are monitored continuously to ensure goods are delivered to Retail stores,
Directory customers and third party clients in a timely and cost-efficient manner.
IT systems & business continuity
❚
NEXT is dependent upon the continued availability and integrity of its IT systems, which must record and process
a substantial volume of data and conduct inventory management accurately and quickly. The Group expects
that its systems will require continuous enhancement and investment to prevent obsolescence and maintain
responsiveness. Back up facilities and business continuity plans are in place and are tested regularly to ensure
that business interruptions are minimised and data is protected from corruption or unauthorised access or use.
❚ Call centre capacity & service levels
NEXT is dependent on the efficient operation of its own and third party call centres to receive and respond to
customer orders and enquiries. Insufficient manpower, supplier failures and interruption in the availability of
telephony systems to meet customer service requirements are the principal risks. The Group continuously monitors
call centre operations that support the business to ensure that there is sufficient capacity to handle call volumes.
Capacity forecasting is used to manage peak demands and growth in business volumes, and customer satisfaction
is measured on a regular basis. Business continuity plans minimise the risk of business interruption.
❚ Treasury & financial risk management
The main financial risks are the availability of funds to meet business needs, default by counterparties to financial
transactions (see Liquidity & credit risk), and fluctuations in interest and foreign exchange rates. In addition,
business expansion and share buybacks may necessitate the raising of additional finance, which can in turn
increase interest costs and give rise to fluctuations in profit. Higher debt could also increase the proportion of
cash flow required to service debt and potentially increase exposure to interest rate fluctuations. NEXT operates a
centralised treasury function which is responsible for managing its liquidity, interest and foreign currency risks. The
Group’s treasury policy allows the use of derivative instruments provided they are not entered into for speculative
purposes. Further details of the Group’s treasury operations are given in Notes 27 to 30 of the financial statements.
18
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013
In addition, NEXT has to fund its defined benefit pension scheme and ensure that sufficient contributions are made
to meet outstanding liabilities as they fall due. If NEXT fails to provide sufficient and timely funding, action may be
taken by the pension scheme trustees, or the Pensions Regulator, which could result in an acceleration and/or
an increase in overall contributions towards any deficit. Management meets regularly with the trustees to assess
fund performance, as well as to agree future contribution levels and any necessary changes to members’ future
benefits.
EMPLOYEES
People are key to achieving business objectives. NEXT has established policies for recruitment, training and
development of personnel and is committed to achieving excellence in the areas of health, safety, welfare and
protection of employees and their working environment.
Equal opportunities
NEXT is an equal opportunities employer and will continue to ensure it offers career opportunities without
discrimination. Full consideration is given to applications for employment from disabled persons, having regard to
their particular aptitudes and abilities. The Group has continued the employment wherever possible of any person
who becomes disabled during their employment. Opportunities for training, career development and promotion
do not operate to the detriment of disabled employees.
Training and development
NEXT aims to realise the potential of its employees by supporting their career progression and promotion wherever
possible. It makes significant investment in the training and development of staff and in training and education
programmes which contribute to the promotion prospects of employees.
Employee communication
NEXT has a policy of providing employees with financial and other information about the business and ensures
that the suggestions and views of employees are taken into account. NEXT has an employee forum made up of
elected representatives from throughout the business who attend meetings at least twice a year with directors and
senior managers. This forum enables and encourages open discussion on key business issues, policies and the
working environment.
Employee share ownership
Approximately 8,200 employees held options over 8.6 million shares in NEXT at January 2013, being 5.3% of the total
shares in issue. Its employee share ownership trust (“ESOT”) purchases shares for issue to employees when their
options are exercised. At the year end the ESOT held 6.5 million shares, the voting rights of which are exercisable
by the Trustee.
Pension provision
The NEXT Group Pension Plan provides valuable pension benefits to participating employees, details of which are
set out in the Remuneration Report on pages 46 to 47 and in Note 21 to the financial statements. At January 2013,
there were 1,242 (2012: 1,337) active members in the Defined Benefit Section and 2,375 (2012: 1,935) members in
the Defined Contribution Section. The Group has also made arrangements for auto-enrolment and contributions
commenced in February 2013.
SOCIAL & ENVIRONMENTAL MATTERS
NEXT is committed to the principles of responsible business. This means addressing key business related social,
ethical and environmental matters in a way that aims to bring value to all of its stakeholders, including customers
and shareholders. Continuous improvement lies at the heart of NEXT’s approach and is achieved by acting
in an ethical manner, developing positive relationships with suppliers, recruiting and retaining successful and
responsible employees, taking responsibility for our impact on the environment and through contributions to
charities and community organisations.
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SOCIAL & ENVIRONMENTAL MATTERS (CONTINUED)
NEXT has a Corporate Responsibility (“CR”) forum of 15 senior managers and directors representing key areas
of the business to develop and implement strategy. The forum identifies potential issues and opportunities and
evaluates the success of NEXT’s response. The CR Manager holds regular updates with the executive director
responsible for CR.
A third party provides independent assurance on the Group’s CR report which is published on the Company’s
website each year. Commitment to CR matters is recognised externally by its membership of the FTSE4Good
Index Series.
Suppliers
NEXT is a member of the Ethical Trading Initiative and operates its Code of Practice (“COP”), an established set of
ethical trading standards, as an integral part of its operations. The NEXT COP has ten key principles that stipulate
the minimum standards with which suppliers are required to comply in relation to workers rights and conditions
of work including working hours, minimum age of employment, health, safety, welfare and environmental issues.
NEXT seeks to ensure all products bearing the NEXT brand are produced in a clean and safe environment and in
accordance with all relevant laws.
NEXT is committed to its supplier audit and management programme and has a COP audit team of 44 staff
(2012: 45). The COP team works directly with suppliers to identify and address causes of non-compliance. Each
audited factory is measured against the COP’s six tier rating system. The supplier is made aware of its rating and
what is required to improve via a corrective action plan. This direct approach allows NEXT to build knowledge and
understanding in local communities and monitor suppliers through its auditing process.
NEXT’s supplier payment policy is to agree terms of payment at the start of business or to ensure that the supplier
is aware of the Group’s payment terms. Payment is made in accordance with contractual and other legal
obligations. Trade creditor days of the NEXT Group at January 2013 were 27 days (2012: 27 days) based on the
ratio of the trade creditors at the end of the year to the amounts paid during the year to trade creditors. The
Company had no trade creditors at January 2013 or January 2012.
Customers
NEXT is committed to offering stylish, excellent quality products to its customers, which are well made, functional,
safe and are sourced in a responsible manner. Its team of technologists works closely with buyers, designers and
suppliers to ensure NEXT products comply with all relevant legislation, and its own internal standards where these
are higher. The expertise of independent safety specialists for clothing, footwear, accessories, beauty and home
products is used where required.
NEXT endeavours to provide a high quality service to all customers, whether they are shopping through its stores,
catalogues or website. These different ways of shopping must be easily accessible for all customers and be
responsive to their needs.
NEXT Customer Services interacts with Retail and Directory customers to resolve enquiries and issues. Findings are
recorded and the information is used by other areas of the business to review how a product or service can be
improved.
Health and safety
NEXT recognises the importance of health and safety and its management is designed to contribute to business
performance. Policies and procedures are reviewed and audited regularly to make safety management more
robust and current.
The Group’s objective is to manage all aspects of its business in a safe manner and take practical measures to
ensure that its activities and products do not harm the public, customers, employees or contractors. Procedures
exist to enable two way communication and consultation about health, safety and welfare issues in order to
achieve a high level of safety awareness.
20
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Environment
NEXT recognises that it has a responsibility to manage the impact of its business on the environment both now
and in the future. For a number of years we have measured and reported against environmental targets for NEXT
in the UK and Eire. The targets are measured from 2007 and look forward to 2015.
Key areas of focus are:
❚ Energy use and emissions from stores, warehouses, distribution centres and offices
Target: Electricity consumption – 35% reduction in kg CO2e/m2
Progress: 4% reduction compared with last year, and 30% electricity reduction achieved to date
❚ Fuel emissions from the transportation of products
Target: Retail Distribution – 10% reduction in litres of fuel used/m2
Progress: 8% reduction compared with last year, and 16% reduction achieved to date
❚ Waste created in stores, warehouses, distribution centres and offices
Target: To send less than 5% of operational waste to landfill
Progress: 86% of operational waste diverted from landfill achieved to date, in line with last year
NEXT is committed to reducing its carbon footprint by reducing energy consumption throughout its operations,
minimising and recycling waste, cutting transport emissions and reducing the packaging in our products.
Community
NEXT supports a wide range of charities and organisations, and provided the following financial support during
the year:
Registered charities
Individual requests, local and national groups and organisations
Commercial support
This support was supplemented by the following additional activities:
NEXT charity events
Gifts in kind - product donations
Charity linked sales
Employee fundraising
No donations were made for political purposes (2012: nil).
2013
£000
911
110
83
2013
£000
182
2,187
357
22
2012
£000
876
75
73
2012
£000
–
1,652
425
44
ANNUAL GENERAL MEETING & OTHER MATTERS
Notice of the Annual General Meeting (“AGM”) is on pages 96 to 101 and includes the following business:
Dividends
The Directors recommend that a final dividend of 74p per share be paid on 1 August 2013 to shareholders on the
register of members at close of business on 28 June 2013. The Trustee of the NEXT Employee Share Ownership Trust
(“ESOT”) has waived dividends paid in the year on the shares held by it, see Note 26.
Directors
Caroline Goodall was appointed as a non-executive director with effect from 1 January 2013. Caroline has
30 years’ experience in the legal profession, with 20 years as a corporate finance partner at Herbert Smith. Caroline’s
appointment ensures an appropriate balance of skills, experience and independence is maintained.
21
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
The UK Corporate Governance Code provides for all directors of FTSE companies to stand for election every year,
and all members of the Board will do so at this year’s AGM. Their biographical details are set out on page 27.
The Board has formally reviewed the performance of all non-executive directors and concluded that they remain
independent, effective and are committed to their roles at NEXT. In addition, the Board specifically considered
the independence of Jonathan Dawson and Christine Cross, who were first appointed to the Board 9 years and
8 years ago respectively, and concluded that they remain independent in both character and judgement, and
their knowledge and other business interests continue to enable them to contribute significantly to the work and
balance of the Board.
The interests of the directors who held office at 26 January 2013 and their families are shown in the Remuneration
Report on pages 48 and 50 to 52.
Auditor
Ernst & Young LLP have expressed their willingness to continue in office and their reappointment will be proposed
at the AGM.
Disclosure of information to the auditor
In accordance with the provisions of Section 418 of the Companies Act 2006, each of the persons who is a director
at the date of approval of this report confirms that:
❚ so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware;
and
❚ each director has taken all the steps that they ought to have taken as a director to make themselves aware of
any relevant audit information and to establish that the Company’s auditor is aware of that information.
Authority to allot shares
Ordinary resolution 15 will, if passed, renew the directors’ authority pursuant to section 551 of the Companies
Act 2006 to allot shares or grant rights to subscribe for, or convert any security into, shares until the conclusion of
the AGM in 2014 or, if earlier, 1 August 2014. This resolution will allow the directors to allot ordinary shares up to a
maximum nominal amount of £5,300,000, representing approximately one third (33.33%) of the Company’s existing
issued share capital as at 19 March 2013. In accordance with the latest institutional guidelines, resolution 15 will
also allow directors to allot further ordinary shares, in connection with a pre-emptive offer by way of a rights issue,
up to a total maximum nominal amount of £10,600,000, representing approximately two thirds (66.67%) of the
Company’s existing issued share capital as at that date. As at 19 March 2013 (being the latest practicable date
prior to publication of this document) the Company’s issued share capital amounted to £16,123,424, comprising
161,234,237 ordinary shares of 10 pence each, none of which are held in treasury. The directors have no present
intention of exercising this authority.
Authority to disapply pre-emption rights
Special resolution 16 will, if passed, renew the directors’ authority pursuant to sections 570 to 573 of the Companies
Act 2006 to allot equity securities for cash without first offering them to existing shareholders in proportion to
their holdings. This resolution limits the aggregate nominal value of ordinary shares which may be issued by the
directors on a non pre-emptive basis to £806,000, being less than 5% of the issued ordinary share capital as at
19 March 2013. This authority also allows the directors, within the same aggregate limit, to sell for cash, shares
that may be held by the Company in treasury. The directors do not have any present intention of exercising this
authority which will expire at the AGM in 2014 or, if earlier, 1 August 2014. The directors do not intend to issue more
than 7.5% of the issued share capital of the Company for cash under this or previous authorities in any rolling three
year period without prior consultation with shareholders and the Investment Committees of certain shareholder
representative organisations.
On-market purchase of own shares
NEXT has been returning capital to its shareholders by share repurchases as well as dividend since March 2000
as part of its strategy for delivering sustainable long term growth in earnings per share. Over this period, and up
to 19 March 2013, NEXT has returned over £2.8bn to shareholders by way of share buybacks and almost £1.4bn in
dividends. This buyback activity has enhanced earnings per share, given shareholders the opportunity for capital
22
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 (as well as revenue) returns and has been transparent to the financial markets. Share buybacks have not been
made at the expense of investment in the business. Over the last five years, NEXT has invested over £570m in
capital expenditure to support and grow the business.
Special resolution 17 will renew the authority for the Company to make market purchases (as defined in Section
693 of the Companies Act 2006) of its ordinary shares of 10p each provided that:
(a) the aggregate number of ordinary shares authorised to be purchased shall be the lesser of 24,169,000 ordinary
shares of 10p each (being less than 15% of the issued share capital at 19 March 2013) and no more than
14.99% of the issued ordinary share capital outstanding at the date of the AGM, such limits to be reduced by
the number of any shares to be purchased pursuant to special resolution 18: Off-market purchases of own
shares, see below;
(b) the payment per ordinary share is not less than 10p and not more than 105% of the average of the middle
market price according to the Daily Official List of the London Stock Exchange for the five business days
immediately preceding the date of purchase or, if higher, the amount stipulated by Article 5(1) of the Buy-
back and Stabilisation Regulation 2003; and
(c) the renewed authority will expire at the AGM in 2014 or, if earlier, 1 August 2014.
The directors intend that this authority to purchase the Company’s shares will only be exercised if doing so will
result in an increase in earnings per share and, being in the interests of shareholders generally, it is considered to
promote the success of the Company. The directors will also give careful consideration to financial gearing levels
of the Company and its general financial position. The purchase price would be paid out of distributable profits.
It is the directors’ present intention to cancel any shares purchased under this authority.
The repurchase of ordinary shares would give rise to a stamp duty liability of the Company at the rate of 0.5% of
the consideration paid.
The total number of employee share options to subscribe for shares outstanding at 19 March 2013 was 8,468,294.
This represents 5.3% of the issued share capital at that date. If the Company were to buy back the maximum
number of shares permitted pursuant to both the existing authority granted at the 2012 AGM (which will expire at
the 2013 AGM) and the authority sought by this resolution, then the total number of options to subscribe for shares
outstanding at 19 March 2013 would represent 7.2% of the reduced issued share capital.
Off-market purchases of own shares
The directors consider that share buybacks are an important means of returning value to shareholders and
maximising sustainable long term growth in EPS. Contingent contracts for off-market share purchases are an
integral part of the Company’s buyback strategy and offer a number of additional benefits compared to on-
market share purchases:
❚ Contingent contracts allow the Company to purchase shares at a discount to the market price prevailing at
the date each contract is entered into. Pursuant to the authority granted at the 2012 AGM, and up to 19 March
2013, the Company bought back 650,190 shares for cancellation under such contracts at discounts of up to
6.4%.
❚ Low share liquidity can often prevent the Company from purchasing sufficient numbers of shares on a single day
without risk of affecting the prevailing market price. Contingent contracts enable the Company to purchase
shares over time without risk of distorting the prevailing share price, and also spreads the cash outflow.
❚ Contingent contracts entered into prior to any close period allow the Company to purchase shares off-market
during these periods. Clearance from the FSA for use of contingent contracts, including for settlement in close
periods, has been obtained.
❚ Competitive tendering involving up to five banks is used which minimises the risk of hidden purchase costs. The
pricing mechanism ensures the Company retains the benefit of declared and forecast dividends.
As with any share buyback decision, the directors would use this authority only after careful consideration, taking
into account market conditions prevailing at the time, other investment opportunities and the overall financial
position of the Company. The directors will only purchase shares using such contracts if, based on the contract
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ REPORT AND BUSINESS REVIEW
discounted price (rather than any future price), it is earnings enhancing and promotes the success of the Company
for the benefit of its shareholders generally. It is the directors’ present intention to cancel any shares purchased
under this authority.
Special resolution 18 will give the Company authority to enter into contingent purchase contracts with any of
Goldman Sachs International, UBS AG, Deutsche Bank AG, HSBC Bank plc and Barclays Bank plc under which
shares may be purchased off-market at a discount to the market price prevailing at the date each contract is
entered into. The maximum which the Company would be permitted to purchase pursuant to this authority would
be the lower of 5,000,000 shares or a total cost of £200 million.
The principal features of the contracts are set out in Appendix 1 to the Notice of the AGM. Copies of the agreements
the Company proposes to enter into with any of the banks (the “Programme Agreements”) will be available for
inspection at the registered office of the Company, and at the offices of Pinsent Masons, 30 Crown Place, Earl Street,
London EC2A 4ES during normal working hours from the date of the Notice of the AGM up to the date of the AGM
and at the Meeting itself.
Notice of General Meetings
The notice period required by the Companies Act 2006 for general meetings of the Company is 21 days unless
shareholders approve a shorter notice period, which cannot however be less than 14 clear days. However, the
Company’s AGM must always be held on at least 21 clear days’ notice. At the AGM of the Company held in 2012,
shareholders authorised the calling of general meetings other than an AGM on not less than 14 clear days’ notice
and it is proposed that this authority be renewed. The authority granted by special resolution 19, if passed, will be
effective until the Company’s AGM in 2014. In order to be able to call a general meeting on less than 21 clear
days’ notice, the Company will make electronic voting available to all shareholders for that meeting. The flexibility
offered by this resolution will not be used as a matter of routine for such meetings, but only where the directors
consider it appropriate, taking account of the business to be considered at the meeting and the interests of the
Company and its shareholders as a whole.
Recommendation
Your directors are of the opinion that all resolutions which are to be proposed at the 2013 AGM will promote the
success of the Company and are in the best interests of its shareholders as a whole and, accordingly, unanimously
recommend that you vote in favour of the resolutions.
Share capital and major shareholders
Details of the Company’s share capital are shown in Note 23 to the financial statements.
The Company was authorised by its shareholders at the 2012 AGM to purchase its own shares. During the year
the Company purchased 7,509,924 ordinary shares with a nominal value of £750,992 (of which 1,825,190 were
purchased off-market), at a cost of £241.3m, representing 4.5% of its issued share capital at the start of the year.
These shares were cancelled.
On 26 January 2013 the Company had 161,234,237 shares in issue, which remained the same as at 19 March 2013.
The following information has been received from holders of notifiable interests in the Company’s issued share
capital:
Notifications received up to
26 January 2013
Notifications received after
26 January 2013 up to 19 March 2013
FMR LLC (Fidelity)
BlackRock, Inc.
Schroders plc
NEXT plc Employee Share Option Trust
6,881,904
*at date of notification
24
No. of
voting
rights
23,068,634
% of
voting
rights*
14.14
22,892,356
13.98
8,817,239
4.79
4.21
No. of
voting
rights
–
% of
voting
rights*
–
Nature
of holding
–
20,918,483
12.97
–
–
–
–
Indirect
interest
–
–
Nature
of holding
Indirect
interest
Indirect
interest
Indirect
interest
Direct
interest
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Additional information
Shareholder and voting rights
All members who hold ordinary shares are entitled to attend and vote at the AGM. On a show of hands at a
general meeting every member present in person and every duly appointed proxy shall have one vote and on a
poll, every member present in person or by proxy shall have one vote for every ordinary share held or represented.
It is intended that voting at the 2013 AGM will be on a poll. The Notice of Meeting on pages 96 to 101 specifies
deadlines for exercising voting rights.
The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer
of securities and voting rights. There are no restrictions on the transfer of ordinary shares in the Company other
than certain restrictions imposed by laws and regulations (such as insider trading laws and market requirements
relating to close periods) and requirements of the Listing Rules whereby directors and certain employees of the
Company require Board approval to deal in the Company’s securities.
The Company’s articles of association may only be amended by a special resolution at a general meeting.
Directors are elected or re-elected by ordinary resolution at a general meeting; the Board may appoint a director
but anyone so appointed must be elected by ordinary resolution at the next general meeting. Directors retire
and may offer themselves for re-election at a general meeting at least every three years. However, in line with the
provisions of the UK Corporate Governance Code, all directors will stand for election at the 2013 AGM.
Change of control
The Company is not party to any significant agreements which take effect, alter or terminate solely upon a change
of control of the Company following a takeover bid. However, in the event of a change of control, the Company’s
medium term borrowing facilities may be subject to early repayment if a majority of the lending banks give written
notice to the Company within 30 days of the change of control. In addition, should a change of control cause a
downgrading in the credit rating of the Company’s 2013, 2016 and 2021 corporate bonds to sub-investment grade
which is not rectified within 120 days after the change in control, holders of the bonds have the option to call for
redemption of the bonds by the Company at their nominal value together with accrued interest. This option is only
applicable to a downgrade which occurs as a direct consequence of a change in control.
The Company’s share option plans, and its long term incentive and share matching plans, contain provisions
regarding a change of control. Outstanding options and awards may vest on a change of control, subject to the
satisfaction of any relevant performance conditions.
Directors’ service contracts are terminable by the Company on giving one year’s notice. There are no agreements
between the Company and its directors or employees providing for additional compensation for loss of office or
employment (whether through resignation, redundancy or otherwise) that occurs because of a takeover bid.
Corporate governance
The corporate governance statement as required by the UK Financial Services Authority’s Disclosure and
Transparency Rules (DTR 7.2.6) comprises the Additional Information section of the Directors’ Report and the
Corporate Governance statement included in this Annual Report.
By order of the Board
Andrew McKinlay
Secretary
21 March 2013
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS’ RESPONSIBILITY STATEMENT
Directors’ responsibilities
The directors are responsible for preparing the Annual Report and the Group financial statements in accordance
with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the
European Union.
Under company law the directors must not approve the Group financial statements unless they are satisfied that
they present fairly the financial position, financial performance and cash flows of the Company and the Group for
that period. In preparing those financial statements, the directors are required to:
❚ select suitable accounting policies in accordance with IAS8: Accounting Policies, Changes in Accounting
Estimates and Errors and then apply them consistently;
❚ present information, including accounting policies, in a manner that provides relevant, reliable, comparable
and understandable information;
❚ provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the Group’s financial
position and performance; and
❚ state that the Company and the Group have complied with IFRS, subject to any material departures disclosed
and explained in the financial statements.
The directors confirm that the financial statements comply with the above requirements.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Group’s transactions and which disclose with reasonable accuracy at any time the financial position of the
Company and of the Group and enable them to ensure that the financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Responsibility statement
We confirm that to the best of our knowledge:
(a) the financial statements, prepared in accordance with International Financial Reporting Standards as
adopted for use in the European Union, give a true and fair view of the assets, liabilities, financial position and
results of the Company and the Group; and
(b) the management report incorporated into the Directors’ Report includes a fair review of the development and
performance of the business and the position of the Company and the Group, together with a description of
the principal risks and uncertainties that they face.
On behalf of the Board
Lord Wolfson of Aspley Guise
Chief Executive
21 March 2013
David Keens
Group Finance Director
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 DIRECTORS AND OFFICERS
CHAIRMAN OF THE BOARD
INDEPENDENT NON-EXECUTIVE DIRECTORS
John Barton
Aged 68. Became a member of the Board in 2002 and was
appointed Deputy Chairman in 2004 and Chairman in 2006.
He is also Chairman of Catlin Group Limited and previously
served as Chief Executive of JIB Group plc, Chairman of Cable
and Wireless Worldwide plc, Jardine Lloyd Thompson Group
plc, Wellington Underwriting plc and Brit Insurance Holdings
plc and as a non-executive director of WH Smith plc and
Hammerson plc.
EXECUTIVE DIRECTORS
Lord Wolfson of Aspley Guise, Chief Executive
Aged 45. Joined the Group in 1991. Appointed Retail Sales
Director in 1993, became responsible for NEXT Directory in
1995 and was appointed to the Board in 1997 with additional
responsibilities for systems. Appointed Managing Director of the
NEXT Brand in 1999 and Chief Executive in 2001.
Jonathan Dawson
Senior Independent Non-executive Director
Aged 61. Became a member of the Board in 2004. He is also
a non-executive director of Jardine Lloyd Thompson Group plc
and National Grid plc and a partner in Penfida Partners LLP.
Previous experience includes non-executive directorships of
National Australia Group Europe Ltd, Standard Life Investments
(Holdings) Limited and GallifordTry plc, eight years in the Ministry
of Defence and over twenty years in investment banking
with Lazard.
Steve Barber
Aged 61. Became a member of the Board in 2007. Previous
experience includes almost thirty years in the accountancy
profession, principally with Price Waterhouse where he was a
senior partner. Formerly Finance Director of Mirror Group and
Chief Operating Officer of Whitehead Mann. Founder of The
Objectivity Partnership and a member of the Audit Quality Forum.
Christos Angelides, Group Product Director
Aged 49. Joined the Group in 1986. Christos has a wealth of
experience in the product area starting at NEXT as a Trainee
Menswear Buyer and became General Manager of NEXT’s
sourcing office in Hong Kong in 1989, Menswear Product
Director in 1994 and Womenswear Product Director in 1998.
He was appointed to the Board in 2000 and has overall
responsibility for all aspects of the design, buying, quality and
merchandising of NEXT products.
Christine Cross
Aged 61. Became a member of the Board in 2005. She is
also a non-executive director of Sonae Group Ltd (Portugal),
Woolworths Limited (Australia) and Kathmandu Limited
(New Zealand). Christine is also Chief Retail Advisor to
PricewaterhouseCoopers and a retail advisor to Apax Partners
and Warburg Pincus. Previous experience includes fourteen
years as a director at Tesco plc and fifteen years lecturing and
course director roles at Edinburgh and Bath Universities.
David Keens, Group Finance Director
Aged 59. Joined NEXT in 1986 as Group Treasurer and was
appointed to the Board in 1991. Previous experience includes seven
years in the accountancy profession and nine years in the UK and
overseas operations of multinational manufacturers of consumer
goods, with roles including Group Treasurer and Finance Director.
Professional qualifications include the Association of Chartered
Certified Accountants and the Association of Corporate Treasurers.
Andrew Varley, Group Property Director
Aged 62. Joined the Group in 1985 and was appointed to
the Board in 1990. Andrew’s responsibilities include property,
franchise, corporate responsibility and code of practice related
matters. Previous experience includes twelve years in retail and
commercial property. He is also a non-executive director of
LondonMetric Property Investments plc and is a Fellow of the
Royal Institute of Chartered Surveyors.
Company Secretary
Andrew McKinlay
Francis Salway
Aged 55. Joined the Board in June 2010. He is also Chairman
of Town & Country Housing Group and a non-executive director
of Cadogan Group Limited. Formerly Chief Executive of Land
Securities Group plc and past president of the British Property
Federation.
Caroline Goodall
Aged 57. Became a member of the Board in January 2013.
Caroline has thirty years’ experience in the legal profession, with
twenty years as a corporate finance partner at Herbert Smith,
including five years as head of the Global Corporate Division.
She is currently a non-executive director of SVG Capital plc and
a non-executive on the Partnership Board of Grant Thornton
UK LLP, and a trustee and member of the Council of the
National Trust.
BOARD COMMITTEES
Audit Committee
Steve Barber (Committee Chairman)
Christine Cross
Jonathan Dawson
Caroline Goodall
Francis Salway
Remuneration Committee
Jonathan Dawson (Committee Chairman) Christine Cross
Steve Barber
John Barton
Caroline Goodall
Francis Salway
Nomination Committee
John Barton (Committee Chairman)
Steve Barber
Christine Cross
Jonathan Dawson
Caroline Goodall
Francis Salway
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports CORPORATE GOVERNANCE
Chairman’s introduction
Effective corporate governance is essential to the success of our business.
As Chairman, my role is to manage the Board, ensuring it operates effectively and contains the right balance of
skills and experience to successfully execute the strategy. The Board is collectively responsible for the long term
success of the Company and for setting and executing the strategy.
Over many years, NEXT has successfully grown its business and created significant shareholder value against the
backdrop of a challenging external environment. This is the ultimate measure of our success and reflects our
strong corporate governance structure and the stable, effective management team we have in place. We remain
committed to the robust approach to governance which has served the business well.
Code compliance
The Group complied throughout the year under review with the provisions set out in the UK Corporate Governance
Code and the UK FSA Disclosure and Transparency Rules. Disclosures required by DTR7.2.6 with regard to share
capital are presented in the ‘Share capital and major shareholders’ and ‘Additional information’ sections of the
Directors’ Report.
Board composition and succession
The Board includes five independent non-executive directors and the Chairman who bring considerable knowledge,
judgement and experience to the Group. The Board has a good record of recruiting new non-executive directors
at regular intervals to achieve appropriate rotation and continuity. The UK Corporate Governance Code states
that Boards should pay particular attention to the independence of non-executives if they have served on the
Board for more than nine years from the date of their first election. Jonathan Dawson is the longest serving non-
executive director, having been first elected at the AGM in 2005 following his appointment the previous year. The
ninth anniversary of his first election is therefore May 2014, although he will have served as a director for nine years
in May 2013. The Board considers that all of its non-executive directors remain independent in character and
judgement, and their knowledge, experience and other business interests continue to enable them to contribute
significantly to the work of the Board. Terms and conditions of appointment of non-executive directors are available
for inspection at the Company’s registered office during normal business hours.
Appointments to the Board, as with other positions within the Group, are made on merit according to the balance
of skills and experience offered by prospective candidates. Whilst acknowledging the benefits of diversity, individual
appointments are made irrespective of personal characteristics such as race, religion or gender. The Board is
comprised of eight male directors and two female directors. Below the Board, at senior management level there
are 13 male directors and 11 female directors. NEXT has a successful history of promoting internal candidates to
most senior management and executive Board positions through career development; it is expected that most
future appointees will come from within the Group.
The Company’s Articles of Association require directors to submit themselves for re-election by shareholders at
least once every three years, however the Board has determined that all directors will stand for election at each
AGM in accordance with the UK Corporate Governance Code.
Board responsibilities
The Board is responsible for major policy decisions whilst delegating more detailed matters to its committees
and officers including the Chief Executive. The Board is responsible for the Group’s system of internal control and
for monitoring implementation of its policies by the Chief Executive. The system of 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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 The Board holds regular meetings where it approves major decisions, including significant items of capital
expenditure, investments, treasury and dividend policy. Board papers including reports from the Chief Executive
and Finance, Property and Product Directors are circulated in advance of each Board meeting. The Board is
responsible for approving semi-annual group budgets. Performance against budget is reported to the Board
monthly and any substantial variances are explained. Forecasts for each half year are revised and reviewed
monthly. Certain other important matters are subject to weekly or monthly reporting to the Board or Board
Committee, including sales, treasury operations and capital expenditure. There is a regular flow of written and
verbal information between all directors irrespective of the timing of meetings.
All new directors receive a personalised induction programme, tailored to their experience, background and
understanding of the Group’s operations. Individual training needs are reviewed regularly and training is provided
where a need is identified or requested. All directors receive frequent updates on a variety of issues relevant to the
group’s business, including regulatory and governance issues.
Meetings of the non-executive directors without the executive directors being present are held at least annually,
both with and without the Chairman. The Company Secretary attends all Board meetings and is responsible for
advising the Board on corporate governance matters and facilitating the flow of information within the Board.
The Board has appointed committees to carry out certain of its duties, three of which are detailed below. Each of
these is chaired by a different director and has written terms of reference which are available for inspection on the
Company’s website (www.nextplc.co.uk) or on request.
Attendance at meetings
The Board held seven formal meetings during the year and these were fully attended with the exception of
one meeting which Mr Angelides was unable to attend. The Audit Committee, Remuneration Committee and
Nomination Committee held four, five and three meetings in the year respectively and all serving members
attended with the exception of one Remuneration Committee meeting which Ms Goodall was unable to attend
and one Nomination Committee meeting which Mrs Cross was unable to attend.
Audit Committee and external audit
The Committee consists of the five (previously four) independent non-executive directors including the senior non-
executive director and at least one member (Steve Barber, the Committee Chairman) with recent and relevant
financial experience.
The Committee holds regular, structured meetings and consults with external auditors and senior management,
including internal audit, where appropriate. The Chairman of the Group, executive directors and other members
of senior management attend meetings by invitation or as required.
The Committee’s review of the interim and full year financial statements focused on the following significant areas:
(a) Directory receivables and related provisions for doubtful debts which, at £601m, represent the largest asset on
the Group’s balance sheet.
(b) Pension fund accounting and actuarial reports. Prepared in accordance with International Accounting
Standards, the Group’s balance sheet shows a pension asset of £66m, and the income statement includes
exceptional pension items of £36m as a result of events during the year. The assumptions underlying these
calculations are highly sensitive to small changes, particularly in respect of discount rates (see Note 21 to the
accounts).
(c) Treasury transactions. The Group buys currencies forward in order to hedge its future product purchases,
which in turn enables it to set its prices and margins. A number of different instruments are used to provide
such cover and their valuation and accounting treatment is reviewed.
(d) Provisioning. There is a need to make industry specific and other judgmental provisions, including against
stocks, rates of customer returns, liabilities in respect of onerous leases, gift card redemptions, taxation and
share schemes.
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports CORPORATE GOVERNANCE
These items were also addressed at the planning stage of the external audit and there were no significant
disagreements between management and the external auditor’s conclusions.
The Committee received reports and presentations from senior management on various activities of the Group,
including international Directory operations, warehousing and distribution, Directory credit risk management,
treasury, tax and corporate responsibility matters including the Code of Practice. The Group’s internal control
functions in areas such as finance, IT, security and product are regularly reviewed by the Committee. The
Committee receives frequent briefings on health and safety, risk management, business continuity, whistle blowing
and corporate governance generally.
The Committee had discussions with the external auditor on audit planning, fees, accounting policies, internal
control and audit findings. Meetings were also held with the auditor without management present, and the
effectiveness and independence of the auditor has been assessed.
The Audit Committee is responsible for recommending the appointment, reappointment and removal of the
external auditor. Consideration is given each year to putting the audit out to tender, however it was not considered
necessary during the current year. Ernst & Young has been the Group’s auditor for over 20 years with regular
partner rotation, most recently in 2012. The Committee is satisfied that they continue to possess the skills and
experience required to fulfill their duties effectively and efficiently. The appointment of the external auditor will
continue to be reviewed annually and a tendering process will be undertaken to coincide with the rotation of the
current audit partner in 2017, or earlier if the Committee considers it appropriate.
Ernst & Young have reported to the Committee that, in their professional judgement, they are independent within
the meaning of regulatory and professional requirements and the objectivity of the audit engagement partner
and audit staff is not impaired. The Audit Committee has reviewed this statement and concurs with its conclusion.
In order to ensure the continued independence and objectivity of the Group’s external auditor, the Board has
policies regarding the provision of non-audit services by the auditor. The Audit Committee’s approval is required in
advance for any non-audit services to be provided where the fees exceed £100,000 for an individual assignment
or £150,000 in aggregate for the year. The Committee reviews details of audit and non-audit fees twice a year.
Proposed assignments of non-audit services with anticipated fees in excess of £50,000 are generally subject
to independent tender, and decisions on the allocation of work are made on the basis of competence, cost-
effectiveness and relevant legislation. A tender process is not always undertaken where the auditor’s existing
knowledge of the Group enables them to provide the required services more cost-effectively than other parties,
for example certain overseas taxation compliance services. The Group’s auditor is prohibited from providing any
services that would conflict with their statutory responsibilities.
The Committee has reviewed its terms of reference and composition and believes that both are appropriate.
Remuneration Committee
The Committee consists of the Chairman and five independent non-executive directors. The Committee, which is
chaired by the senior non-executive director, determines the remuneration of the executive directors and reviews
that of senior management. A Remuneration Report is included in this Annual Report which summarises the
activities of the Committee.
Nomination Committee
The Committee consists of the Chairman and five independent non-executive directors, including the senior non-
executive director. The Committee meets whenever necessary to consider succession planning for directors and
other senior executives, to ensure that requisite skills and expertise are available to the Board to address future
challenges and opportunities.
External consultants have been used to assist in identifying suitable Board candidates, based on a written
specification for each appointment. The Chairman is responsible for providing a shortlist of candidates for
consideration by the Committee which then makes its recommendation for final approval by the Board.
30
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Chairman
There is a clear division of responsibilities between the offices of Chairman and Chief Executive, which is set out in
writing and agreed by the Board. The Chairman manages the Board to ensure; that the Group has appropriate
objectives and an effective strategy, that there is a Chief Executive with a team of executive directors able to
implement the strategy, that there are procedures in place to inform the Board of performance against objectives,
and that the Group is operating in accordance with a high standard of corporate governance.
The current Chairman was an independent non-executive director of the Company prior to his appointment as
Chairman on 17 May 2006. His other significant commitments are noted on page 27 and the Board considers that
these are not a constraint on his agreed time commitment to the Company.
Chief Executive
The Board sets objectives and annual targets for the Chief Executive to achieve. The Board is responsible for general
policy on how these objectives are achieved and delegates the implementation of that policy to the Chief Executive.
The Chief Executive is required to report at each Board meeting all material matters affecting the Group and
its performance.
Management delegation
The Chief Executive has delegated authority for the day to day management of the business to operational
management drawn from executive directors and other senior management who have responsibility for the
respective areas. The most important management meetings are the weekly NEXT Brand trading and capital
expenditure meetings which consider the performance and development of the NEXT Brand through its different
distribution channels. These meetings cover risk management of all business areas in respect of the NEXT Brand
including product, sales, property, warehousing, systems and personnel. Key performance indicators are monitored
daily and weekly.
Directors’ conflicts of interest
In accordance with the Company’s Articles of Association, the Board has a formal system in place for directors
to declare situational conflicts to be considered for authorisation by those directors who have no interest in the
matter being considered. In deciding whether to authorise a situational conflict, the non-conflicted directors
consider the situation in conjunction with their general duties under the Companies Act 2006. They may impose
limits or conditions when giving an authorisation, or subsequently if they think appropriate. Any situational conflicts
considered by the Board, and any authorisations given, are recorded in the Board minutes and in a register of
conflicts which is reviewed annually by the Board.
Performance evaluation
The performance of the Board was formally and independently evaluated during the year by Pricewaterhouse
Coopers. The review concluded that there were no significant weaknesses or risks that required attention.
The senior independent non-executive director appraises the performance of the Chairman through discussions
with all the directors individually and, together with the Chairman, appraises the performance of the Chief
Executive. The performance of the executive directors is monitored throughout the year by the Chief Executive
and the Chairman. The Chairman also monitors the performance of the non-executive directors.
Risk management
The Board is responsible for the Group’s risk management process and has delegated responsibility for its
implementation to the Chief Executive and senior management best qualified in each area of the business.
The Board sets guidance on the general level of risk which is acceptable and has a considered approach to
evaluating risk and reward.
The Board confirms that it has carried out a review of the effectiveness of the Group’s system of internal control
including financial, operational, compliance and risk management. This includes identifying and evaluating key
risks, determining control strategies and considering how they may impact on the achievement of the business
objectives. The risk management process has been in place for the year under review and up to the date of
approval of the Annual Report.
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports CORPORATE GOVERNANCE
Risk management and internal control is a continuous process and has been considered by the Board on a
regular basis during the year. The Board promotes the development of a strong control culture within the business.
During the year the Board addressed the business risks which had been identified as key, taking into account any
changes in circumstances over the period. The Audit Committee has reviewed the level of internal audit resource
available within the Group and believes that it is adequate for the size, structure and business risks of the Group
and is supplemented with appropriate external resources where needed.
The Board considers that the Group’s management structure and continuous monitoring of key performance
indicators provide the ability to identify promptly any material areas of concern. Business continuity plans,
procedures manuals and codes of conduct are maintained in respect of specific major risk areas and business
processes. Through these measures the management of business risk is an integral part of Group policy and the
Board will continue to develop risk management and internal controls where necessary.
The use of a Group accounting manual and prescribed reporting requirements for finance teams throughout the
Group ensures that the Group’s accounting policies are clearly established and consistently applied. Information
is appropriately reviewed and reconciled as part of the reporting process and the use of a standard reporting
package by all entities in the Group ensures that information is presented consistently to facilitate the production
of the consolidated financial statements.
Personal use of company assets
The Board carried out a review during the year and confirmed that there has been no improper personal use of
company assets by directors. Policies are in place to ensure approval procedures are applied to expense claims
and that these are in accordance with service agreements. The Remuneration Committee has reviewed the level
of benefits in kind provided to executive directors.
Relations with shareholders
The Board’s primary role is to promote the success of the Company and the interests of shareholders. The Board is
accountable to shareholders for the performance and activities of the Group.
The Board communicates with its shareholders in respect of the Group’s business activities through its Annual Report,
yearly and half yearly announcements, interim management statements and other regular trading statements.
Full year, interim and other public announcements are presented in a consistent format with a particular focus on
making the presentations as meaningful, understandable and comparable as possible. This information is also
made publicly available via the Company’s website.
All shareholders have an opportunity to ask questions or represent their views to the Board at the Annual General
Meeting. The Company’s largest shareholders are invited to the annual and interim results presentations, at
which executive and non-executive directors are present. Non-executive directors attend other meetings with
shareholders if requested. Shareholder views are also communicated to the Board through the inclusion in Board
reports of shareholder feedback and statements made by representative associations.
The Board takes care not to disseminate information of a share price sensitive nature which is not available to the
market as a whole.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Directors’ Report and Business Review. The Directors’ Report also describes the Group’s
financial position, cash flows and borrowing facilities, further information on which is detailed in the financial
statements. Information on the Group’s financial management objectives, and how derivative instruments are
used to hedge its capital, credit and liquidity risks is provided in Notes 27 to 30 of the financial statements.
The Directors report that, having reviewed current performance and forecasts, they have a reasonable expectation
that the Group has adequate resources to continue its operations for the foreseeable future. For this reason, they
have continued to adopt the going concern basis in preparing the financial statements.
32
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 REMUNERATION REPORT
This report sets out the remuneration of NEXT’s directors for the year to January 2013 and is in three parts: (1)
overview of the year, (2) remuneration strategy, and (3) regulatory disclosures under Schedule 8 to the Large and
Medium-sized Companies and Group (Accounts and Reports) Regulations 2008, the UK Listing Rules and the
UK Corporate Governance Code. The Board confirms that the Company has complied with these regulations
throughout the year. We have also included some of the new disclosures proposed by the Department for Business
Innovation & Skills (BIS), notably a table showing a single total figure for remuneration and a summary of the
Company’s remuneration policy in tabular format.
PART 1: OVERVIEW OF THE YEAR
Information not subject to audit
Company performance
NEXT has again achieved record pre-tax profits and earnings per share (EPS). Underlying pre-tax profits of £622m
were 9% higher than last year and underlying EPS of 298p were 16.6% higher. The key financial objective remains
long term sustainable growth in EPS. Therefore EPS is used to determine the executive directors’ annual bonus and
the level of any entitlement under the Share Matching Plan (SMP). The Committee also assesses EPS performance
and other factors in evaluating whether the general economic underpin test for the Company’s Long Term Incentive
Plan (LTIP) has been satisfied. The Committee considers that this strong EPS performance fully justifies the bonuses
and long term incentives earned by the executive directors and other senior executives during the year.
Annual bonus and base salaries
At the start of the year, the Committee set targets for EPS growth, details of which are shown on page 39. This
year’s strong growth in EPS resulted in annual bonus for executive directors of 99% of the maximum potential
award. It should also be noted that, like last year, we excluded exceptional gains of £45m from this EPS calculation
(2012: exceptional gains of £47m excluded).
Base salaries for executive directors were increased by 2.0% in February 2013 (having increased by 1.2% in 2011
and 2.5% in 2012) in line with wider company cost of living awards. We consider that increases in base salaries
should continue to be restrained given the potentially significant multiplier effect of such increases on future costs.
LTIP
Under the LTIP a variable percentage of a maximum number of shares granted at the start of each performance
period can vest, depending on NEXT’s relative TSR performance against a comparator group of some 20 other
UK retailers. The maximum number of shares that may be granted is a percentage of each director’s base salary,
divided by NEXT’s average share price over the three months prior to the start of the performance period. Details
of grants and of the comparator group are set out on pages 44 and 45.
Since 2008 NEXT has made grants twice a year, rather than annually, and two awards matured in the year. Over
the performance periods of these grants, i.e. between August 2009 to January 2013, NEXT’s share price rose from
1705p to 4059p and market capitalisation grew from £3.4 billion to £6.5 billion, a further £855m was returned
through share buybacks and £449m paid in dividends.
The LTIP that matured in July 2012 vested 96% when NEXT’s TSR ranked fifth against the comparator group and 98%
of the January 2013 LTIP is expected to vest as its TSR also ranked fifth against the comparator group. This vesting
is subject to the Committee’s review of the economic underpin performance condition in April.
The value of these two LTIPS’s is high; this is largely due to the rise in the Company’s share price over the performance
periods as there was no increase in the maximum number of shares originally granted. Last year, we decided that
the maximum value of LTIP’s vesting for any participant in any one year should be capped at £2.5m and the Chief
Executive’s LTIP payments last year were reduced by £704k. This year the £2.5m cap will again be applied and,
assuming the Committee confirms the grant maturing in January 2013 has vested, payments to Lord Wolfson and
Christos Angelides will be reduced by an estimated £327k and £11k respectively.
After applying this cap, the total value to the executive directors of the two LTIPs is estimated at £7.5m, of which
approximately 51% or £3.8m is attributable to the growth in share price over the performance periods.
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports REMUNERATION REPORT
SMP
Shareholders approved the SMP in 2010. The purpose of the plan is to encourage ownership of NEXT shares
amongst executive directors and other senior executives, and thereby further align their interests with shareholders.
For the 2010 grant, which is due to vest in June 2013, some 25 senior executives were able to reinvest part, or all, of
their annual bonus in NEXT shares. Subject to growth in fully diluted EPS over three years, participants are eligible
to receive matching shares for every share bought.
Fully diluted EPS for 2012/13 was 280.8p (excluding exceptional gains). This compares with 176.0p for 2009/10,
and represents growth of 60% over the three year period. As a result of this strong performance, the 2010 SMP
will vest in full in June 2013, subject to the continued employment of participants. Lord Wolfson has waived his
potential entitlement under this SMP on the understanding that all NEXT employees who have been employed
since January 2010 will share an equivalent amount by way of a special bonus in July 2013, pro rata to their annual
salary. The estimated value of the amount waived by Lord Wolfson (based on the methodology proposed by BIS)
is £2.4m. The estimated total pre-tax value for other executive directors is £4.6m, of which £2.1m (46%) derives from
the growth in NEXT’s share price since buying their SMP shares.
Total performance-related remuneration
The aggregate performance-related remuneration of the executive directors has increased from £8.7m last year to
approximately £9.9m (see pages 49 and 50). This remuneration is directly linked to strong profits and EPS growth,
which have been reflected in NEXT’s increased share price and therefore the value of shares in the LTIP.
The Remuneration Committee has carefully reviewed the level of performance-related remuneration earned by
the executive directors. The Committee considers that it is a strong reflection of NEXT’s operating and financial
performance over the past three years and that it is aligned with the financial interests of shareholders generally.
Additional remuneration disclosures
The tables below give a single figure for total remuneration, split between fixed and performance-related elements,
for the current and previous years and are based on methodologies proposed by BIS which differ from current
regulations:
Base pay
Performance-related pay
Salary/
fee
Benefits Pension1
Salary
Supple-
ment2
Sub-
total
Annual
bonus
Share
Matching
Plan4
LTIP3
Share-
save
Sub-
total
Total
remuner-
ation
2012/13
£’000
Chairman
John Barton
Executive directors
Lord Wolfson
Christos Angelides
David Keens
Andrew Varley
Non-executive
directors
Steve Barber
Christine Cross
Jonathan Dawson
Caroline Goodall
Francis Salway
34
250
714
519
477
355
60
50
70
4
50
2,549
–
45
33
19
27
–
–
–
–
–
124
280
220
–
–
–
–
–
–
–
500
27
19
72
53
–
–
–
–
–
171
1,066
791
568
435
60
50
70
4
50
3,344
–
–
250
–
–
–
1,064 2,500
514 2,398
472 1,352
351 1,006
–
1,725
1,675
1,204
–
–
–
–
–
–
250
3,564
4,637
3,499
2,561
4,630
5,428
4,067
2,996
–
–
–
–
–
–
–
–
–
–
2,401 7,256
–
–
–
–
–
4,604
–
–
60
–
–
50
–
–
70
–
4
–
50
–
–
– 14,261 17,605
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 2011/12
£’000
Chairman
John Barton
Executive directors
Lord Wolfson
Christos Angelides
David Keens
Andrew Varley
Non-executive
directors
Steve Barber
Christine Cross
Jonathan Dawson
Francis Salway
Base pay
Performance-related pay
Salary/
fee
Benefits Pension1
Salary
Supple-
ment2
Sub-
total
Annual
bonus
Share
Matching
Plan4
LTIP3
Share-
save
Sub-
total
Total
remuner-
ation
250
697
506
466
346
60
50
70
50
2,495
–
36
30
19
30
–
–
–
–
115
–
–
250
–
–
120
60
–
–
–
–
–
–
180
–
–
46
49
–
–
–
–
95
853
596
531
425
753 2,500
364 1,673
385 1,602
249 1,193
60
50
70
50
2,885
–
–
–
–
–
–
–
–
1,751 6,968
–
–
–
–
–
–
–
–
–
–
–
–
250
– 3,253
2 2,039
1 1,988
2 1,444
–
–
–
–
–
–
–
–
5 8,724
4,106
2,635
2,519
1,869
60
50
70
50
11,609
Measurement bases for elements of total remuneration
1 Pension values are calculated using the HMRC method proposed by BIS, i.e. 20 times the post-inflation benefit for defined benefit pensions. It does not necessarily
represent the economic value of the pension accrual and is not immediately available to the relevant director. The increase in pension values for Lord Wolfson and
Christos Angelides over the two financial years is entirely due to the effect of inflation and not to any change in the underlying accrued annual pre-inflation benefit. Where
the accrued value is negative, a value of zero is used.
2 Supplements of 15% of base salary are paid in lieu of pension provision after the directors became deferred members of the defined benefit section of the NEXT Pension
Plan. Andrew Varley and David Keens received this supplement from April and June 2011 respectively and Lord Wolfson and Christos Angelides from November 2012.
3 LTIP values for 2012/13 comprise the actual value of awards that have vested and been paid for the performance period ending in July, together with the estimated value
of awards that will vest for the performance period ending in January, based on the average NEXT share price over the last financial quarter. For 2011/12 these are the
actual value of the LTIP awards.
4 SMP values for 2012/13 assume a maximum vesting in June 2013 and are based on the average NEXT share price over the last financial quarter. As detailed above, Lord
Wolfson has waived his potential entitlement to the June 2010 SMP which will mature in June 2013.
We continue to focus on the alignment of executive remuneration and long term growth in shareholder value. The
graph below charts total annual remuneration of Lord Wolfson against TSR over the last 10 years and shows that
TSR grew by 430% more than the Chief Executive’s remuneration, or by 290% excluding the SMP waiver.
10 year CEO Pay and NEXT TSR
800
700
600
500
400
300
200
100
0
£1.8m
£2.0m
£1.9m
£1.8m
£1.2m
£1.5m
£2.8m
£3.0m
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Total Remuneration
Total Remuneration before SMP waiver
TSR
£7.0m
£4.6m
£4.1m
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports REMUNERATION REPORT
Other Remuneration Committee highlights
In addition, during the year we determined the following:
❚ EPS growth targets for executive directors’ annual bonus for 2013/14 and review of consistency with bonus
targets for other NEXT staff.
❚ Additional eligibility criteria for participation in future SMP investments whereby participants who sell their
investment shares prior to or after a new SMP is made will have restrictions placed on the level of investment
they can make or the number of matching shares that can vest.
❚
❚
Introduction of a minimum NEXT shareholding for all executive directors; the Chief Executive is required to hold
shares with a value at least 1.5 times pre-tax salary, with other executive directors holding shares equal to their
annual salary. All executive directors currently exceed these requirements. New executive directors would have
up to 5 years to achieve the required holding.
In line with changes to the defined benefits section of the NEXT Group Pension Plan set out on page 47,
the pension entitlements of Lord Wolfson and Christos Angelides under the unfunded unapproved pension
arrangement have been amended to freeze the accrual of future benefits under the unfunded arrangement
based on their base salaries at 31 October 2012. From that date, Lord Wolfson and Mr Angelides have received
an annual salary supplement of 15% of their base salary, which does not attract bonus.
The Committee believes NEXT’s remuneration strategy, and the structures implementing that strategy, have
contributed positively to maintaining the stable and highly motivated management team at NEXT who have
continued to deliver consistently strong performances for shareholders.
PART 2: REMUNERATION STRATEGY AND POLICY
Information not subject to audit
The Committee’s objective is to ensure that the remuneration paid to senior executives is appropriate in both
amount and structure, is directly linked to the Company’s annual and longer term performance and in alignment
with the interests of shareholders. We believe that stable and transparent remuneration structures are key elements
in a fair system for rewarding personal and collective contribution across the business. There are bonus structures
throughout the Company, including Head Office, stores, call centres and warehouses. The focus is on ensuring
that a competitive and appropriate base salary is paid to directors and senior managers, together with incentive
arrangements that are:
❚ aligned with shareholders’ interests and with long term business strategies;
❚ measured against challenging benchmarks, including both absolute financial targets (which are set in
advance) and relative share price performance;
❚ a mix of annual and three year performance periods;
❚ paid in a combination of cash and shares; and
❚
transparent and without ‘soft’ non-financial targets which could otherwise allow undue discretion to award
bonuses that do not reflect actual financial performance.
Pay and employment conditions elsewhere in the Group are considered to ensure that any differences for directors
are justified. Remuneration policy does not conflict with the Company’s approach to environmental, social and
corporate governance matters and we believe the current arrangements do not encourage directors to take
undue business risks.
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 We aim to maintain a stable remuneration structure whereby directors and senior management know at the
start of each year the potential rewards available to them, and the performance thresholds, without awarding
significant increases in base salaries. Over the past three years, general salary levels for all grades across NEXT,
including directors, have risen by an annual average rate of 1.9%. Individual merit awards are only given after
a careful assessment of personal performance. No executive director has received a merit or promotion award
during the last three years. For the current year, base salaries across NEXT and for directors will rise by 2.0%, which
is again below the level of inflation.
We give careful consideration to ensuring that there is an appropriate balance in the remuneration structure
between annual and long term rewards, as well as between cash and share-based payments. We recognise that
corporate performance and share price performance may not be correlated in any single accounting period.
Notwithstanding this, we believe that the present weighting towards rewarding sustainable long term performance
is well aligned with shareholders’ interests. This is evident from the high proportion of directors’ performance-related
pay in the year that derived from growth in EPS and share price, as opposed to increases in salaries or annual
bonus.
EPS and performance measurement
The Committee reviews each year the basis of annual bonus and performance thresholds for the SMP. We have
again concluded that EPS remains the most appropriate measurement for the following reasons:
❚ We have used EPS as the determining measurement for many years; it is therefore consistent and transparent
to participants and shareholders. The Committee will exercise discretion if required to adjust EPS to reflect what
it considers to be a fairer outcome for shareholders and executives. Thus, last year the Committee decided to
exclude from the calculation of EPS the exceptional profit achieved on the sale of Ventura and the proceeds of
a refund of VAT. This year we have excluded the exceptional profit on the sale of a development property and
the accounting gain resulting from changes to the defined benefit pension scheme.
❚ NEXT is predominantly a single business selling products through a number of channels under the NEXT brand.
No significant earnings are derived from uncorrelated businesses and therefore a group metric such as EPS is
logical and consistent with strategy;
❚ EPS continues to be the core financial measure by which the Board assesses overall performance; and
❚
the use of EPS in determining annual bonuses and the SMP is complemented by the application of TSR for
the LTIP.
We consider it right that the impact of share buybacks on EPS should be included in performance measurement
as, for more than a decade, share buybacks have been one of NEXT’s primary strategies in generating value
for shareholders. Share buybacks are regularly considered by the Board and are subject to prior approval as
to timing, price and volume. Shares are only bought after the Board is satisfied that the ability to invest in the
business and to continue to grow the dividend would not be prejudiced. Consistent with the clear focus on long
term growth in EPS, the Board takes great care to manage the dilutive impact on shareholders of the various
share-based schemes available to directors and other employees. The Company regularly purchases shares in
the market and holds them in NEXT’s Employee Share Option Trust (ESOT) for reissue to satisfy option exercises and
other share-based payments.
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports REMUNERATION REPORT
REMUNERATION POLICY TABLE
The following table summarises the objectives and policies with regard to each of the elements of executive
remuneration and the approach to payments on external recruitment and termination.
Purpose and link to strategy
Operation
Maximum potential value
To provide a satisfactory base salary
within a total package comprising
salary and performance-related pay.
Performance-related components
and certain benefits are calculated
by reference to base salary. The level
of salary broadly reflects the value
of the individual, their role, skills and
experience.
To incentivise annual delivery of
stretching financial goals. Provides
focus on
the Company’s key
financial objective of sustainable
growth in EPS.
To provide a retention element in
the case of the Chief Executive
as any annual bonus in excess of
100% of base salary is payable in
shares, deferred for a period of two
years and subject to forfeiture if he
voluntarily resigns prior to the end
of that period.
incentivise
To
total
shareholder return relative to a
selected group of retail companies.
three year
Provides
superior returns to shareholders.
focus on delivering
Retention of key employees over
three-year performance periods.
Reviewed
effective
annually,
February. The Committee focuses
particularly on ensuring that an
appropriate base salary is paid to
directors and senior managers. The
Committee considers salaries in the
context of overall packages with
reference to market data, individual
experience and performance,
and the level and structure of
remuneration for other employees
and
the external environment.
External benchmarking analysis is
occasionally undertaken.
Based on stretching pre-tax EPS
targets set annually, taking account
of a range of factors including the
company’s own internal budgets
and the wider background of the
UK economy. Pre-tax EPS has been
chosen as the basic metric to avoid
executives benefitting from external
factors such as reductions in the rate
of corporation tax. The philosophy
has been to structure targets such
that there has to have been growth
in EPS before any annual bonus is
payable to executive directors. By
contrast we have set the threshold
for staff bonuses at a lower level
than for directors. We have the right
to apply discretion in the interests of
fairness to both shareholders and
executives by adjusting the basis
for calculating EPS, e.g. to take
account of any exceptional items.
A variable percentage of a pre-
determined maximum number
of shares can vest, depending
shareholder
total
on
return (TSR) performance against
a comparator group of
retail
companies (shown on page 44).
relative
The maximum number of shares
that may be awarded to each
director is a percentage of each
director’s base salary at the date
of each award, divided by NEXT’s
average share price over the three
months prior to the start of the
performance period.
LTIP awards are made twice a year
to reduce the volatility inherent in
the TSR performance measure and
to enhance the portfolio effect for
participants of more frequent, but
smaller LTIP grants.
There is no guaranteed or maximum
annual increase. The Committee
considers it important that base
salary increases are kept under
tight control given the potential
multiplier effect of such increases
on future costs. In the last 3 years,
salaries have been increased in
line with the wider company cost of
living awards.
A maximum bonus of 150% of salary
for the Chief Executive and 100% of
salary for other executive directors.
The Chief Executive, other executive
directors and senior management
receive grants equal
to 100%,
75% and 60% of annual salary
respectively every six months.
For Christos Angelides, in recognition
of the strategic importance of his
product skills, each of the four
semi-annual
LTIP awards with
performance periods ending July
2012 through to January 2014 were
increased from 75% of salary to
125%.
maximum
The
aggregate
annual award allowed under
the current plan rules is 200% of
base salary (300% in exceptional
circumstances). With effect from
2011/12 the maximum value of
any LTIP awards that vest for a
participant in a year has been
capped at £2.5m.
Element
of pay
Salary
Annual
bonus
Long Term
Incentive
Plan (LTIP)
38
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Proof 3
Performance targets
Not applicable
Changes for 2012 and 2013
In line with the current policy, base salaries of the executive
directors increased by 2.0% in February 2013, in line with the
wider company cost of living awards.
The base salaries for the executive directors with effect from
February 2013 will be:
Lord Wolfson
Christos Angelides
David Keens
Andrew Varley
£’000
729
529
487
362
For the year to January 2013, performance targets were set
For 2012/13 actual pre-tax EPS achieved, excluding £44.9m of
requiring pre-tax EPS of 357.4p before any bonus became
exceptional gains, was 391.1p, growth of 14.9%. Accordingly,
payable, growth of 5% on the prior year. At this point bonus
a bonus of 149% of salary for the Chief Executive and 99% of
would be 30% of salary in the case of the Chief Executive
salary for the other executive directors was earned.
and 20% of salary for other executive directors. A maximum
bonus of 150% and 100% of salary for the Chief Executive and
Bonus performance targets for the year ahead have been set
the other executive directors respectively was payable if pre-
but are not disclosed in advance for reasons of commercial
tax EPS exceeded 391.4p, growth of 15%. A straight sliding
sensitivity. The targets and performance will be disclosed in
scale of payments operated for performance between the
next year’s Remuneration Report.
minimum and maximum levels.
Performance is measured over periods of three years, which
The grant that matured in July 2012 vested 96% as the
commence in February and August, by comparing TSR
TSR ranked fifth out of 22 in the comparator group. The
against some 20 other UK listed retail companies.
Remuneration Committee also assessed the performance of
NEXT during the performance period and determined that
the economic underpin performance condition had been
satisfied.
The grant that matured in January 2013 is expected to vest at
98% as the TSR ranked fifth. This vesting is subject to review of
the economic underpin performance condition in April.
Percentage
vesting
0%
20%
100%
Relative
performance
Below median
Median
Upper quintile
retesting.
If no entitlement has been earned at the end of a three year
performance period then that award will lapse; there is no
Before any of the awards vest, the Remuneration Committee
must have regard to the performance of the Company in light
of underlying economic and other circumstances, including
EPS performance of the Company and of other UK retailers
over the period. Whilst not disclosed in advance, the factors
taken into account in determining the awards are disclosed
in the relevant year’s Remuneration Report.
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Element
of pay
Purpose and link to strategy
Operation
Maximum potential value
Salary
To provide a satisfactory base salary
Reviewed
annually,
effective
There is no guaranteed or maximum
Performance targets
Not applicable
Changes for 2012 and 2013
In line with the current policy, base salaries of the executive
directors increased by 2.0% in February 2013, in line with the
wider company cost of living awards.
The base salaries for the executive directors with effect from
February 2013 will be:
Lord Wolfson
Christos Angelides
David Keens
Andrew Varley
£’000
729
529
487
362
For the year to January 2013, performance targets were set
requiring pre-tax EPS of 357.4p before any bonus became
payable, growth of 5% on the prior year. At this point bonus
would be 30% of salary in the case of the Chief Executive
and 20% of salary for other executive directors. A maximum
bonus of 150% and 100% of salary for the Chief Executive and
the other executive directors respectively was payable if pre-
tax EPS exceeded 391.4p, growth of 15%. A straight sliding
scale of payments operated for performance between the
minimum and maximum levels.
For 2012/13 actual pre-tax EPS achieved, excluding £44.9m of
exceptional gains, was 391.1p, growth of 14.9%. Accordingly,
a bonus of 149% of salary for the Chief Executive and 99% of
salary for the other executive directors was earned.
Bonus performance targets for the year ahead have been set
but are not disclosed in advance for reasons of commercial
sensitivity. The targets and performance will be disclosed in
next year’s Remuneration Report.
within a total package comprising
February. The Committee focuses
annual increase. The Committee
salary and performance-related pay.
particularly on ensuring that an
considers it important that base
Performance-related components
appropriate base salary is paid to
salary increases are kept under
and certain benefits are calculated
directors and senior managers. The
tight control given the potential
by reference to base salary. The level
Committee considers salaries in the
multiplier effect of such increases
of salary broadly reflects the value
context of overall packages with
on future costs. In the last 3 years,
of the individual, their role, skills and
reference to market data, individual
salaries have been increased in
experience.
experience and performance,
line with the wider company cost of
and the level and structure of
living awards.
remuneration for other employees
and
the external environment.
External benchmarking analysis is
occasionally undertaken.
Annual
bonus
To incentivise annual delivery of
Based on stretching pre-tax EPS
A maximum bonus of 150% of salary
stretching financial goals. Provides
targets set annually, taking account
for the Chief Executive and 100% of
focus on
the Company’s key
of a range of factors including the
salary for other executive directors.
financial objective of sustainable
company’s own internal budgets
growth in EPS.
and the wider background of the
UK economy. Pre-tax EPS has been
To provide a retention element in
chosen as the basic metric to avoid
the case of the Chief Executive
executives benefitting from external
as any annual bonus in excess of
factors such as reductions in the rate
100% of base salary is payable in
of corporation tax. The philosophy
shares, deferred for a period of two
has been to structure targets such
years and subject to forfeiture if he
that there has to have been growth
voluntarily resigns prior to the end
in EPS before any annual bonus is
of that period.
payable to executive directors. By
contrast we have set the threshold
for staff bonuses at a lower level
than for directors. We have the right
to apply discretion in the interests of
fairness to both shareholders and
executives by adjusting the basis
for calculating EPS, e.g. to take
account of any exceptional items.
Long Term
Incentive
Plan (LTIP)
To
incentivise
three year
total
A variable percentage of a pre-
The Chief Executive, other executive
shareholder return relative to a
determined maximum number
directors and senior management
selected group of retail companies.
of shares can vest, depending
receive grants equal
to 100%,
Performance is measured over periods of three years, which
commence in February and August, by comparing TSR
against some 20 other UK listed retail companies.
on
relative
total
shareholder
75% and 60% of annual salary
Provides
focus on delivering
return (TSR) performance against
respectively every six months.
superior returns to shareholders.
a comparator group of
retail
Retention of key employees over
of the strategic importance of his
three-year performance periods.
The maximum number of shares
product skills, each of the four
companies (shown on page 44).
For Christos Angelides, in recognition
that may be awarded to each
semi-annual
LTIP awards with
director is a percentage of each
performance periods ending July
director’s base salary at the date
2012 through to January 2014 were
of each award, divided by NEXT’s
increased from 75% of salary to
average share price over the three
125%.
months prior to the start of the
performance period.
The
maximum
aggregate
annual award allowed under
LTIP awards are made twice a year
the current plan rules is 200% of
to reduce the volatility inherent in
base salary (300% in exceptional
the TSR performance measure and
circumstances). With effect from
to enhance the portfolio effect for
2011/12 the maximum value of
participants of more frequent, but
any LTIP awards that vest for a
smaller LTIP grants.
participant in a year has been
capped at £2.5m.
Relative
performance
Below median
Median
Upper quintile
Percentage
vesting
0%
20%
100%
If no entitlement has been earned at the end of a three year
performance period then that award will lapse; there is no
retesting.
Before any of the awards vest, the Remuneration Committee
must have regard to the performance of the Company in light
of underlying economic and other circumstances, including
EPS performance of the Company and of other UK retailers
over the period. Whilst not disclosed in advance, the factors
taken into account in determining the awards are disclosed
in the relevant year’s Remuneration Report.
The grant that matured in July 2012 vested 96% as the
TSR ranked fifth out of 22 in the comparator group. The
Remuneration Committee also assessed the performance of
NEXT during the performance period and determined that
the economic underpin performance condition had been
satisfied.
The grant that matured in January 2013 is expected to vest at
98% as the TSR ranked fifth. This vesting is subject to review of
the economic underpin performance condition in April.
22192-04
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39
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports
Purpose and link to strategy
Operation
Maximum potential value
Performance targets
Changes for 2012 and 2013
REMUNERATION REPORT
Element
of pay
Share
Matching
Plan (SMP)
To encourage greater ownership
of NEXT shares amongst
the
executive directors and other
senior executives and
thereby
further align their interests with
shareholders.
Pension
To provide post-retirement benefits
or cash alternative.
Other
Benefits
To provide market competitive non-
cash benefits.
Share
ownership
guidelines
To align the interests of executive
directors and shareholders.
Recruitment
awards
To enable the recruitment of key
executives.
40
Participants who invest a proportion
of any annual cash bonus
in
NEXT shares can receive up to a
maximum of two times their original
share investment, calculated on
a pre-tax basis. Any matching is
conditional upon achieving fully
diluted EPS growth targets for the
following three years. The executive
directors and around 20 other
senior executives participate in the
scheme.
All executive directors are deferred
members of the defined benefit
section of the NEXT Group Pension
Plan.
Since becoming deferred members
of the defined benefit section of
the Plan, Lord Wolfson and Christos
Angelides have contributed to the
unfunded, unapproved pension
They ceased
arrangement.
to
contribute
this arrangement
to
during 2012. Andrew Varley and
David Keens ceased to contribute
to the Plan in October 2008 and
May 2011
Their
pensions are no longer linked to
salary and will increase in line with
statutory deferred revaluation.
respectively.
receive
Executive directors now
salary supplements of 15%
in
lieu of pension provision. These
supplements are
less than the
contributions the Company would
otherwise make to the defined
benefit section of the Plan.
Executive directors receive benefits
which may include the provision of
a company car or cash alternative,
private
insurance,
subscriptions to professional bodies
and staff discount on Group
merchandise.
medical
Non-executive directors receive staff
discount on Group merchandise
but do not participate in any of
the Group’s bonus, pension, share
option or other incentive schemes.
For
the
the Chief Executive
minimum shareholding is 1.5 times
his pre-tax salary and for other
executive directors not less than
equal to their salary.
Any awards determined at the time
of recruitment by the Committee to
reflect the individual circumstances.
two
times,
Having initiated the SMP in 2010
with a maximum matching ratio
of
the Committee
decided in 2012 to cap the level
of investment for each participant
and reduce the scale of potential
matching
from a maximum of
two times to a maximum of one
times the initial investment. The
maximum matching
award
allowed under the plan rules is
three times. This may be granted
if considered appropriate but the
Committee would consult with
major shareholders before doing
so.
of
and
their
some
Directors
senior
managers receive enhancements
from the Plan, increasing the
retirement
accrual
benefit up to two thirds of their
earnings
final
on completion of 20
years
pensionable service at age 65. The
lump sum payable on death is four
times base salary.
pensionable
Vesting of the awards granted in 2012 is dependent on
The amount of annual bonus that may be invested under the
achieving the fully diluted post-tax EPS targets detailed on
SMP in 2013 is the lower of an individual’s post-tax bonus and
page 45.
a maximum amount of between £100,000 (2012: £50,000)
and £200,000 (2012: £125,000). The matching award remains
at a maximum of one times the initial investment.
The minimum match of 0.25 of a share requires fully diluted
EPS growth of 12% and the maximum match of one times
requires growth of 30% over the three year performance
period.
June 2013.
As noted on page 34, Lord Wolfson has waived his potential
entitlement to the SMP granted in 2010 and due to mature in
In line with changes to the defined benefits section of the
NEXT Group Pension Plan, the future pension entitlements
of Lord Wolfson and Christos Angelides under the unfunded
unapproved pension arrangement will be calculated by
reference to their base salaries at 31 October 2012, rather
than final earnings. From that date, Lord Wolfson and Mr
Angelides have received an annual salary supplement of
15% of their base salary.
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
This requirement was introduced in 2012, although all
executives have had significant shareholdings in excess
of these minimums for many years. Any newly appointed
executive director has up to five years to acquire the minimum
shareholding.
Any
recruitment awards may
have reference to the value of any
outstanding awards forgone by the
potential recruit.
Performance conditions would normally be based on NEXT
No recruitment awards were made during the year.
performance, although any awards made to replace those
forfeited as a result of joining NEXT may, in exceptional
circumstances, be made without performance conditions if
necessary.
22192-04
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Element
of pay
Share
Matching
Plan (SMP)
To encourage greater ownership
Participants who invest a proportion
Having initiated the SMP in 2010
of NEXT shares amongst
the
of any annual cash bonus
in
with a maximum matching ratio
executive directors and other
NEXT shares can receive up to a
of
two
times,
the Committee
senior executives and
thereby
maximum of two times their original
decided in 2012 to cap the level
further align their interests with
share investment, calculated on
of investment for each participant
shareholders.
a pre-tax basis. Any matching is
and reduce the scale of potential
conditional upon achieving fully
matching
from a maximum of
diluted EPS growth targets for the
two times to a maximum of one
following three years. The executive
times the initial investment. The
directors and around 20 other
maximum matching
award
senior executives participate in the
allowed under the plan rules is
scheme.
three times. This may be granted
if considered appropriate but the
Committee would consult with
major shareholders before doing
so.
Plan.
accrual
of
their
retirement
benefit up to two thirds of their
Since becoming deferred members
final
pensionable
earnings
of the defined benefit section of
on completion of 20
years
the Plan, Lord Wolfson and Christos
pensionable service at age 65. The
Angelides have contributed to the
lump sum payable on death is four
unfunded, unapproved pension
times base salary.
arrangement.
They ceased
to
contribute
to
this arrangement
during 2012. Andrew Varley and
David Keens ceased to contribute
to the Plan in October 2008 and
May 2011
respectively.
Their
pensions are no longer linked to
salary and will increase in line with
statutory deferred revaluation.
Executive directors now
receive
salary supplements of 15%
in
lieu of pension provision. These
supplements are
less than the
contributions the Company would
otherwise make to the defined
benefit section of the Plan.
which may include the provision of
a company car or cash alternative,
private
medical
insurance,
subscriptions to professional bodies
and staff discount on Group
merchandise.
Non-executive directors receive staff
discount on Group merchandise
but do not participate in any of
the Group’s bonus, pension, share
option or other incentive schemes.
minimum shareholding is 1.5 times
his pre-tax salary and for other
executive directors not less than
equal to their salary.
Purpose and link to strategy
Operation
Maximum potential value
Performance targets
Changes for 2012 and 2013
Vesting of the awards granted in 2012 is dependent on
achieving the fully diluted post-tax EPS targets detailed on
page 45.
Pension
To provide post-retirement benefits
All executive directors are deferred
Directors
and
some
senior
Not applicable
or cash alternative.
members of the defined benefit
managers receive enhancements
section of the NEXT Group Pension
from the Plan, increasing the
The amount of annual bonus that may be invested under the
SMP in 2013 is the lower of an individual’s post-tax bonus and
a maximum amount of between £100,000 (2012: £50,000)
and £200,000 (2012: £125,000). The matching award remains
at a maximum of one times the initial investment.
The minimum match of 0.25 of a share requires fully diluted
EPS growth of 12% and the maximum match of one times
requires growth of 30% over the three year performance
period.
As noted on page 34, Lord Wolfson has waived his potential
entitlement to the SMP granted in 2010 and due to mature in
June 2013.
In line with changes to the defined benefits section of the
NEXT Group Pension Plan, the future pension entitlements
of Lord Wolfson and Christos Angelides under the unfunded
unapproved pension arrangement will be calculated by
reference to their base salaries at 31 October 2012, rather
than final earnings. From that date, Lord Wolfson and Mr
Angelides have received an annual salary supplement of
15% of their base salary.
Other
Benefits
cash benefits.
To provide market competitive non-
Executive directors receive benefits
Not applicable
Not applicable
Not applicable
To align the interests of executive
For
the Chief Executive
the
Not applicable
Not applicable
Share
ownership
guidelines
directors and shareholders.
Recruitment
To enable the recruitment of key
Any awards determined at the time
Any
recruitment awards may
awards
executives.
of recruitment by the Committee to
have reference to the value of any
reflect the individual circumstances.
outstanding awards forgone by the
potential recruit.
Performance conditions would normally be based on NEXT
performance, although any awards made to replace those
forfeited as a result of joining NEXT may, in exceptional
circumstances, be made without performance conditions if
necessary.
This requirement was introduced in 2012, although all
executives have had significant shareholdings in excess
of these minimums for many years. Any newly appointed
executive director has up to five years to acquire the minimum
shareholding.
No recruitment awards were made during the year.
41
22192-04
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Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports
Performance targets
Not applicable
Changes for 2012 and 2013
No compensation payments on termination of employment
were made during the year.
Non-executive directors do not participate in bonus or share-
The fees payable to the Chairman and non-executive
based incentive arrangements.
directors increased in February 2013 as follows. The previous
increase was in 2011.
Chairman
Base fee for non-executives
Further fee payable to Chairmen
of Audit and Remuneration
Committees and to the SID
£’000
Increase
255.0
52.5
10.5
2%
5%
5%
REMUNERATION REPORT
Purpose and link to strategy
Operation
Maximum potential value
Each of the executive directors has a rolling service
contract which commenced on 14 March 2013 and
which is terminable by the company on giving one
year’s notice. The Company has reserved the right
to make a payment in lieu of notice on termination
of an executive director’s contract equal to their
base salary and contractual benefits (excluding
performance-related pay). If notice of termination
is given immediately following a change of control
of the Company, the executive director may
request immediate termination of his contract
and payment of liquidated damages equal to the
value of his base salary and contractual benefits.
In normal circumstances executives have no
entitlement in respect of loss of performance
bonuses and all share awards would lapse following
resignation. However, under certain circumstances
(e.g. ‘good leaver’ or change in control), and
solely at the Committee’s discretion, annual bonus
payments may be made and would ordinarily be
calculated up to the date of termination only. In
addition, awards made under the LTIP and SMP
would generally be time pro-rated and remain
subject to the application of the performance
conditions at the normal measurement date.
In the event of any termination payment being
made to a director (including any performance-
related pay elements), the Committee will take full
account of that director’s duty to mitigate any loss
and, where appropriate, the Committee may seek
independent professional advice and consider the
views of shareholders as expressed in published
guidance prior to authorising such payment.
The Chairman was paid a fee of £250,000 per
annum and the basic non-executive director
fee was £50,000, with a further £10,000 paid to
the Chairmen of the Audit and Remuneration
Committees, and to the Senior Independent
Director.
In line with market practice, to
ensure NEXT can recruit and
retain key executives, whilst
protecting the Company from
making payments for failure.
In practice, the Committee
would consider the need
for and quantum of any
termination
payments
having regard to all of
facts and
the
relevant
circumstances at
that
time.
future
Any
contracts
into account
published guidance.
will
service
take
relevant
is paid
The Chairman
monthly
non-
executive directors are
paid quarterly.
and
levels
non-
Fee
executive directors are
reviewed bi-annually.
for
To ensure fees paid to the
Chairman and non-executive
directors are competitive
and comparable with other
companies of equivalent size
and complexity.
Additional fees are paid to
non-executive directors who
chair the Remuneration and
Audit Committees, and the
Senior Independent Director.
the non-
Remuneration of
executive
is
determined by the Chairman
and the executive directors.
directors
included
appropriate
Claw-back provisions are to
in the service
be
contracts
for all executive
directors and will be enforced
where
to
recover performance-related
remuneration which has been
overpaid due to: a material
misstatement of the Company’s
accounts; errors made in the
calculation of an award; or a
director’s misconduct.
Element
of pay
Termination
payments
Chairman
and non-
executive
director fees
Claw-back
42
22192-04
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Element
of pay
Purpose and link to strategy
Operation
Maximum potential value
Termination
In line with market practice, to
In practice, the Committee
Each of the executive directors has a rolling service
payments
ensure NEXT can recruit and
would consider the need
contract which commenced on 14 March 2013 and
retain key executives, whilst
for and quantum of any
which is terminable by the company on giving one
protecting the Company from
termination
payments
year’s notice. The Company has reserved the right
making payments for failure.
having regard to all of
to make a payment in lieu of notice on termination
the
relevant
facts and
of an executive director’s contract equal to their
circumstances at
that
base salary and contractual benefits (excluding
time.
performance-related pay). If notice of termination
is given immediately following a change of control
Any
future
service
of the Company, the executive director may
contracts
will
take
request immediate termination of his contract
into account
relevant
and payment of liquidated damages equal to the
published guidance.
value of his base salary and contractual benefits.
In normal circumstances executives have no
entitlement in respect of loss of performance
bonuses and all share awards would lapse following
resignation. However, under certain circumstances
(e.g. ‘good leaver’ or change in control), and
solely at the Committee’s discretion, annual bonus
payments may be made and would ordinarily be
calculated up to the date of termination only. In
addition, awards made under the LTIP and SMP
would generally be time pro-rated and remain
subject to the application of the performance
conditions at the normal measurement date.
In the event of any termination payment being
made to a director (including any performance-
related pay elements), the Committee will take full
account of that director’s duty to mitigate any loss
and, where appropriate, the Committee may seek
independent professional advice and consider the
views of shareholders as expressed in published
guidance prior to authorising such payment.
Claw-back
Claw-back provisions are to
non-executive directors who
chair the Remuneration and
Audit Committees, and the
Senior Independent Director.
Remuneration of
the non-
executive
directors
is
determined by the Chairman
and the executive directors.
be
included
in the service
contracts
for all executive
directors and will be enforced
where
appropriate
to
recover performance-related
remuneration which has been
overpaid due to: a material
misstatement of the Company’s
accounts; errors made in the
calculation of an award; or a
director’s misconduct.
Performance targets
Not applicable
Changes for 2012 and 2013
No compensation payments on termination of employment
were made during the year.
Chairman
and non-
executive
To ensure fees paid to the
The Chairman
is paid
The Chairman was paid a fee of £250,000 per
Chairman and non-executive
monthly
and
non-
annum and the basic non-executive director
directors are competitive
executive directors are
fee was £50,000, with a further £10,000 paid to
director fees
and comparable with other
paid quarterly.
companies of equivalent size
the Chairmen of the Audit and Remuneration
Committees, and to the Senior Independent
and complexity.
Fee
levels
for
non-
Director.
Additional fees are paid to
reviewed bi-annually.
executive directors are
Non-executive directors do not participate in bonus or share-
based incentive arrangements.
The fees payable to the Chairman and non-executive
directors increased in February 2013 as follows. The previous
increase was in 2011.
Chairman
Base fee for non-executives
Further fee payable to Chairmen
of Audit and Remuneration
Committees and to the SID
£’000
Increase
255.0
52.5
10.5
2%
5%
5%
22192-04
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Proof 3
43
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports
REMUNERATION REPORT
PART 3: ADDITIONAL REGULATORY DISCLOSURES
Information not subject to audit
Further details of each of the components of the directors’ remuneration are given in the report below.
THE REMUNERATION COMMITTEE
During the year the Committee comprised the following independent non-executive directors:
Jonathan Dawson (Committee Chairman)
Steve Barber
John Barton
Christine Cross
Francis Salway
Caroline Goodall (from January 2013)
The Committee met five times during the year under review and all meetings were fully attended with the exception
of one which Caroline Goodall was unable to attend due to other commitments relating to her induction as a
director of NEXT.
Role of Remuneration Committee
The Committee determines the remuneration of the Group’s Chairman and executive directors, and reviews that of
senior executives. It is also responsible for determining the targets for performance-related pay schemes, approves
any award of the Company’s shares under share option or incentive schemes to employees and oversees any
major changes in employee benefit structures. The Committee members have no conflicts of interest arising from
cross-directorships and no director is permitted to be involved in any decisions as to his or her own remuneration.
The remuneration of non-executive directors is decided by the Chairman and executive directors of the Board. The
Committee’s terms of reference are available on the Company’s website (www.nextplc.co.uk) or on request from
the Company Secretary.
Assistance to the Committee
During the period the Committee received input from the Chief Executive and Group Finance Director and retained
the services of Aon Hewitt and FIT Remuneration Consultants LLP to provide independent external advice regarding
executive remuneration. These advisors have no other connection with the Company. PricewaterhouseCoopers
provided independent verification services of total shareholder returns for NEXT and the comparator group of
companies under the long term incentive plan (LTIP).
Additional information on Board remuneration
LTIP
The comparator group of companies for the three year performance periods to July 2012 and January 2013 was
as follows:
ASOS
Burberry
Carpetright
Carphone Warehouse
Debenhams
Dixons Retail
Findel
French Connection
Halfords
HMV
Home Retail Group
JJB Sports
J Sainsbury
Kesa
Kingfisher
Marks & Spencer
Morrisons
Mothercare
N Brown
Signet
Tesco
WH Smith
44
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013
For subsequent performance periods the changes to the comparator group above are:
1. periods ending July 2013 and January 2014 - Ted Baker added and Findel, French Connection and JJB Sports
removed;
2. period ending July 2014 - Supergroup added and Signet removed; and
3. periods ending January 2015 and July 2015 - Dunelm Group added and HMV removed.
The comparator group consists of UK listed retail companies which are most comparable with NEXT in size or
nature of their business. Comparison against such a group of companies is more likely to reflect the Company’s
relative performance against its peers, thereby resulting in grants being made on an appropriate basis.
Details of potential awards granted for outstanding performance periods are as follows:
Performance periods commencing
August 2010 and February 2011
August 2011, February 2012 and August 2012
Maximum potential award granted
(% of base salary)
Lord
Wolfson
100%
100%
Christos
Angelides
125%
75%
David
Keens &
Andrew
Varley
75%
75%
Other
employees
60%
60%
The Committee has discretion as to whether entitlements earned are payable in NEXT shares or cash and to date
it has allowed participants the choice. Entitlements earned are not pensionable and are based on salary and
share price at the start of the performance period. No individuals included in the plan have received grants under
the management share option scheme in the same year.
Share Matching Plan
Vesting of awards is dependent solely on achieving the fully diluted post-tax EPS targets detailed below.
Date of grant
June 2010
April 2011
April 2012
Required fully diluted EPS (pence)
For 0.5:1 match
191.5
231.3
For 0.25:1 match
267.2
For 1:1 match
206.5
240.2
For 0.5:1 match
281.5
For 2:1 match
221.5
258.1
For 1:1 match
310.2
These targets require a minimum three year growth in EPS of 8.8% (2010 award) and 12% (2011 and 2012 awards)
before any shares vest and a maximum award is only achieved if EPS growth reaches 25.8%, 25% and 30%
respectively over three years. The effective matching ratio will be calculated on a straight line basis for EPS falling
between each of the threshold points. Details of the calculation of fully diluted EPS are provided in Note 9. The
Committee has reviewed the performance conditions of awards to be made in 2013 and for the period to January
2016, the fully diluted EPS hurdle will be 314.5 pence (12% growth) for a minimum match of 0.25 of a share to vest
and 365.0 pence (30% growth) for the maximum match of one share.
22192-04
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Proof 3
45
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports REMUNERATION REPORT
Management share options
The management share option plan provides for options over shares, exercisable between three and ten years
following their grant, to be allocated to Group employees. This plan is primarily aimed at middle management
and senior store staff. No options were granted to any directors or changes made to existing entitlements in the
year under review. No employee is entitled to be granted options under the scheme and be included in the LTIP
or the SMP in the same year.
The total number of options which can be granted is subject to shareholder approved limits and there are no cash
settlement alternatives. Options are set at the prevailing market price at the time of grant, which are generally
made annually. The maximum total market value of shares (i.e. the acquisition price of shares) over which options
may be granted to any person during any financial year of the Company is three times salary. This limit may be
increased to five times salary in circumstances considered by the Committee to be exceptional, for example on
the grant of options following recruitment. The maximum grant during the year was 120% of salary.
Sharesave options
Executive directors can participate in the Company’s Save As You Earn (Sharesave) scheme which is open to
all employees. Grants are generally made annually and the scheme is subject to HMRC rules which limit the
maximum monthly savings to £250. Options are granted at a discount of 20% to the prevailing market rate and are
exercisable three, five or seven years from the date of grant. Sharesave options granted to, or exercised by, directors
in the year are detailed on page 52.
Dilution of share capital by employee share plans
The Company monitors and has complied with dilution limits in its various share scheme rules and has not issued
a significant number of new or treasury shares in satisfaction of share schemes in the last 10 years. Share-based
incentives are usually satisfied from shares held by the ESOT – see Note 26.
Group pension plan
Executive directors are members of the NEXT Group Pension Plan (the “Plan”) which has been approved by HM
Revenue & Customs and consists of defined benefit and defined contribution sections.
The trustee of the Plan is a limited company, NEXT Pension Trustees Limited (the “Trustee”). The Board of the Trustee
includes members of the Plan, a pensioner member and an independent director who is also the Chairman of
the Trustee. Two of the directors are member nominated directors and cannot be removed by NEXT; the other
directors, including the independent director, are appointed by and can be removed by NEXT. All directors of the
Trustee receive a fee for their services, including those directors who are also employees of NEXT. No director of the
Company is a director of the Trustee.
The Plan’s investments are kept separate from the business of the NEXT Group and the Trustee holds them in trust.
Responsibility for investment of the Plan’s funds has been delegated by the Trustee to professional investment
managers.
The Group operates a salary sacrifice scheme whereby members from either section can elect to receive a
reduced gross salary in exchange for enhanced employer pension contributions. The participation of members
in the salary sacrifice scheme does not result in any overall increase in costs to the Group.
Defined contribution section
Employees of the Group can join the defined contribution section of the Plan. Members elect to pay either 3% or
5% of their pensionable earnings which is matched by the Company. For death prior to retirement, a lump sum of
three times the member’s base salary at the previous April is payable along with the current value of the member’s
fund.
46
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Defined benefit section
The defined benefit section was closed to new members in 2000 and during the current year the Group reviewed
its operation for remaining employee members. Following a consultation process with those employees, from
November 2012 the future accrual of pension benefits will be based on pensionable salary frozen at that time,
rather than final earnings. In addition, those employees can elect to receive either a salary supplement or
additional contributions to a defined contribution scheme. From November 2012, the defined benefit section
provides members with a retirement benefit of one sixtieth or one eightieth (depending on the member’s chosen
contribution rate) of pensionable earnings at 31 October 2012 for each year of pensionable service.
This section provides a lump sum death in service benefit and dependants’ pensions on death in service or
following retirement. Pensions are only payable to deceased members’ children after death in service. In the
case of ill-health retirement, only the accrued pension is payable. All benefits are subject to Plan limits. Increases
to pensions in payment are at the discretion of the Trustee although pensionable service post-1997 is subject to
limited price indexation. From 2006, sales and profit related bonuses were excluded from pensionable earnings
and the normal retirement age under the Plan was increased from 60 to 65.
Members contribute 3% or 5% of pensionable earnings, whilst the Company currently makes contributions at the
rate of 17.5%. The last full triennial valuation of the Plan was carried out as at March 2010, the next will take place
as at March 2013. As calculated in accordance with International Financial Reporting Standards, the surplus in
the Plan at January 2013 was £65.6m; further details are given in Note 21 to the financial statements.
Certain members whose accrued or projected pension fund value exceeds their personal lifetime allowance
are provided with benefits through an unfunded, unapproved arrangement. The relevant members contribute
towards the additional cost of providing these benefits by a deduction of 5% on all pensionable earnings. Since
April 2011, where existing members have reached either the annual or lifetime pension contributions limits, the
Company has offered those members the choice of leaving the defined benefit section and either joining the
defined contribution section (with an enhanced Company contribution) or taking a salary supplement, in both
cases equal to 10% or 15% of their salary (depending on their existing contributions and benefits).
Auto-Enrolment
Following the introduction of Auto-Enrolment (A-E) in 2012, most employees now have the option of joining the
NEXT plan, the statutory A-E plan or opting out of pension provision through the Company. Contributions to A-E
commenced in February 2013.
Specific information in respect of executive directors’ pension entitlements is detailed on page 53.
Service contracts
Executive directors
Apart from service contracts (detailed in the Remuneration Policy Table on page 42), no director has had any
material interest in any contract with the Company or its subsidiaries.
Non-executive directors
Letters of appointment for the Chairman and non-executive directors do not contain fixed term periods; however
they are appointed in the expectation that they will serve for a minimum of six years, subject to satisfactory
performance and successful re-election at Annual General Meetings.
22192-04
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Proof 3
47
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports
REMUNERATION REPORT
Dates of appointment and notice periods for non-executive directors are set out below:
Chairman
John Barton
Non-executive directors
Steve Barber
Christine Cross
Jonathan Dawson
Caroline Goodall
Francis Salway
Date of appointment Notice period
17 May 2006
12 months
1 June 2007
19 January 2005
13 May 2004
1 January 2013
1 June 2010
1 month
1 month
1 month
1 month
1 month
Executive directors’ external appointments
Andrew Varley is a non-executive director of LondonMetric Property plc and the Remuneration Committee has
approved his retention of the director’s fee of £50,000 per annum for this appointment. No other executive director
holds any non-executive directorships outside the Group.
Directors’ interests
The Company has a formal share ownership requirement for executive directors, as set out on pages 40 and 41.
Directors’ beneficial interests in shares at the beginning of the financial year and at the end of the year were as
follows:
Ordinary shares of 10p each
2012
No. of
shares
1,520,505 1,638,010
72,975
10,000
16,000
5,598
5,000
N/A
151,574
9,258
76,460
Lord Wolfson
Christos Angelides
Steve Barber
John Barton
Christine Cross
Jonathan Dawson
Caroline Goodall
David Keens
Francis Salway
Andrew Varley
77,171
5,000
16,000
5,598
5,000
Nil
165,535
9,258
69,817
2013
No. of
shares
David Keens has a beneficial holding of £83,000 (2012: £83,000) nominal value of the Company’s 2013 5.25%
corporate bonds.
There have been no changes to directors’ interests in the shares of the Company from the end of the financial year
to 19 March 2013. Full details of directors’ interests in the shares and share options of the Company are contained
in the Register of Directors’ Interests which is open to inspection.
48
22192-04
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Performance graph
The graph below illustrates the performance of the Company when compared with the FTSE All Share and FTSE
General Retailers index. These have been selected to illustrate the Company’s total shareholder return performance
against a wide UK index and a sector specific index for the five year period ending January 2013.
NEXT plc Performance Chart
2008-2013 Total Shareholder Return
400
340
280
220
160
100
40
2008
2009
2010
2011
2012
2013
Re-based to 31 January 2008 = 100
NEXT
FTSE All Share
FTSE General Retailers
Information subject to audit
Directors’ remuneration
£’000
Chairman
John Barton
Executive directors
Lord Wolfson
Christos Angelides
David Keens
Andrew Varley
Salary/
fee
Annual
performance
related bonus
Salary
Benefits
supplement1
Total
2013
Total
2012
250
714
519
477
355
–
1,064
514
472
351
–
45
33
19
27
–
27
19
72
53
250
250
1,850
1,085
1,040
786
1,486
900
916
674
Non-executive directors
Steve Barber
Christine Cross
Jonathan Dawson
Caroline Goodall
Francis Salway
Total
Total 2012
1 Directors received a salary supplement of 15% in lieu of pension provision from April 2011 (Andrew Varley), June 2011 (David Keens) and November 2012 (Lord Wolfson
60
50
70
4
50
2,549
2,495
60
50
70
4
50
5,245
4,456
–
–
–
–
–
2,401
1,751
60
50
70
–
50
4,456
–
–
–
–
–
124
115
–
–
–
–
–
171
95
and Christos Angelides).
Lord Wolfson was the highest paid director in the current and previous year; £350,000 of his annual performance-
related bonus is payable in NEXT shares (2012: £56,000), deferred for a period of two years and will be forfeited if
he voluntarily resigns prior to the end of that period.
The Company paid a pension under the unfunded, unapproved arrangement to a former director of the Company
of £36,496 (2012: £35,606).
22192-04
11 April 2013 9:53 AM
Proof 3
49
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports REMUNERATION REPORT
Long term incentive plans
For the three year performance period to July 2012, TSR ranked fifth in the comparator group of 22 and 96% of
the grant made in July 2009 vested. Before allowing the award to vest the Remuneration Committee assessed
the performance of the Company during the performance period in light of underlying economic and other
conditions (‘the economic underpin’). The Committee noted that EPS compound growth of 19.7% and pre-tax
profit compound growth of 10.4% over the three year period, was well ahead of RPI compound growth of 4.3%. In
addition, dividends had grown in line with EPS and £727m had been returned to shareholders through buybacks.
The Committee also assessed earnings growth against selected comparable major UK retailers and concluded
that NEXT had performed favourably. Taking these factors into account, the Committee determined that the
economic underpin performance condition for the July award had been satisfied. Details of the amounts that
vested for each executive director are detailed in the table below. The awards were cash settled for all executives
except David Keens who received shares.
For the performance period to January 2013, TSR ranked fifth against the comparator group of 22 which corresponds
to an expected vesting of 98% of the maximum award made in January 2010. The Remuneration Committee will
formally assess the performance of the Company for this period in April on the same basis as the grant made in
July 2009 before determining whether the economic underpin performance condition has been satisfied. If the
condition is satisfied, the January 2013 award will be settled in April, and based on the share price of £41.10 on 19
March 2013, awards for each executive director for the year are detailed below:
Lord Wolfson1
Christos Angelides1
David Keens
Andrew Varley
July 2012
January 2013
Actual no.
of shares
42,582
37,062
21,291
15,849
116,784
Value
£’000
1,448
1,260
724
539
3,971
Actual no.
of shares
25,596
30,170
16,796
12,487
85,049
Estimated
value
£’000
1,052
1,240
690
513
3,495
Total
Estimated
value
£’000
2,500
2,500
1,414
1,052
7,466
Total for 2012
Adjustment
to estimate
£’000
–
33
31
23
87
Final
value
£’000
2,500
1,673
1,602
1,193
6,968
1 As noted on page 33, the value of the LTIP awards for Lord Wolfson and Christos Angelides will be restricted in respect of the financial year ended January 2013 to a
maximum of £2.5m, as it was for Lord Wolfson in 2012.
50
22192-04
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Details of directors’ interests in long term schemes, comprising the LTIP and deferred bonus shares, are summarised
below:
Maximum
share
potential
January
20121
Shares
awarded
during
the
year
Shares
vested
during
the
year3
Shares
lapsed
during
the
year
Maximum
share
potential
January
20131
Market
value on
date of
award
(£)
Date of
award
Market
value on
date cash
equivalent
determined
(£)
Vesting
date
Lord Wolfson
LTIP
Deferred bonus
shares2
Total
Christos
Angelides
LTIP
Total
David Keens
LTIP
Total
Andrew Varley
LTIP
Total
Mar 2009
Sept 2009
Mar 2010
Sept 2010
Mar 2011
Sept 2011
Mar 2012
Sept 2012
Apr 2010
Apr 2011
Apr 2012
Mar 2009
Sept 2009
Mar 2010
Sept 2010
Mar 2011
Sept 2011
Mar 2012
Sept 2012
Mar 2009
Sept 2009
Mar 2010
Sept 2010
Mar 2011
Sept 2011
Mar 2012
Sept 2012
Mar 2009
Sept 2009
Mar 2010
Sept 2010
Mar 2011
Sept 2011
Mar 2012
Sept 2012
62,374
44,356
34,228
32,592
33,684
30,289
–
–
– 28,426
– 42,582
–
–
–
–
–
–
–
–
–
26,861
–
23,175
33,9484
1,774
–
–
–
–
–
–
–
–
34,2285
32,592
33,684
30,289
26,861
23,175
15,615
17,020
–
270,158
– 15,615
–
–
–
1,902
51,938 86,623
–
–
–
–
17,020
1,902
35,722 199,751
32,573
38,606
31,048
29,565
30,556
16,486
–
–
178,834
31,187
22,178
17,139
16,320
16,866
15,166
–
–
118,856
23,217
16,510
12,742
12,133
12,536
11,273
–
–
88,411
– 27,036
– 37,062
–
–
–
–
–
–
–
–
–
14,619
–
12,614
27,233 64,098
– 25,885
– 21,291
–
–
–
–
–
–
–
–
–
13,449
11,604
–
25,053 47,176
– 19,270
– 15,849
–
–
–
–
–
–
–
–
–
9,995
–
8,624
18,619 35,119
5,537
1,544
–
–
–
–
–
–
–
–
31,0485
29,565
30,556
16,486
14,619
12,614
7,081 134,888
5,302
887
–
–
–
–
–
–
6,189
3,947
661
–
–
–
–
–
–
4,608
–
–
17,1395
16,320
16,866
15,166
13,449
11,604
90,544
–
–
12,7425
12,133
12,536
11,273
9,995
8,624
67,303
10.93
15.37
20.13
21.14
20.70
23.02
26.60
30.83
21.83
20.24
29.33
10.93
15.37
20.13
21.14
20.70
23.02
26.60
30.83
10.93
15.37
20.13
21.14
20.70
23.02
26.60
30.83
10.93
15.37
20.13
21.14
20.70
23.02
26.60
30.83
30.14 Jan 2012
Jul 2012
34.01
– Jan 2013
–
Jul 2013
– Jan 2014
–
Jul 2014
– Jan 2015
Jul 2015
–
29.33 Apr 2012
– Apr 2013
– Apr 2014
30.14 Jan 2012
Jul 2012
34.01
– Jan 2013
Jul 2013
–
– Jan 2014
–
Jul 2014
– Jan 2015
Jul 2015
–
30.14 Jan 2012
Jul 2012
34.01
– Jan 2013
–
Jul 2013
– Jan 2014
Jul 2014
–
– Jan 2015
Jul 2015
–
30.14 Jan 2012
Jul 2012
34.01
– Jan 2013
–
Jul 2013
– Jan 2014
–
Jul 2014
– Jan 2015
Jul 2015
–
1 The maximum number of LTIP shares is the award that could be receivable if the TSR performance conditions outlined on pages 38 and 39 are fully met.
2 Full details of deferred bonus are set out on pages 38 and 49.
3 See page 50 for details of the performance conditions and vesting levels applicable to the LTIP schemes vesting in the year, including the restriction on the maximum
value that could vest.
4 The maximum value of LTIP awards that vest for a participant in a year is capped at £2.5m. This cap was applied to Lord Wolfson’s awards that vested in the year to January
2012. The impact of the cap was to reduce shares vested and increase shares lapsed by 23,344 shares.
5 See page 50 for details of these awards which are expected to vest in April 2013.
51
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Proof 3
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports REMUNERATION REPORT
The LTIP performance periods which mature after January 2013 are not yet complete and no entitlement has yet
been earned. A charge of £23,368,000 for the year (2012: £17,159,000) has been made in the accounts in respect
of these LTIP grants, of which approximately £9,554,000 (2012: £7,956,000) related to the executive directors.
For all LTIP participants, the total maximum shares receivable at January 2012 was 1,364,175 (January 2011:
1,776,284). During the year, grants over 517,192 shares vested (2012: 615,044), grants over 57,545 shares lapsed
(2012: 189,723) and further grants over 295,033 shares were issued (2012: 392,658). At January 2013 the total
maximum shares receivable was 1,084,471 (excluding the impact of any cap on the total value which may apply)
with an average remaining contractual life of 1.6 years (2012: 1.6 years).
Share Matching Plan and Sharesave interests
Details of directors’ interests in the SMP and Sharesave option scheme are as follows:
Maximum
share
potential
at January
2012
65,190
67,098
1,826
134,114
46,132
48,690
–
431
95,253
44,796
44,796
–
385
319
158
90,454
32,204
33,306
–
431
65,941
Date of
grant
Jun 2010
Apr 2011
Oct 2008
Jun 2010
Apr 2011
Apr 2012
Oct 2011
Jun 2010
Apr 2011
Apr 2012
Oct 2008
Oct 2010
Oct 2011
Jun 2010
Apr 2011
Apr 2012
Oct 2011
Lord Wolfson
SMP1
Sharesave
Total
Christos Angelides
SMP1
Sharesave
Total
David Keens
SMP1
Sharesave
Total
Andrew Varley
SMP1
Sharesave
Total
Options
granted
during
the year
Options
exercised
during the
year
Options
waived
during
the year2
Maximum
share
potential
at January
20134
Option
price
(£)
Option period
–
–
–
–
–
–
8,392
–
8,392
–
–
6,714
–
–
–
6,714
–
–
6,714
–
6,714
–
–
–
–
–
–
–
–
–
–
–
–
3853
–
–
385
–
–
–
–
–
65,190
–
–
65,190
–
67,098
1,826
68,924
Jun 2013 – Jun 2020
Nil
Nil Apr 2014 – Apr 2021
9.17 Dec 2013 – Jun 2014
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46,132
48,690
8,392
431
103,645
44,796
44,796
6,714
–
319
158
96,783
32,204
33,306
6,714
431
72,655
Nil
Jun 2013 – Jun 2020
Nil Apr 2014 – Apr 2021
Nil Apr 2015 – Apr 2022
20.84 Dec 2014 – Jun 2015
Jun 2013 – Jun 2020
Nil
Nil Apr 2014 – Apr 2021
Nil Apr 2015 – Apr 2022
9.17 Dec 2011 – Jun 2012
17.82 Dec 2013 – Jun 2014
20.84 Dec 2014 – Jun 2015
Jun 2013 – Jun 2020
Nil
Nil Apr 2014 – Apr 2021
Nil Apr 2015 – Apr 2022
20.84 Dec 2014 – Jun 2015
1 The performance criteria attached to the SMP are described on page 45.
2 As disclosed on page 34, Lord Wolfson has waived his potential entitlement to the 2010 SMP grant.
3 The market price of shares at the date of exercise was £26.25 for David Keens, equal to a gain of £6,576.
4 The market price for the shares at the end of the financial year was £40.59, the lowest and highest share price during the financial year was £26.19 and £40.59 respectively.
Save for the waiver of Lord Wolfson’s 2010 SMP entitlement, there have been no other changes to awards under the
SMP or Sharesave during the year.
52
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Directors’ pension entitlements
The Policy Table on page 40 details the pension entitlements of the executive directors who held office during the
year. In summary, these are as follows:
Age at
January
2013
45
49
59
62
Years of
pensionable
service
18
20
25
24
Accrued
annual
pension
£’000
308
272
182
74
Change in
accrued
annual
pension
£’000
20
16
4
2
Lord Wolfson
Christos Angelides
David Keens
Andrew Varley
Change in
accrued
annual
pension
(net of
inflation)
£’000
14
11
–
–
Transfer value of
accrued annual
pension
2013
£’000
4,333
4,802
5,696
2,154
2012
£’000
3,911
4,336
4,914
2,135
Increase in
transfer value
less director’s
contributions
£’000
386
440
782
19
Years of pensionable service shown above may include bought-in service from the transfer of other pension
entitlements into the Plan. Directors’ pension arrangements are subject to the same actuarial reduction as other
employees on termination or early retirement.
On behalf of the Board
Jonathan Dawson
Chairman of the Remuneration Committee
22192-04
11 April 2013 9:53 AM
Proof 3
53
Additional informationParent Company accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Consolidated accountsGovernanceBusiness reports INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEXT PLC
We have audited the financial statements of NEXT plc for the
year ended 26 January 2013 which comprise the Consolidated
Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated and Company Balance Sheets, the
Consolidated and Company Statements of Changes in Equity, the
Consolidated and Company Cash Flow Statements, Accounting
Policies and the related Notes 1 to 32 and C1 to C7. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
(“IFRS”) as adopted by the European Union and, as regards the
parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and
auditor
As explained more fully in the Directors’ Responsibilities
Statement on page 26, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in
accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
Scope of the audit of the financial
statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the parent
company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read
all the financial and non-financial information in the Annual
Report and Accounts to identify material inconsistencies with
the audited financial statements. If we become aware of
any apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinion on financial statements
In our opinion:
❚
the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 26 January 2013 and of the Group’s profit for the year
then ended;
the Group
financial statements have been properly
prepared in accordance with IFRS as adopted by the
European Union;
❚
54
❚
❚
the parent company
financial statements have been
properly prepared in accordance with IFRS as adopted by
the European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
financial
statements have been prepared
the
in
accordance with the requirements of the Companies Act
2006 and, as regards the group financial statements, Article
4 of the IAS Regulation.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
❚
the part of the directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
❚
the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
❚ adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
❚
the parent company financial statements and the part of
the directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
❚ certain disclosures of directors’ remuneration specified by
law are not made; or
❚ we have not received all the information and explanations
we require for our audit.
Under the Listing Rules we are required to review:
❚
the directors’ statement, set out on page 32, in relation to
going concern;
❚
the part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the
UK Corporate Governance Code specified for our review;
and
❚ certain elements of the report to shareholders by the Board
on directors’ remuneration.
Nigel Meredith (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham
21 March 2013
Notes:
1.
The maintenance and integrity of the Next plc website is the responsibility of the
directors; the work carried out by the auditors does not involve consideration
of these matters and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since they were
initially presented on the website.
2.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions
22192-04
12 April 2013 1:06 PM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
CONSOLIDATED INCOME STATEMENT
For the financial year ended 26 January
2013
Exceptional
items
(Note 6)
£m
Notes
Underlying
£m
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Other gains/(losses)
Trading profit
Share of results of associates
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit from continuing operations
Profit from discontinued operations
Profit for the year
1, 2
3
3
5
5
7
Profit for the year attributable to:
Equity holders of the parent company
Non-controlling interest
Profit for the year
3,547.8
(2,431.1)
1,116.7
(269.5)
(201.0)
3.4
649.6
0.6
650.2
0.4
(29.0)
621.6
(148.5)
473.1
–
473.1
473.2
(0.1)
473.1
15.0
(5.9)
9.1
–
–
35.8
44.9
–
44.9
–
–
44.9
(9.4)
35.5
–
35.5
35.5
–
35.5
2012
Exceptional
items
(Note 6)
£m
–
–
–
–
–
3.1
3.1
–
3.1
6.1
–
9.2
(2.4)
6.8
38.0
44.8
44.8
–
44.8
Total
£m
Underlying
£m
3,562.8
(2,437.0)
1,125.8
(269.5)
(201.0)
39.2
694.5
0.6
695.1
0.4
(29.0)
666.5
(157.9)
508.6
–
508.6
3,441.1
(2,395.8)
1,045.3
(245.7)
(201.3)
(1.1)
597.2
1.5
598.7
0.5
(28.9)
570.3
(142.9)
427.4
2.6
430.0
508.7
(0.1)
508.6
430.1
(0.1)
430.0
2013
2012
Underlying
Total
Underlying
Basic earnings per share
Continuing operations
Discontinued operations
Total
Diluted earnings per share
Continuing operations
Discontinued operations
Total
9
9
297.7p
–
297.7p
289.9p
–
289.9p
320.1p
–
320.1p
311.7p
–
311.7p
253.9p
1.5p
255.4p
247.6p
1.5p
249.1p
22192-04
11 April 2013 9:52 AM
Proof 3
Total
£m
3,441.1
(2,395.8)
1,045.3
(245.7)
(201.3)
2.0
600.3
1.5
601.8
6.6
(28.9)
579.5
(145.3)
434.2
40.6
474.8
474.9
(0.1)
474.8
Total
257.9p
24.1p
282.0p
251.6p
23.5p
275.1p
55
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the financial year ended 26 January
Profit for the year
Other comprehensive income and expenses
Exchange differences on translation of foreign operations
Gains on cash flow hedges
Actuarial losses on defined benefit pension scheme
Tax relating to components of other comprehensive income
Reclassification adjustments
Transferred to income statement on cash flow hedges
Transferred to the carrying amount of hedged items on cash flow hedges
Exchange gains transferred to income statement on disposal of subsidiary
Other comprehensive expense for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent company
Non-controlling interest
Total comprehensive income for the year
Notes
2013
£m
508.6
2012
£m
474.8
21
7
3
–
1.6
(19.7)
6.9
(11.2)
(4.5)
(0.3)
–
(4.8)
(16.0)
492.6
(2.0)
15.6
(28.5)
4.5
(10.4)
5.0
(5.9)
(0.6)
(1.5)
(11.9)
462.9
492.7
(0.1)
492.6
463.0
(0.1)
462.9
56
22192-04
11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 CONSOLIDATED BALANCE SHEET
As at 26 January
ASSETS AND LIABILITIES
Non-current assets
Property, plant & equipment
Intangible assets
Interests in associates and other investments
Defined benefit pension surplus
Other financial assets
Current assets
Inventories
Customer and other receivables
Other financial assets
Cash and short term deposits
Total assets
Current liabilities
Bank loans and overdrafts
Corporate bonds
Trade payables and other liabilities
Other financial liabilities
Current tax liabilities
Non-current liabilities
Corporate bonds
Provisions
Deferred tax liabilities
Other financial liabilities
Other liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
Approved by the Board on 21 March 2013
Lord Wolfson of Aspley Guise
Director
David Keens
Director
Notes
2013
£m
2012
£m
10
11
12
21
15
13
14
15
16
17
20
18
19
20
22
7
19
18
537.3
44.8
7.2
65.6
30.9
685.8
331.8
718.1
21.6
136.3
1,207.8
1,893.6
581.9
45.6
7.1
35.1
44.6
714.3
371.9
699.1
12.5
56.4
1,139.9
1,854.2
(5.4)
(87.6)
(537.2)
(87.5)
(98.3)
(816.0)
(7.6)
–
(545.0)
(87.0)
(102.8)
(742.4)
(566.8)
(11.2)
(4.0)
–
(210.0)
(792.0)
(1,608.0)
(652.1)
(12.0)
(15.4)
(4.4)
(205.2)
(889.1)
(1,631.5)
285.6
222.7
285.6
222.7
22192-04
11 April 2013 9:52 AM
Proof 3
57
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the financial year ended 26 January
Share
premium
account
£m
Capital
redemp-
tion
reserve
£m
ESOT
reserve
£m
Fair
value
reserve
£m
Foreign
currency
trans-
lation
£m
Other
reserves
£m
Retained
earnings
£m
Share
holders’
equity
£m
Non-
control-
ling
interest
£m
0.8
11.8
(138.6)
(3.2)
4.6 (1,443.8)
1,782.6
232.3
0.1
Share
capital
£m
18.1
Total
equity
£m
232.4
At January 2011
Profit for the year
Other comprehensive
income/(expense) for
the year
Total comprehensive
income for the year
Share buybacks &
commitments (Note 23)
ESOT share purchases &
commitments (Note 26)
Shares issued by ESOT
Share option charge
Tax recognised directly
in equity
Equity dividends paid
At January 2012
Profit for the year
Other comprehensive
expense for the year
Total comprehensive
income for the year
Shares issued
Share buybacks &
commitments (Note 23)
ESOT share purchases &
commitments (Note 26)
Shares issued by ESOT
Share option charge
Tax recognised directly
in equity
Equity dividends paid
At January 2013
–
–
–
(1.2)
–
–
–
–
–
16.9
–
–
–
–
(0.8)
–
–
–
–
–
16.1
–
–
–
–
–
–
–
–
–
0.8
–
–
–
0.1
–
–
–
–
–
–
0.9
–
–
14.7
(2.6)
14.7
(2.6)
474.9
474.9
(0.1)
474.8
(24.0)
(11.9)
–
(11.9)
450.9
463.0
(0.1)
462.9
(323.0) (323.0)
–
(42.2)
17.9
(112.3)
67.6
17.9
–
–
2.0
–
–
(1,443.8)
12.3
12.3
(135.1) (135.1)
222.7
1,763.4
–
–
–
–
–
–
–
(323.0)
(112.3)
67.6
17.9
12.3
(135.1)
222.7
–
–
–
1.2
–
–
–
–
–
–
–
(112.3)
109.8
–
–
–
13.0
–
–
(141.1)
–
–
–
–
0.8
–
–
–
–
–
–
–
–
(143.5)
69.0
–
–
–
–
–
–
–
11.5
–
(3.2)
(3.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
508.7
508.7
(0.1)
508.6
(12.8)
(16.0)
–
(16.0)
495.9
492.7
(0.1)
492.6
–
0.1
(220.0) (220.0)
–
(24.7)
17.8
(143.5)
44.3
17.8
–
–
–
–
–
0.1
(220.0)
(143.5)
44.3
17.8
–
–
(0.1)
19.3
(147.7)
285.6
–
–
13.8
–
–
(215.6)
–
–
8.3
–
–
2.0
19.3
19.3
(147.7) (147.7)
285.7
(1,443.8) 1,904.0
58
22192-04
11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 CONSOLIDATED CASH FLOW STATEMENT
For the financial year ended 26 January
Cash flows from operating activities
Operating profit – continuing operations
Operating profit – discontinued operations
Depreciation and amortisation
Impairment
Loss on disposal of property, plant & equipment
Share option charge
Share of undistributed profit of associates
Exchange movement
Decrease/(increase) in inventories
Increase in customer and other receivables
Increase in trade and other payables
Pension contributions less income statement charge
Cash generated from operations
Corporation taxes paid
Net cash from operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Decrease in capital accruals
Payments to acquire property, plant and equipment
Net proceeds from disposal of subsidiary (Note 6)
Proceeds from sale of property, plant and equipment
Payment of deferred consideration
Net cash from investing activities
Cash flows from financing activities
Repurchase of own shares
Purchase of shares by ESOT
Proceeds from disposal of shares by ESOT
Repayment of unsecured bank loans
Net proceeds from bond issue and tender
Interest paid
Interest received
Payment of finance lease liabilities
Dividends paid
Net cash from financing activities
Net increase in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Closing cash and cash equivalents (Note 31)
2013
£m
2012
£m
695.1
–
117.2
1.8
2.5
17.8
(0.1)
(3.2)
40.1
(21.7)
7.4
(50.2)
806.7
(147.7)
659.0
(81.6)
(10.8)
(92.4)
1.5
5.3
(0.1)
(85.7)
(241.9)
(123.0)
43.4
–
–
(23.8)
2.0
(0.1)
(147.7)
(491.1)
82.2
48.8
(0.1)
130.9
601.8
2.9
119.7
1.4
4.5
16.8
(1.0)
(0.7)
(3.6)
(93.8)
28.2
(6.4)
669.8
(143.9)
525.9
(126.1)
(9.0)
(135.1)
63.0
1.9
–
(70.2)
(291.1)
(106.7)
67.6
(115.0)
153.3
(23.9)
5.0
(0.2)
(135.1)
(446.1)
9.6
39.1
0.1
48.8
In the prior year, net cash from operating activities included £9.9m of outflow in respect of discontinued operations
(Ventura) during the period prior to disposal.
22192-04
11 April 2013 9:52 AM
Proof 3
59
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts
ACCOUNTING POLICIES
Basis of preparation
The financial statements of NEXT plc (“the Company”) and NEXT plc and its subsidiaries (“the Group”) have
been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted for use in the
European Union and in accordance with the Companies Act 2006. The financial statements have been prepared
on the historical cost basis except for certain financial instruments, pension assets and liabilities and share-based
payment liabilities which are measured at fair value. The financial statements are for the 52 weeks to 26 January
2013 (last year 52 weeks to 28 January 2012).
There have been no changes in accounting policies this year or last year and the principal policies adopted are
set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiary
undertakings. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The results of any subsidiaries acquired or disposed of during the period are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of disposal. The results and net assets of
associated undertakings are incorporated into these financial statements using the equity method of accounting.
Foreign currencies
The consolidated financial statements are presented in pounds Sterling, which is the Company’s functional and
presentation currency. The Group includes foreign entities whose functional currencies are not Sterling. On
consolidation, the assets and liabilities of those entities are translated at the exchange rates at the balance
sheet date and income and expenses are translated at weighted average rates during the period. Translation
differences are recognised in equity.
Transactions in currencies other than an entity’s functional currency are recorded at the exchange rate on the
transaction date, whilst assets and liabilities are translated at exchange rates at the balance sheet date. Exchange
differences are recognised in the income statement.
Revenue
Revenue represents the fair value of amounts receivable for goods and services and is stated net of sales taxes
and returns. Sales of goods are recognised on delivery. Directory service charge income is accrued on a time
basis by reference to the principal outstanding and the effective interest rate. Revenue from the sale of gift cards
is deferred until their redemption.
Underlying profit and exceptional items
Exceptional items are significant items of an unusual or non-recurring nature which are shown separately in the
income statement to provide a clearer understanding of the underlying financial performance during the year.
Further details are given in Note 6.
Property, plant & equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment.
Depreciation is charged so as to write down the cost of assets to their estimated residual values over their remaining
useful lives on a straight line basis. Estimated useful lives and residual values are reviewed at least annually and
are summarised as follows:
Freehold and long leasehold property
Plant and fittings:
Plant, machinery and building works
Fixtures and fittings
Vehicles, IT and other assets
Leasehold improvements
60
50 years
10 – 25 years
6 – 15 years
2 – 6 years
the period of the lease, or useful life if shorter
22192-04
11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
Goodwill
Goodwill is initially measured at cost, being the excess of the acquisition cost over the Group’s interest in the assets
and liabilities recognised. Goodwill is not amortised, but is reviewed for impairment annually or whenever there is
an indication of impairment.
Other intangible assets
Separately identifiable intangible assets obtained in a business acquisition are initially recognised at fair value, if
this can be measured reliably and the asset arises from contractual or other legal rights. Other intangible assets
are amortised on a straight line basis over their expected useful lives as follows:
Lipsy brand names and trademarks
Lipsy customer relationships
10 years
4 years
Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate their
carrying value may not be recoverable.
Investments
Investments in subsidiary companies and equity instruments that do not have a quoted market price in an active
market and whose fair value cannot be reliably measured are stated at cost, subject to review for impairment.
Impairment
The carrying values of non-financial assets are reviewed at each balance sheet date to determine whether there is
any indication of impairment. If any impairment loss arises, the asset value is adjusted to its estimated recoverable
amount and the difference is recognised in the income statement.
Pension scheme
The Group operates a pension plan which consists of defined benefit and defined contribution sections. The
assets of the plan are held in a separate trustee administered fund. The Group also provides other, unfunded,
pension benefits to certain plan members.
The cost of providing benefits under the defined benefit and unfunded arrangements are determined using the
projected unit credit method, with actuarial valuations being carried out at each balance sheet date. The net
defined benefit pension asset or liability represents the fair value of the defined benefit plan assets less the present
value of the defined benefit and unfunded liabilities. A net pension asset is only recognised to the extent that it is
expected to be recoverable in the future.
Actuarial gains and losses are recognised in the statement of comprehensive income in full in the period in which
they occur. Other income and expenses are recognised in the income statement.
The cost of the defined contribution section is recognised in the income statement as incurred.
Inventories
Inventories (stocks) are valued at the lower of standard cost or net realisable value. Net realisable value is based
on estimated selling prices less further costs to be incurred to disposal.
Directory and other receivables
Directory customer receivables represent outstanding customer balances less any allowance for impairment
which is based on objective evidence and recent default experience by customer account category. Other trade
receivables are stated at invoice value less any allowance for impairment.
Cash and cash equivalents
For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and short
term deposits, less bank overdrafts which are repayable on demand. Short term deposits are those with an original
maturity of three months or less.
22192-04
11 April 2013 9:52 AM
Proof 3
61
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts ACCOUNTING POLICIES
Corporate bonds and bank borrowings
Corporate bonds and bank borrowings are recognised at the net proceeds received and subsequently adjusted
where hedge accounting applies (see interest rate derivatives below). Accrued interest is included within other
creditors and accruals.
Share-based payments
The fair value of employee share options is calculated when they are granted using a Black-Scholes model. The
resulting cost is charged in the income statement over the vesting period of the option, and is regularly reviewed
and adjusted for the expected and actual number of options vesting.
For cash-settled share-based payments (including the long term incentive plan), the fair value of the liability is
determined at each balance sheet date and the cost is recognised in the income statement over the vesting period.
Taxation
Taxation, comprised of current and deferred tax, is charged or credited to the income statement unless it relates to
items in other comprehensive income or directly in equity. In such cases, the related tax is also recognised in other
comprehensive income or directly in equity.
Current tax liabilities are measured at the amount expected to be paid, based on tax rates and laws that are
enacted or substantively enacted at the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method and is calculated using rates of taxation
enacted or substantively enacted at the balance sheet date which are expected to apply when the asset or
liability is settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are
only recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Deferred tax is not recognised in respect of investments in subsidiaries and
associates where the reversal of any taxable temporary differences can be controlled and are unlikely to reverse
in the foreseeable future.
Other financial assets and liabilities: derivative financial instruments and hedge accounting
Derivative financial instruments (“derivatives”) are used to manage risks arising from changes in foreign currency
exchange rates relating to the purchase of overseas sourced products and changes in interest rates relating to
the Group’s debt. In accordance with its treasury policy, the Group does not enter into derivatives for speculative
purposes. Foreign currency and interest rate derivatives are stated at their fair value, being the estimated amount
that the Group would receive or pay to terminate them at the balance sheet date based on prevailing foreign
currency and interest rates.
Foreign currency derivatives
Changes in the fair value of foreign currency derivatives which are designated and effective as hedges of future
cash flows are recognised in equity in the fair value reserve, and subsequently transferred to the carrying amount of
the hedged item or the income statement. Realised gains or losses on cash flow hedges are therefore recognised
in the income statement in the same period as the hedged item.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or
no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument
previously recognised in equity is retained in equity until the hedged transaction occurs. If the hedged transaction
is no longer expected to occur, the net cumulative gain or loss recognised in equity is then transferred to the
income statement.
Changes in the fair value of foreign currency derivatives which are ineffective or do not meet the criteria for hedge
accounting in IAS 39 are recognised in the income statement.
62
22192-04
11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Interest rate derivatives
The Group uses interest rate derivatives to hedge part of the interest rate risk associated with the Company’s
corporate bonds. The carrying values of the relevant bonds are adjusted only for changes in fair value attributable
to the interest rate risk being hedged. The adjustment is recognised in the income statement and is offset by
movements in the fair value of the derivatives.
Changes in the fair value of interest rate derivatives which are ineffective or do not meet the criteria for hedge
accounting in IAS 39 are recognised in the income statement.
Share buybacks
The Group has regularly returned surplus cash to shareholders through share buybacks. Shares purchased for
cancellation are deducted from retained earnings at the total consideration paid or payable. The Company also
uses contingent share purchase contracts and irrevocable closed period buyback programmes. The obligation
to purchase shares is recognised in full at the inception of the contract, even when that obligation is conditional
on the share price. Any subsequent reduction in the obligation caused by the expiry or termination of a contract
is credited back to equity at that time.
Shares held by ESOT
The NEXT Employee Share Ownership Trust (“ESOT”) provides for the issue of shares to Group employees, principally
under share option schemes. Shares in the Company held by the ESOT are included in the balance sheet at cost
as a deduction from equity. The ESOT may also use contingent share purchase contracts and irrevocable closed
period share purchase programmes which are accounted for as described above.
Provisions
A provision is recognised where the Group has a legal or constructive obligation as a result of a past event and it
is probable that an outflow of economic benefits will be required to settle the obligation.
Leasing commitments
Rentals payable under operating leases are charged to income on a straight line basis over the period of the
lease. Contingent rentals payable based on store revenues are accrued in line with the related sales.
Premiums payable, rent free periods and capital contributions receivable on entering an operating lease are
released to income on a straight line basis over the lease term.
The Group does not have significant finance leases.
Significant areas of estimation and judgement
The preparation of the financial statements requires judgements, estimations and assumptions to be made that
affect the reported values of assets, liabilities, revenues and expenses. The nature of estimation means that actual
outcomes could differ from those estimates. Significant areas of estimation for the Group include the expected
future cash flows applied in measuring impairment of Directory customer receivables (Note 14), estimated selling
prices applied in determining the net realisable values of inventories (Note 13 and inventories policy above)
and the actuarial assumptions applied in calculating the net retirement benefit obligation (Note 21). The Audit
Committee section of the Corporate Governance Report (page 29) contains further information on the judgmental
areas considered by the Committee during the year.
Future changes to accounting standards
An amendment to IAS 19 Employee Benefits was published in June 2011 and will first apply to the Group next year.
It is not expected to have a significant impact.
Various other new accounting standards and amendments were issued during the year, none of which have had
or are expected to have any significant impact on the Group.
22192-04
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Proof 3
63
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Segmental analysis
The Group’s operating segments under IFRS 8 have been determined based on management accounts reviewed
by the Board. The performance of operating segments is assessed on profits before interest and tax, excluding
equity settled share option charges recognised under IFRS 2 Share-Based Payment and unrealised foreign
exchange gains or losses on derivatives which do not qualify for hedge accounting. The activities, products and
services of the operating segments are detailed in the Directors’ Report on page 3. The Property Management
segment holds properties and property leases which are sub-let to other segments and external parties.
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment revenues
Third party distribution
Eliminations
Continuing operations
Discontinued (Ventura)
Segment profit
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment profit
Central costs and other
Share option charge
Unrealised foreign exchange
Trading profit
Share of results of associates
Finance income
Finance costs
Profit before tax – continuing operations
Profit before tax – discontinued (Ventura)
External revenue
2012
2013
£m
£m
2,190.9
2,191.4
1,192.6
1,088.7
77.7
76.3
8.8
7.5
3,470.0
3,363.9
58.1
54.9
20.3
6.2
3,548.4
3,425.0
14.4
16.1
–
–
3,562.8
3,441.1
–
64.8
Internal revenue
2012
£m
6.7
–
–
511.5
518.2
3.5
188.8
710.5
–
(710.5)
–
2.0
2013
£m
6.0
3.7
–
498.3
508.0
0.5
192.0
700.5
–
(700.5)
–
–
Total revenue
2013
£m
2,196.9
1,196.3
77.7
507.1
3,978.0
58.6
212.3
4,248.9
14.4
(700.5)
3,562.8
–
2012
£m
2,198.1
1,088.7
76.3
519.0
3,882.1
58.4
195.0
4,135.5
16.1
(710.5)
3,441.1
66.8
2013
Exceptional
items
(Note 6)
£m
–
–
–
–
–
–
9.1
9.1
35.8
–
–
44.9
–
–
–
44.9
–
Underlying
£m
331.1
302.1
8.4
30.8
672.4
2.0
3.5
677.9
(13.9)
(17.8)
3.4
649.6
0.6
0.4
(29.0)
621.6
–
2012
Exceptional
items
(Note 6)
£m
–
–
–
–
–
–
–
–
3.1
–
–
3.1
–
6.1
–
9.2
38.0
Total
£m
331.1
302.1
8.4
30.8
672.4
2.0
12.6
687.0
21.9
(17.8)
3.4
694.5
0.6
0.4
(29.0)
666.5
–
Underlying
£m
323.7
262.6
7.9
21.1
615.3
1.3
5.6
622.2
(7.1)
(16.8)
(1.1)
597.2
1.5
0.5
(28.9)
570.3
2.9
Total
£m
323.7
262.6
7.9
21.1
615.3
1.3
5.6
622.2
(4.0)
(16.8)
(1.1)
600.3
1.5
6.6
(28.9)
579.5
40.9
Transactions between operating segments are made on an arm’s length basis in a manner similar to those with
third parties. Segment revenue and segment profit include transactions between business segments which are
eliminated on consolidation.
64
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
1. Segmental analysis (continued)
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Ventura (discontinued)
Other
Total
Property, plant
& equipment
Capital expenditure
Depreciation
2013
£m
374.1
84.5
1.1
2.6
6.8
68.0
–
0.2
537.3
2012
£m
407.2
88.8
1.7
3.4
8.9
71.8
–
0.1
581.9
2013
£m
73.2
6.7
–
0.6
0.8
0.2
–
0.1
81.6
2012
£m
105.4
16.3
0.4
0.7
2.9
–
0.3
0.1
126.1
2013
£m
101.4
10.9
0.5
1.0
2.3
0.2
–
0.1
116.4
2012
£m
100.8
12.1
0.7
1.3
2.1
0.2
1.4
0.2
118.8
Analyses of the Group’s external revenues (by customer location) and non-current assets (excluding investments,
the defined benefit pension surplus, other financial assets and deferred tax assets) by geographical location are
detailed below:
External revenue by geographical location
United Kingdom
Rest of Europe
Middle East
Asia
Rest of World
Non-current assets by geographical location
United Kingdom
Rest of Europe
Middle East
Asia
Rest of World
2013
Continuing
£m
3,319.3
171.1
34.2
13.9
24.3
3,562.8
2012
Continuing
£m
3,245.7
148.1
28.0
11.2
8.1
3,441.1
2012
Discontinued
£m
63.7
–
–
–
1.1
64.8
2013
£m
537.9
12.0
4.5
27.6
0.1
582.1
2012
£m
579.6
15.0
4.6
28.2
0.1
627.5
There were no discontinued operations in the current year (last year: Ventura).
2. Revenue by type
Sale of goods
Rendering of services
Rental income
Royalties
Sale of property development stock (exceptional item, see Note 6)
Revenue
2013
Continuing
£m
3,376.6
154.8
5.3
11.1
15.0
3,562.8
2012
Continuing
£m
3,281.6
143.9
6.2
9.4
–
3,441.1
2012
Discontinued
£m
–
64.8
–
–
–
64.8
Rendering of services includes £140.4m (2012: £126.1m) of service charge on Directory customer receivables.
22192-04
11 April 2013 9:52 AM
Proof 3
65
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Operating profit
Group operating profit is stated after charging/(crediting):
Depreciation on tangible assets:
Owned
Leased
Loss on disposal of property, plant & equipment
Amortisation of intangible assets
Impairment charges:
Tangible assets
Operating lease rentals:
Minimum lease payments (net of amortisation of incentives)
Contingent rentals payable
Net foreign exchange gains
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
Trade receivables:
Impairment charge
Amounts recovered
Auditors’ remuneration
Audit of the financial statements
Audit of subsidiaries
Total audit fees
Other services:
Tax compliance
Tax advisory services
Corporate finance
Other assurance services
2013
£m
116.3
0.1
2.5
0.8
2012
£m
118.6
0.2
4.5
0.9
1.8
1.4
195.5
6.8
194.3
7.8
3.4
1.1
1,352.2
1,319.2
75.1
79.4
28.3
(4.7)
29.9
(3.3)
2013
£’000
2012
£’000
181
267
448
7
2
–
18
475
189
265
454
29
28
25
22
558
Gains and losses on cash flow hedges removed from equity and included in the income statement for the period
comprise gains of £4.5m (2012: losses of £5.0m) included in cost of sales.
Other gains/(losses) reported in the income statement represent changes in the fair value of foreign exchange
derivative contracts which do not qualify for hedge accounting under IAS 39 and the exceptional pension items
and prior year exceptional VAT credit explained in Note 6.
66
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
4. Staff costs and key management personnel
Total staff costs were as follows:
Wages and salaries
Social security costs
Other pension costs (including £35.8m net exceptional gains)
Share-based payments expense – equity settled
Share-based payments expense – cash settled
2013
£m
510.1
32.7
(25.2)
517.6
17.8
23.4
558.8
2012
£m
536.9
37.2
6.1
580.2
17.9
17.9
616.0
Equity settled share-based payments comprise management options, sharesave options and potential awards
under the Share Matching Plan, details of which are given in Note 25. In the prior year, the equity settled share-
based payments expense included a £1.1m accelerated charge for Ventura employee share options which arose
on its disposal. Cash settled share-based payments relate to the Long Term Incentive Plan (“LTIP”), details of which
are given in the Remuneration Report on pages 38 to 39 and 50 to 51.
Total staff costs by business sector were made up as follows:
NEXT Retail and Directory
NEXT International Retail
NEXT Sourcing
Other activities
Exceptional pension credit (see Note 6)
Continuing operations
Ventura (discontinued)
NEXT Retail and Directory
NEXT International Retail
NEXT Sourcing
Other activities
Continuing operations
Ventura (discontinued)
2013
£m
540.0
3.2
23.6
27.8
(35.8)
558.8
–
558.8
2012
£m
516.6
3.4
24.2
20.1
–
564.3
51.7
616.0
Average employees
Full-time equivalents
2013
Number
50,707
277
3,148
375
54,507
–
54,507
2012
Number
48,141
303
3,642
483
52,569
3,735
56,304
2013
Number
24,710
217
3,148
226
28,301
–
28,301
2012
Number
24,531
234
3,642
278
28,685
3,478
32,163
Aggregate compensation for key management personnel (including employer’s National Insurance contributions),
being the directors of NEXT plc, was as follows:
Short term employee benefits
Post-employment benefits
Share-based payments
Directors’ remuneration is detailed in the Remuneration Report on pages 49 to 53.
22192-04
11 April 2013 9:52 AM
Proof 3
2013
£m
6.0
0.3
13.2
19.5
2012
£m
5.0
0.4
10.5
15.9
67
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Finance income and costs
Interest on bank deposits
Other interest receivable
Total finance income
Interest on bonds and other borrowings
Premium paid on repurchase of corporate bonds
Swap hedging gain on bond repurchases
Other fair value movements
Total finance costs
2013
£m
0.3
0.1
0.4
24.4
–
–
4.6
29.0
2012
£m
0.3
6.3
6.6
25.2
8.2
(7.3)
2.8
28.9
Directory service charge is presented as a component of revenue. In the prior year, other interest receivable
included statutory interest of £6.1m on an exceptional VAT recovery (see Note 6).
6. Exceptional items
Continuing operations
Pension credit
Pension charge
Sale of property development stock
Prior year VAT recovery
Associated tax charge
Discontinued operations
Profit on sale of Ventura
Footnote
(a)
(b)
(c)
(d)
2013
£m
42.1
(6.3)
9.1
–
44.9
(9.4)
35.5
2012
£m
–
–
–
9.2
9.2
(2.4)
6.8
(e)
–
38.0
(a) During the year the Group reviewed the operation of the defined benefit section of its pension plan, which was
closed to new members in 2000. From November 2012, the future accrual of benefits for remaining employee
members is based on pensionable earnings at that time, rather than final earnings. This change gave rise to
a one-off accounting gain of £42.1m.
(b) In June 2012 a second tranche of pensions in payment were subject to a buy-in arrangement. The Plan
paid £23.4m to an insurance company and in return will receive payments equal to those pensions. This
eliminates the Plan’s exposure to the interest, inflation and longevity risks of those pensions. The contract also
allows for the buy-in to be converted to a buy-out, following which the insurance company would become
directly responsible for those pensions, and steps are being taken to proceed on this basis. Accordingly, the
transaction has been accounted for as a settlement, with the £6.3m accounting charge presented in the
income statement as an exceptional item.
(c) During the year the Group sold its last remaining stock from its property development activities for £15.0m
which had a book value of £5.9m. The £9.1m gain is presented as an exceptional item because of its size
and non-recurring nature.
(d) Last year, the Group reached agreement with HM Revenue & Customs for the recovery of overpaid VAT on
product sales made during the period from 1973 to 1988. The total amount recoverable was £9.2m, comprising
£3.1m of VAT and interest of £6.1m.
(e) The Group sold its customer services management business, Ventura, which resulted in an exceptional gain of
£38.0m last year. Net cash proceeds of £63.0m were received on completion and the final balance of £1.5m
was received in the current year.
68
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
7.
Taxation
Current tax:
UK corporation tax on profits of the year
Adjustments in respect of previous years
Overseas tax:
On profits of the year
Adjustments in respect of previous years
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of previous years
Tax expense reported in the consolidated income statement
Allocated to:
Continuing operations
Discontinued operations
2013
£m
2012
£m
159.3
(8.1)
151.2
2.8
(0.1)
153.9
(0.1)
4.1
157.9
157.9
–
157.9
160.1
(12.6)
147.5
2.7
–
150.2
(7.8)
3.2
145.6
145.3
0.3
145.6
£9.4m (2012: £2.4m) of the total tax charge relates to exceptional items (see Note 6). Adjustments in respect
of previous years relate to release of provisions for items subsequently agreed with HM Revenue & Customs and
overseas tax authorities.
The tax rate for the current year varied from the standard rate of corporation tax in the UK due to the following
factors:
UK corporation tax rate
Non-deductible expenses/(non-taxable income)
Deferred tax not previously recognised: property development losses
Overseas tax differentials
Tax over-provided in previous years
Deferred tax rate change
Effective total tax rate on profit before taxation
2013
%
24.3
1.0
(0.2)
(0.7)
(0.6)
(0.1)
23.7
2012
%
26.3
(0.5)
–
(0.5)
(1.5)
(0.3)
23.5
The effective tax rate stated above is based on total profit including exceptional items and discontinued operations.
22192-04
11 April 2013 9:52 AM
Proof 3
69
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Taxation (continued)
7.
In addition to the amount charged to the income statement, tax movements recognised through equity were as
follows:
2013
£m
2012
£m
(2.7)
–
(3.2)
(1.0)
(6.9)
2013
£m
(8.3)
3.8
(4.5)
2012
£m
(8.1)
(12.3)
(11.2)
(19.3)
–
(12.3)
2013
£m
17.5
2.3
15.1
(28.0)
(2.9)
4.0
2013
£m
15.4
(5.4)
0.9
9.5
(1.0)
–
(4.2)
(11.2)
–
4.0
2012
£m
22.9
2.4
8.8
(15.8)
(2.9)
15.4
2012
£m
23.4
(5.8)
(0.3)
2.0
(2.2)
1.8
(4.5)
–
1.0
15.4
Current tax:
Pension benefit obligation
Deferred tax:
Pension benefit obligation
Fair value movements on derivative instruments
Tax credit in the statement of comprehensive income
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Tax credit in the statement of changes in equity
Deferred taxation
Accelerated capital allowances
Revaluation of derivatives to fair value
Pension benefit obligations
Share-based payments
Other temporary differences
The deferred tax movement in the year is as follows:
At January 2012
Charged to the income statement:
Accelerated capital allowances
Revaluation of derivatives to fair value
Pension benefit obligations
Share-based payments
Other temporary differences
Recognised in the statement of comprehensive income
Recognised in the statement of changes in equity
Disposal of subsidiaries
At January 2013
70
22192-04
11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Taxation (continued)
7.
No recognition has been made of the following deferred tax assets:
Property development trading losses
Capital losses
Gross
value
2013
£m
–
83.0
83.0
Unrecognised
deferred
tax
2013
£m
–
19.1
19.1
Gross
value
2012
£m
5.4
88.5
93.9
Unrecognised
deferred
tax
2012
£m
1.4
22.1
23.5
The benefit of unrecognised capital losses will only accrue if taxable profits are realised on future disposals of the
Group’s capital assets.
8. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year to 28 January 2012 of 62.5p (2011: 53p) per share
Interim dividend for the year to 26 January 2013 of 31p (2012: 27.5p) per share
2013
£m
99.7
48.0
147.7
2012
£m
89.5
45.6
135.1
Proposed final dividend for the year to 26 January 2013 of 74p (2012: 62.5p) per share
113.5
100.0
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not
been included as a liability in these financial statements. The Trustee of the ESOT has waived dividends paid in the
year on the shares held by the ESOT.
9. Earnings per share
Basic earnings per share
Continuing operations
Discontinued operations
Total
Underlying basic earnings per share
2013
2012
320.1p
–
320.1p
297.7p
257.9p
24.1p
282.0p
255.4p
Basic earnings per share is based on the profit for the year attributable to the equity holders of the parent company
and the weighted average number of shares ranking for dividend less the weighted average number of shares
held by the ESOT during the period.
Underlying earnings per share is based on profit before the exceptional items described in Note 6.
22192-04
11 April 2013 9:52 AM
Proof 3
71
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. Earnings per share (continued)
Diluted earnings per share
Continuing operations
Discontinued operations
Total
Underlying diluted earnings per share
2013
2012
311.7p
–
311.7p
289.9p
251.6p
23.5p
275.1p
249.1p
Diluted earnings per share is based on the weighted average number of shares used for the calculation of basic
earnings per share as increased by the dilutive effect of potential ordinary shares. Dilutive shares arise from
employee share option schemes where the exercise price is less than the average market price of the Company’s
ordinary shares during the period. Their dilutive effect is calculated on the basis of the equivalent number of nil-
cost options. Where the option price is above the average market price, the option is not dilutive and is excluded
from the diluted EPS calculation. There were no such share options in the current year (2012: nil).
Fully diluted earnings per share
Continuing operations
Discontinued operations
Total
Underlying fully diluted earnings per share
2013
2012
301.9p
–
301.9p
280.8p
240.9p
22.5p
263.4p
238.5p
Fully diluted earnings per share is based on the weighted average number of shares used for the calculation of
basic earnings per share, increased by the weighted average total employee share options outstanding during
the period. Fully diluted earnings per share is used for the purposes of the Share Matching Plan, described further
in the Remuneration Report.
The table below shows the key variables used in the earnings per share calculations:
Profit after tax attributable to equity holders of the parent company
Continuing operations
Discontinued operations
Total
Less exceptional items (see Note 6)
Total underlying profit (for underlying EPS)
Weighted average number of shares (millions)
Weighted average shares in issue
Weighted average shares held by ESOT
Weighted average shares for basic EPS
Weighted average dilutive potential shares
Weighted average shares for diluted EPS
Weighted average shares for basic EPS
Weighted average total share options outstanding
Weighted average shares for fully diluted EPS
2013
£m
2012
£m
508.7
–
508.7
(35.5)
473.2
164.9
(6.0)
158.9
4.3
163.2
158.9
9.6
168.5
434.3
40.6
474.9
(44.8)
430.1
174.3
(5.9)
168.4
4.3
172.7
168.4
11.9
180.3
72
22192-04
11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 10. Property, plant & equipment
Freehold
property
£m
Leasehold
property
£m
Plant and
fittings
£m
Cost
At January 2011
Exchange movement
Additions
Disposals
Disposal of subsidiaries
At January 2012
Exchange movement
Additions
Disposals
At January 2013
Depreciation
At January 2011
Exchange movement
Provided during the year
Impairment charge
Disposals
Disposal of subsidiaries
At January 2012
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2013
Carrying amount
At January 2013
At January 2012
At January 2011
74.3
–
–
(0.8)
–
73.5
–
0.2
(4.2)
69.5
8.3
–
–
–
(0.1)
–
8.2
–
–
–
(0.2)
8.0
61.5
65.3
66.0
8.3
–
–
–
–
8.3
–
–
–
8.3
1.4
–
–
–
–
–
1.4
–
–
–
–
1.4
6.9
6.9
6.9
Total
£m
1,435.2
(0.2)
126.1
(29.7)
(47.6)
1,483.8
(1.3)
81.6
(28.0)
1,536.1
842.8
(0.1)
118.8
1.4
(23.3)
(37.7)
901.9
(1.1)
116.4
1.8
(20.2)
998.8
1,352.6
(0.2)
126.1
(28.9)
(47.6)
1,402.0
(1.3)
81.4
(23.8)
1,458.3
833.1
(0.1)
118.8
1.4
(23.2)
(37.7)
892.3
(1.1)
116.4
1.8
(20.0)
989.4
468.9
509.7
519.5
537.3
581.9
592.4
The carrying amount of plant and fittings above includes an amount of £0.3m (2012: £0.4m) in respect of assets
held under finance lease contracts.
At 26 January 2013 the Group had entered into contractual commitments for the acquisition of property, plant
and equipment amounting to £15.4m (2012: £9.5m).
22192-04
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Proof 3
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Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Intangible assets
Cost
At January 2011, January 2012 and January 2013
Amortisation and impairment
At January 2011
Provided during the year
At January 2012
Provided during the year
At January 2013
Carrying amount
At January 2013
At January 2012
At January 2011
Brand
names &
trademarks
£m
Customer
relationships
£m
Goodwill
£m
Total
£m
4.0
0.9
0.4
1.3
0.4
1.7
2.3
2.7
3.1
2.0
44.1
50.1
1.1
0.5
1.6
0.4
2.0
–
0.4
0.9
1.6
–
1.6
–
1.6
42.5
42.5
42.5
3.6
0.9
4.5
0.8
5.3
44.8
45.6
46.5
Customer relationships relates to contractual and other arrangements with corporate customers of Lipsy that
existed at the date of acquisition.
The carrying amount of goodwill is allocated to the following cash generating units:
NEXT Sourcing
Lipsy
2013
£m
30.5
12.0
42.5
2012
£m
30.5
12.0
42.5
Goodwill is tested for impairment at the balance sheet date on the basis of value in use. As this exceeded carrying
value for each of the cash generating units concerned, no impairment loss was recognised (2012: £nil).
NEXT Sourcing
The key assumptions in the calculation are the future sourcing requirements of the Group and the ability of NEXT
Sourcing to meet these requirements based on past experience. In assessing value in use, the most recent financial
results and internal budgets for the next year were used and extrapolated for four further years with no subsequent
growth assumed, and discounted at 10% (2012: 10%).
Lipsy
In assessing the recoverable amount of goodwill and intangibles, the five year business plan for Lipsy was used
and cash flows beyond this period extrapolated using a growth rate of 2% (2012: 2%), and discounted at 15%
(2012: 15%). The key assumption is the net contribution margin from sales.
For both NEXT Sourcing and Lipsy, the calculated value in use significantly exceeded the carrying value of the
goodwill and other intangible assets and no further sensitivity calculations were necessary to conclude that there
was no impairment.
74
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 12. Interests in associates and other investments
Interests in associates
Other investments
2013
£m
6.2
1.0
7.2
2012
£m
6.1
1.0
7.1
During the year the Group sold goods and services in the normal course of business to its associated undertakings
as follows:
Sales
Amounts
receivable
Choice Discount Stores Limited
Cotton Traders Limited
13. Inventories
Merchandise stocks
Property development stocks
14. Customer and other receivables
Directory customer receivables
Less: allowance for doubtful debts
Other trade receivables
Less: allowance for doubtful debts
Amounts due from associated undertakings
Other debtors
Prepayments
2013
£m
5.6
6.9
12.5
2012
£m
4.8
5.5
10.3
2013
£m
0.4
0.4
0.8
2013
£m
331.8
–
331.8
2013
£m
726.6
(125.4)
601.2
21.2
(0.2)
622.2
0.8
8.3
86.8
718.1
2012
£m
0.7
0.5
1.2
2012
£m
366.0
5.9
371.9
2012
£m
686.9
(113.4)
573.5
23.8
(0.3)
597.0
1.2
10.4
90.5
699.1
No interest is charged on Directory customer receivables if the statement balance is paid in full; otherwise balances
bear interest at a variable annual percentage rate of 25.99% (2012: 25.99%).
Expected irrecoverable amounts on overdue balances are provided for based on past default experience.
Receivables which are impaired other than by age or default are separately identified and provided for as
necessary.
The credit quality of customer receivables that are neither past due nor impaired is assessed by reference to the
historical default rate for the preceding 365 days of approximately 1% (2012: 1%), although default rates over
shorter periods may show significant variations.
Other debtors and prepayments do not include impaired assets. The maximum exposure to credit risk at the
reporting date is the carrying value of each class of asset. The Group does not hold any collateral over these
balances.
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Proof 3
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Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Customer and other receivables (continued)
Ageing of customer and other trade receivables:
Not past due
0–30 days past due
30–60 days past due
60–90 days past due
90–120 days past due
Over 120 days past due
Otherwise impaired
Total customer and other trade receivables
Movement in the allowance for doubtful debts:
Opening position
Charged to the income statement
Written off as uncollectible
Recovered during the year
Disposal of subsidiaries
Closing position
15. Other financial assets
Foreign exchange contracts
Interest rate derivatives
2013
£m
609.7
40.0
9.2
3.5
2.2
63.9
19.3
747.8
2013
£m
113.7
28.3
(11.7)
(4.7)
–
125.6
2012
£m
580.3
37.7
10.8
4.5
2.9
56.4
18.1
710.7
2012
£m
108.8
29.9
(19.9)
(3.3)
(1.8)
113.7
2013
2012
Non-
current
£m
–
30.9
30.9
Current
£m
12.5
–
12.5
Non-
current
£m
–
44.6
44.6
Current
£m
10.8
10.8
21.6
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge
exchange risk arising from the Group’s overseas purchases (Note 27). These instruments are primarily for US Dollars
and Euros. Interest rate derivatives relate to the corporate bonds (Note 20).
16. Cash and short term deposits
Cash at bank and in hand
Short term deposits
2013
£m
42.1
94.2
136.3
2012
£m
45.8
10.6
56.4
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for
varying periods of between one day and three months depending on the cash requirements of the Group and
earn interest at market short term deposit rates.
76
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 17. Bank loans and overdrafts
Bank overdrafts and overnight borrowings
Unsecured bank loans
2013
£m
5.4
–
5.4
2012
£m
7.6
–
7.6
Bank overdrafts are repayable on demand and bear interest at a margin over bank base rates. Overnight
borrowings and unsecured bank loans bear interest at a margin above LIBOR. The Group has medium term bank
facilities of £300m (2012: £300m) committed until December 2016. None of this facility was drawn down at 26
January 2013 or 28 January 2012.
18. Trade payables and other liabilities
Trade payables
Other taxation and social security
Deferred revenue from sale of gift cards
Property lease incentives received
Share-based payment liability
Other creditors and accruals
Finance leases
2013
2012
Non-
current
£m
–
–
–
190.7
13.9
5.1
0.3
210.0
Current
£m
193.1
61.6
60.9
22.1
15.1
192.1
0.1
545.0
Non-
current
£m
–
–
–
188.9
10.6
5.3
0.4
205.2
Current
£m
189.2
64.0
65.7
27.2
17.8
173.2
0.1
537.2
Trade payables do not bear interest and are generally settled on 30 day terms. Other creditors and accruals do
not bear interest. Property lease incentives are classified as non-current to the extent that they will be credited to
the income statement more than one year from the balance sheet date.
19. Other financial liabilities
Foreign exchange contracts
Interest rate derivatives
Own equity share purchase contracts
2013
2012
Non-
current
£m
–
–
–
–
Current
£m
2.6
–
84.4
87.0
Non-
current
£m
–
4.4
–
4.4
Current
£m
0.8
3.4
83.3
87.5
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge
exchange risk arising from the Group’s overseas purchases (Note 27). These instruments are primarily for US Dollars
and Euros. Interest rate derivatives relate to the corporate bonds (Note 20).
Own equity share purchase contracts relate to liabilities of £42.3m (2012: £63.6m) arising under contingent
purchase contracts and an irrevocable closed season buyback agreement for the purchase of the Company’s
own shares (Note 23), and net liabilities of £41.0m (2012: £20.8m) arising under contingent purchase contracts for
the Company’s own shares entered into by the ESOT (Note 26).
22192-04
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Proof 3
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Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Corporate bonds
Corporate bond 5.25% repayable 2013
Corporate bond 5.875% repayable 2016
Corporate bond 5.375% repayable 2021
Balance sheet
value
Nominal value
2013
£m
87.6
218.5
348.3
654.4
2012
£m
89.9
218.8
343.4
652.1
2013
£m
85.5
212.6
325.0
623.1
2012
£m
85.5
212.6
325.0
623.1
The 5.25% 2013 corporate bond is repayable in September 2013 and has therefore been classified as a current
liability at 26 January 2013. The 2016 and 2021 bonds are classified as non-current liabilities.
The Group uses interest rate derivatives to manage the interest rate risk associated with its bonds. Interest on
£310.5m of the Group’s bonds has been swapped into floating rates based on LIBOR and the remaining £312.6m
is at fixed rates.
2013 bonds
Floating
2016 bonds
Fixed
Floating
2021 bonds
Fixed
Floating
Total
2013
Nominal
value
£m
2013
Effective
interest
rate
2012
Nominal
value
£m
2012
Effective
interest
rate
85.5 6m LIBOR + 0.9%
85.5
6m LIBOR + 0.9%
162.6
50.0
212.6
5.875%
6m LIBOR +1.7%
150.0
5.375%
175.0 6m LIBOR + 1.9%
325.0
623.1
5.875%
6m LIBOR +1.7%
5.375%
6m LIBOR + 1.9%
162.6
50.0
212.6
150.0
175.0
325.0
623.1
The fair values of the corporate bonds are shown in Note 29.
In the prior year, the Company issued £325m of new 10 year 2021 bonds and redeemed £120.8m of its 2013 bonds
and £37.4m of its 2016 bonds. Holders of the 2013 and 2016 bonds were invited to tender their holdings, either for
cash or in exchange for the new 10 year issue. The transactions were settled on a net basis and the amount shown
in the cash flow statement of £153.3m represents the net cash received.
78
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 21. Pension benefits
The Group operates a pension plan in the UK which consists of defined benefit and defined contribution sections.
The assets of the Plan are held in a separate trustee administered fund. The Plan has equal pension rights with
respect to members of either sex and complies with the Employment Equality Regulations (2006). The defined
benefit section was closed to new members in 2000 and is a funded arrangement which provides benefits based
on pensionable earnings. The Group also provides unfunded retirement benefits to plan members whose benefits
would otherwise be restricted by the lifetime allowance.
In June 2012, the Plan purchased a second buy-in contract for £23.4m in respect of pensions which had come
into payment since the first buy-in in 2010. The contract allows for the transaction to be converted to a buy-out,
following which the insurance company would become directly responsible for the pension payments, and it is
intended to proceed on this basis. Accordingly, the transaction has been accounted for as a settlement and the
accounting charge of £6.3m is included in the income statement as an exceptional item.
From November 2012 the future accrual of benefits for remaining employee members is based on pensionable
earnings frozen at that time rather than final earnings. Those employees receive either additional contributions
to the defined contribution section or a salary supplement. This change resulted in an accounting gain in the
current year of £42.1m which is included in the income statement as an exceptional item.
The defined contribution section is for all members who joined after 2000, and benefits are based on each individual
member’s personal account. The Group has also made arrangements for auto-enrolment and contributions
commenced in February 2013.
The components of the net benefit expense recognised in the consolidated income statement are as follows:
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Curtailment gain on pensionable pay
freeze†
Settlement loss on buy-in/buy-out†
Net benefit (credit)/expense
– continuing operations
Discontinued operations:
Curtailment gain on sale of Ventura
Actual return on plan assets
Funded
£m
7.9
24.1
(28.4)
(39.3)
6.3
2013
Unfunded
£m
0.5
0.4
–
(2.8)
–
Total
£m
8.4
24.5
(28.4)
(42.1)
6.3
Funded
£m
8.7
25.0
(32.1)
2012
Unfunded
£m
0.5
0.4
–
–
–
–
–
Total
£m
9.2
25.4
(32.1)
–
–
(29.4)
(1.9)
(31.3)
1.6
0.9
2.5
–
68.3
–
–
–
1.5
68.3
34.3
–
–
1.5
34.3
† Included as exceptional items in the income statement (see Note 6).
22192-04
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Proof 3
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Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Pension benefits (continued)
Changes in the present value of defined benefit pension obligations are analysed as follows:
Opening obligation
Current service cost
Interest cost
Curtailment gains
Employee contributions
Benefits paid
Actuarial losses
Closing pension benefit obligation
Funded
£m
495.6
7.9
24.1
(39.3)
0.2
(12.4)
58.6
534.7
2013
Unfunded
£m
9.4
0.5
0.4
(2.8)
–
–
1.0
8.5
Total
£m
505.0
8.4
24.5
(42.1)
0.2
(12.4)
59.6
543.2
Funded
£m
443.9
8.7
25.0
(1.5)
0.2
(10.4)
29.7
495.6
2012
Unfunded
£m
7.5
0.5
0.4
–
–
–
1.0
9.4
Changes in the fair value of defined benefit pension assets were as follows:
Opening assets
Employer contributions
Employee contributions
Benefits paid
Settlements (buy-in contract)
Expected return on assets
Actuarial gains
Closing pension benefit assets
The fair value of plan assets was as follows:
Funded
£m
540.1
18.9
0.2
(12.4)
(6.3)
28.4
39.9
608.8
2013
Unfunded
£m
–
–
–
–
–
–
–
–
Equities
Bonds
Gilts
Property
Insurance contracts
Other (cash deposits)
Total
£m
540.1
18.9
0.2
(12.4)
(6.3)
28.4
39.9
608.8
£m
296.8
100.7
35.6
21.1
146.9
7.7
608.8
Funded
£m
507.1
8.9
0.2
(10.4)
–
32.1
2.2
540.1
2012
Unfunded
£m
–
–
–
–
–
–
–
–
2013
2012
%
48.7
16.5
5.8
3.5
24.1
1.4
100.0
£m
223.2
62.9
62.0
19.8
114.8
57.4
540.1
Total
£m
451.4
9.2
25.4
(1.5)
0.2
(10.4)
30.7
505.0
Total
£m
507.1
8.9
0.2
(10.4)
–
32.1
2.2
540.1
%
41.3
11.6
11.5
3.7
21.3
10.6
100.0
The net defined benefit pension asset/(liability) is analysed as follows:
Total assets
Benefit obligation
Net pension asset/(liability)
Funded
£m
608.8
(534.7)
74.1
2013
Unfunded
£m
–
(8.5)
(8.5)
Total
£m
608.8
(543.2)
65.6
Funded
£m
540.1
(495.6)
44.5
2012
Unfunded
£m
–
(9.4)
(9.4)
Total
£m
540.1
(505.0)
35.1
The IAS 19 valuation of the defined benefit section was undertaken by an independent qualified actuary as at 26
January 2013 using the projected unit credit method. As a substantial majority of pensions in payment are now
insured, this year we have adopted separate assumptions for pensioner and non-pensioner liabilities. Changes
in the assumptions for pensioner members covered by insurance (which now represent approximately 27% of the
gross pension liabilities) have a neutral effect on the net IAS 19 balance sheet position.
80
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11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 21. Pension benefits (continued)
The principal actuarial assumptions used in the valuation were as follows:
Discount rate
Salary increases
Inflation – RPI
Inflation – CPI
Life expectancy at age 65 (years)
Pensioner aged 65 – male
Pensioner aged 65 – female
Non-pensioner aged 45 – male
Non-pensioner aged 45 – female
Expected rate of return on assets
Equities
Bonds
Gilts
Property
Insurance contracts
Other
Average
Pensioners
2013
4.25%
N/A
3.30%
2.30%
Non-
pensioners
2013
4.75%
Nil
3.45%
2.45%
2012
5.00%
3.10%
3.10%
2.10%
2013
2012
22.6
25.0
24.8
27.3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
22.5
24.9
24.7
27.2
6.95%
3.95%
2.65%
5.55%
5.00%
2.65%
5.18%
The adoption of IAS 19 (revised) from the beginning of the 2013/14 financial year means that it is not necessary to
set assumptions for expected asset returns as at 26 January 2013.
Expected rates of return on plan assets are based on external historical and forecast market information, and
actual rates will most likely vary from those shown above. The key sensitivity in the calculation is the discount rate.
A decrease of 0.25% in the discount rates used would increase the gross liabilities by approximately £29m, which
would be partly mitigated by an increase of approximately £5m on the insurance assets.
Members of the defined benefit section contribute 3% or 5% of pensionable earnings, whilst the Company currently
makes contributions at the rate of 17.5%. The most recent full actuarial valuation was undertaken as at March
2010. The next full actuarial valuation will be performed as at March 2013 and future funding requirements will be
determined taking into account recent plan changes. Members of the defined contribution section contribute 3%
or 5% of pensionable earnings, which is matched by the Company.
Total employer contributions of £24.3m (2012: £13.1m) were made during the year, including a special contribution
of £11m in respect of the buy-in and £5.4m (2012: £4.2m) in respect of the defined contribution section.
History of experience gains and losses:
Fair value of plan assets
Present value of defined benefit obligation
Surplus/(deficit) in the plan
2013
£m
608.8
(543.2)
65.6
2012
£m
540.1
(505.0)
35.1
2011
£m
507.1
(451.4)
55.7
2010
£m
432.8
(482.3)
(49.5)
2009
£m
325.8
(394.9)
(69.1)
Experience gains/(losses) on plan liabilities
Experience gains/(losses) on plan assets
4.2
39.9
(3.3)
2.2
19.0
11.2
(0.1)
52.4
19.0
(93.8)
At January 2013, cumulative actuarial losses recognised in the statement of comprehensive income since transition
to IFRS at 1 February 2004 were £43.8m (2012: losses of £24.1m). It is not possible to determine the actuarial gains
or losses that would have been recognised prior to transition.
81
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Proof 3
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. Provisions
At January 2012
Provisions made in the year
Utilisation of provisions
Release of provisions
Unwind of discount
At January 2013
Vacant
property
costs
£m
12.0
7.4
(5.2)
(3.5)
0.5
11.2
Provision is made for the committed cost of future rentals or estimated exit costs of properties no longer occupied
by the Group, the average remaining lease term is four years (2012: three years).
23. Share capital
Allotted, called up and fully paid
Ordinary shares of 10p each
At January 2012
Shares issued
Purchased for cancellation
At January 2013
2013
Shares
‘000
2012
Shares
‘000
2013
£m
2012
£m
168,740
4
(7,510)
161,234
181,221
–
(12,481)
168,740
16.9
–
(0.8)
16.1
18.1
–
(1.2)
16.9
The table below shows the movements in equity from share purchases and commitments during the year:
Shares purchased for cancellation in the year
Less: Commitment at start of year
Add: Commitment at end of year
Amount shown in Statement of Changes in Equity
2013
2012
Shares
‘000
7,510
(2,425)
1,050
Shares
‘000
12,481
(1,400)
2,425
£m
241.3
(63.6)
42.3
220.0
£m
289.7
(30.3)
63.6
323.0
Of the £63.6m commitment outstanding at January 2012, £16.0m was fulfilled in the current year and £47.6m was
not fulfilled and expired.
At 20 March 2013, all £42.3m of the January 2013 commitment was unfulfilled and had expired, and was therefore
subsequently credited back to equity.
24. Other reserves
Other reserves in the consolidated balance sheet comprise the reserve created on reduction of share capital
through the Scheme of Arrangement under Section 425 of the Companies Act 1985 (£1,460.7m) less share
premium account (£3.8m) and capital redemption reserve (£3.7m) at the time of the capital reconstruction
in 2002 plus the accumulated amount of goodwill arising on acquisition after taking into account subsequent
disposals (£0.7m) less the unrealised component of revaluations of properties arising under previous accounting
standards (£5.1m) as at the date of transition to IFRS.
82
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11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 25. Equity settled share-based payments
The Group operates a number of share-based payment schemes as set out in the Remuneration Report on pages
45 and 46 and below:
Management and Sharesave options
The following table summarises the movements in management and sharesave options during the year:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
2013
2012
Weighted
average
exercise
price
No. of
options
£17.67 12,504,404
£29.10 2,773,077
£14.75 (5,447,415)
£21.57
(610,873)
£21.52 9,219,193
Weighted
average
exercise
price
£14.66
£20.73
£12.42
£16.72
£17.67
No. of
options
9,219,193
2,069,776
(2,933,737)
(403,435)
7,951,797
1,259,065
£15.98 1,410,373
£16.74
Options were exercised on a regular basis throughout the year and the weighted average share price during
this period was £31.54 (2012: £24.07). Options outstanding at 26 January 2013 are exercisable at prices ranging
between £8.89 and £29.67 (2012: £8.89 and £21.89) and have a weighted average remaining contractual life of
6.3 years (2012: 6.5 years), as analysed below:
Exercise price range
£8.89 – £13.99
£14.12 – £17.82
£20.70
£20.84 – £21.89
£27.56 – £29.67
2013
Weighted
average
remaining
contractual
life (years)
2012
Weighted
average
remaining
contractual
life (years)
No. of
options
4.2
2.1
8.2
5.8
7.6
6.3
3,176,646
1,183,255
1,985,360
2,873,932
–
9,219,193
6.2
2.7
9.2
6.6
–
6.5
No. of
options
1,005,713
705,784
1,834,505
2,421,024
1,984,771
7,951,797
Share Matching Plan
The following table summarises the movements in nil cost share matching plan options during the year:
Outstanding at beginning of year
Granted
Forfeited
Outstanding at end of year
2013
No. of
options
679,232
61,004
(65,190)
675,046
2012
No. of
options
383,772
314,092
(18,632)
679,232
The weighted average remaining contractual life of these options is 8.0 years (2012: 8.8 years). There were no
exercises of share matching plan options during the current or prior year, and none were exercisable at the end
of the current or prior year.
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Proof 3
83
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25. Equity settled share-based payments (continued)
Fair value calculation
The fair value of management, sharesave and share matching plan options granted is calculated at the date of
grant using a Black–Scholes option pricing model. Expected volatility was determined by calculating the historical
volatility of the Company’s share price over a period equivalent to the expected life of the option. The expected life
applied in the model is based on historical analyses of exercise patterns, taking into account any early exercises.
The following table lists the inputs to the model used for options granted in the years ended 26 January 2013 and
28 January 2012 based on information at the date of grant:
Management share options
Weighted average share price at date of grant
Weighted average exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
Sharesave plans
Weighted average share price at date of grant
Weighted average exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
Share Matching Plan
Weighted average share price at date of grant
Weighted average exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
2013
£29.67
£29.67
37.9%
4 years
0.70%
2.71%
£7.12
2012
£20.70
£20.70
41.4%
4 years
2.37%
3.48%
£5.51
2013
£34.44
£27.56
25.4%
3.3 years
0.46%
2.61%
£8.04
2012
£26.05
£20.84
34.4%
3.3 years
0.96%
2.99%
£7.23
2013
£30.32
Nil
26.0%
3 years
0.63%
2.97%
£27.74
2012
£22.37
Nil
41.4%
3 years
1.59%
3.49%
£20.15
26. Shares held by ESOT
The NEXT 2003 Employee Share Ownership Trust (“ESOT”) has an independent professional trustee resident in
Jersey and provides for the issue of shares to Group employees, including share issues under share options, at
the discretion of the Trustee. All management and sharesave options which were exercised during the year were
satisfied by shares issued from the ESOT.
At 26 January 2013 the ESOT held 6,531,837 (2012: 5,637,388) ordinary shares of 10p each in the Company, the
market value of which amounted to £265.1m (2012: £148.8m). Details of outstanding share options are shown in
Note 25.
The consideration paid for the ordinary shares of 10p each in the Company held by the ESOT at 26 January 2013
and 28 January 2012 has been shown as an ESOT reserve and presented within equity for the Company and the
Group. All other assets, liabilities, income and costs of the ESOT have been incorporated into the accounts of the
Company and the Group.
84
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 26. Shares held by ESOT (continued)
The table below shows the movements in equity from ESOT share purchases and commitment movements during
the year:
Shares purchased by ESOT in the year
Less: Commitment at start of year
Add: Commitment at end of year
Amount shown in Statement of Changes in Equity
2013
2012
Shares
‘000
3,859
(825)
1,062
Cost
£m
122.5
(20.0)
41.0
143.5
Shares
‘000
4,685
(725)
825
Cost
£m
107.7
(15.4)
20.0
112.3
Shares issued on option exercises
2,965
44.3
5,440
67.6
Of the £20.0m commitment at January 2012, £7.3m was fulfilled in the current year and £12.7m was not fulfilled
and expired.
At 20 March 2013, £6.3m of the commitment at January 2013 had been fulfilled, £10.8m remained open for
potential completion, and £23.9m was unfulfilled and had expired and was therefore subsequently credited back
to equity. At 19 March 2013, employee share options over 121,720 shares had been exercised subsequent to the
balance sheet date and had been satisfied by ordinary shares issued by the ESOT.
27. Financial instruments: risk management and hedging activities
NEXT operates a centralised treasury function which is responsible for managing the liquidity, interest and foreign
currency risks associated with the Group’s activities. As part of its strategy for the management of these risks, the
Group uses derivative financial instruments. In accordance with the Group’s treasury policy, derivative instruments
are not entered into for speculative purposes. Treasury policy is reviewed and approved by the Board and specifies
the parameters within which treasury operations must be conducted, including authorised counterparties, instrument
types and transaction limits, and principles governing the management of liquidity, interest and foreign currency risks.
The Group’s principal financial instruments, other than derivatives, are cash and short term deposits, bank
overdrafts and loans, and corporate bonds. The main purpose of these financial instruments is to raise finance
for the Group’s operations. In addition, the Group has various other financial assets and liabilities such as trade
receivables and trade payables arising directly from its operations.
Liquidity risk
The Group manages its cash and borrowing requirements centrally to minimise net interest expense within
risk parameters agreed by the Board, whilst ensuring that the Group has sufficient liquid resources to meet the
operating needs of its businesses. The forecast cash and borrowings profile of the Group is monitored to ensure
that adequate headroom remains under committed borrowing facilities.
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including
interest) of the Group’s financial liabilities:
2013
Bank loans and overdrafts
Trade and other payables
Finance lease liabilities
Corporate bonds
Other liabilities
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
Less than
1 year
£m
5.4
345.5
0.1
120.0
83.3
554.3
(13.0)
(787.9)
772.5
525.9
1 to 2
years
£m
–
2.5
0.1
30.0
–
32.6
(4.5)
(50.9)
49.3
26.5
2 to 5
years
£m
–
–
0.2
290.0
–
290.2
(11.8)
–
–
278.4
Over
5 years
£m
–
–
–
394.9
–
394.9
(11.3)
–
–
383.6
Total
£m
5.4
348.0
0.4
834.9
83.3
1,272.0
(40.6)
(838.8)
821.8
1,214.4
85
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Proof 3
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. Financial instruments: risk management and hedging activities (continued)
2012
Bank loans and overdrafts
Trade and other payables
Finance lease liabilities
Corporate bonds
Other liabilities
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
Less than
1 year
£m
7.6
373.5
0.1
34.4
84.4
500.0
(11.6)
(819.2)
810.0
479.2
1 to 2
years
£m
–
–
0.1
120.0
–
120.1
(10.6)
–
–
109.5
2 to 5
years
£m
–
–
0.3
302.5
0.7
303.5
(10.3)
–
–
293.2
Over
5 years
£m
–
–
–
412.3
–
412.3
(10.4)
–
–
401.9
Total
£m
7.6
373.5
0.5
869.2
85.1
1,335.9
(42.9)
(819.2)
810.0
1,283.8
At 26 January 2013 the Group had borrowing facilities of £300m (2012: £300m) in respect of which all conditions
precedent have been met and which are committed to December 2016 (2012: December 2016). None of this
facility was drawn down at 26 January 2013 (2012: £nil).
Interest rate risk
The Group is exposed to fair value interest rate risk on its fixed rate corporate bonds and cash flow interest rate risk
on floating rate bank loans and overdrafts. The forecast cash and borrowings profile of the Group is monitored
regularly to assess the mix of fixed and variable rate debt, and the Group uses interest rate derivatives where
appropriate to reduce its exposure to changes in interest rates and the economic environment.
Interest rates: fair value hedges
The Group has interest rate swap agreements in place as fair value hedges of part of the interest rate risk associated
with the Company’s corporate bonds. Under the terms of the swaps, which have the same key features as the
bonds, the Group receives a fixed rate of interest equivalent to the relevant coupon rate, and pays a variable rate.
Details of the effective rates payable are given in Note 20.
The fair values of the Group’s interest rate swaps, including accrued interest, are as follows:
Derivatives in designated fair value hedging relationships
Other interest rate derivatives
Total interest rate derivatives
2013
£m
34.0
4.3
38.3
2012
£m
31.4
8.8
40.2
Other interest rate derivatives relate to economic hedges of variable rate interest payments due under swaps
relating to the 2013 corporate bond which are not able to be hedge accounted for under IAS 39.
The fair values of derivatives have been calculated by discounting the expected future cash flows at prevailing
interest rates and are based on market prices at the balance sheet date.
Foreign currency risk
The Group’s principal foreign currency exposures arise from the purchase of overseas sourced products. Group
policy allows for these exposures to be hedged for up to 24 months ahead in order to fix the cost in Sterling. This
hedging activity involves, inter alia, the use of spot, forward and option contracts.
The market value of outstanding foreign exchange contracts is reported regularly at Board level, and reviewed
in conjunction with percentage cover taken by season and current market conditions in order to assess and
manage the Group’s ongoing exposure.
86
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 27. Financial instruments: risk management and hedging activities (continued)
The Group does not have a material exposure to currency movements in relation to translation of overseas
investments and consequently does not hedge any such exposure. The Group’s net exposure to foreign currencies,
taking hedging activities into account is illustrated by the sensitivity analysis in Note 30.
Foreign currency: cash flow hedges
The fair values of foreign exchange derivatives are as follows:
Derivatives in designated hedging relationships
Other foreign exchange derivatives
Total foreign exchange derivatives
2013
£m
8.3
1.7
10.0
2012
£m
11.5
(1.6)
9.9
The total notional amount of outstanding foreign exchange contracts at the balance sheet date is as follows:
US Dollar
Euro
Other
2013
£m
770.3
64.1
4.4
838.8
2012
£m
727.5
90.3
–
817.8
Credit risk
Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies
which must fulfil credit rating and investment criteria approved by the Board. Concentrations of risk are mitigated
by the use of various counterparties at any one time. All customers who wish to trade on credit terms are subject
to credit verification procedures. Receivable balances are monitored on an ongoing basis and provision is made
for estimated irrecoverable amounts. The concentration of credit risk is limited due to the Directory customer base
being large and diverse. The Group’s outstanding receivables balances are detailed in Note 14.
Capital risk
The capital structure of the Group consists of debt, as analysed in Note 31, and equity attributable to the equity
holders of the parent company, comprising issued capital, reserves and retained earnings as shown in the
consolidated statement of changes in equity. The Group manages its capital with the objective that all entities
within the Group continue as going concerns while maintaining an efficient structure to minimise the cost of
capital. The Group is not restricted by any externally imposed capital requirements.
As part of its strategy for delivering sustainable long term growth in earnings per share, the Group has been returning
capital to shareholders by way of share buybacks in addition to dividends. Share buybacks are transacted through
both on-market purchases and contingent contracts for off-market share purchases.
22192-04
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Proof 3
87
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. Financial instruments: categories
Financial assets
Derivatives at fair value through profit and loss – held for trading
Derivatives in designated hedging relationships
Loans and receivables
Cash and short term deposits
Available for sale financial assets
Financial liabilities
Derivatives at fair value through profit and loss – held for trading
Derivatives in designated hedging relationships
Corporate bonds
Amortised cost
Finance lease obligations
2013
£m
10.0
42.5
630.8
136.3
1.0
2012
£m
13.8
43.3
608.4
56.4
1.0
(4.0)
(0.2)
(654.4)
(436.7)
(0.4)
(6.6)
(0.4)
(652.1)
(466.2)
(0.5)
All derivatives are categorised as Level 2 under the requirements of IFRS 7, as they are valued using techniques
based significantly on observed market data.
29. Financial instruments: fair values
The fair values of each category of the Group’s financial instruments are the same as their carrying values in the
Group’s balance sheet, other than as noted below:
Corporate bonds
In hedging relationships
Not in hedging relationships
2013
2012
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
341.8
312.6
654.4
347.8
358.8
706.6
339.5
312.6
652.1
328.5
336.0
664.5
The fair values of corporate bonds are their market values at the balance sheet date. Market values include
accrued interest and changes in credit risk and interest rate risk, and are therefore different to the reported carrying
amounts.
88
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Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 30. Financial instruments: sensitivity analysis
Foreign currency sensitivity analysis
The Group’s principal foreign currency exposures are to US Dollars and the Euro. The table below illustrates the
hypothetical sensitivity of the Group’s reported profit and closing equity to a 10% increase and decrease in the
US Dollar/Sterling and Euro/Sterling exchange rates at the year end date, assuming all other variables remain
unchanged. The sensitivity rate of 10% represents the directors’ assessment of a reasonably possible change,
based on historic volatility.
The analysis assumes that exchange rate fluctuations on currency derivatives that form part of an effective cash
flow hedge relationship affect the fair value reserve in equity and the fair value of the hedging derivatives. For
foreign exchange derivatives which are not designated hedges, movements in exchange rates impact the income
statement.
Positive figures represent an increase in profit or equity.
Sterling strengthens by 10%
US Dollar
Euro
Sterling weakens by 10%
US Dollar
Euro
Income statement
2012
2013
£m
£m
Equity
2013
£m
2012
£m
(12.8)
0.8
(11.3)
(2.3)
(41.2)
(2.1)
(39.0)
(5.7)
(0.8)
(1.0)
(8.0)
(1.2)
36.5
1.9
35.5
4.1
Year end exchange rates applied in the above analysis are US Dollar 1.58 (2012: 1.57) and Euro 1.17 (2012: 1.19).
Strengthening and weakening of Sterling may not produce symmetrical results depending on the proportion and
nature of foreign exchange derivatives which do not qualify for hedge accounting.
Interest rate sensitivity analysis
The table below illustrates the hypothetical sensitivity of the Group’s reported profit and closing equity to a 0.5%
increase or decrease in interest rates, assuming all other variables were unchanged. The sensitivity rate of 0.5%
represents the directors’ assessment of a reasonably possible change, based on historic volatility.
The analysis has been prepared using the following assumptions:
❚ For floating rate assets and liabilities, the amount of asset or liability outstanding at the balance sheet date is
assumed to have been outstanding for the whole year.
❚ Fixed rate financial instruments that are carried at amortised cost are not subject to interest rate risk for the
purpose of this analysis.
Positive figures represent an increase in profit or equity.
Interest rate increase of 0.5%
Interest rate decrease of 0.5%
Income statement
2012
2013
£m
£m
(1.0)
(1.3)
1.0
1.3
Equity
2013
£m
(1.0)
1.0
2012
£m
(1.3)
1.3
22192-04
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Proof 3
89
Additional informationParent Company accountsGovernanceANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsConsolidated accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. Analysis of net debt
Cash and short term deposits
Overdrafts
Cash and cash equivalents
Corporate bonds
Fair value hedges of corporate bonds
Finance leases
Total net debt
January
2012
£m
56.4
(7.6)
48.8
(652.1)
29.1
(0.5)
(574.7)
Other
non-cash
changes
£m
Cash flow
£m
82.2
–
–
0.1
82.3
(0.1)
(2.3)
2.2
–
(0.2)
January
2013
£m
136.3
(5.4)
130.9
(654.4)
31.3
(0.4)
(492.6)
32. Operating lease commitments
Future minimum rentals payable under non-cancellable operating leases where the Group is the lessee:
Within one year
In two to five years
Over five years
2013
£m
216.8
778.5
839.9
1,835.2
2012
£m
207.5
756.7
821.0
1,785.2
At 26 January 2013, future rentals receivable under non-cancellable sub-leases where the Group is the lessor were
£23.4m (2012: £39.0m).
The Group has entered into operating leases in respect of vehicles, equipment, warehouses, office equipment and
retail stores. These non-cancellable leases have remaining terms of between 1 month and approximately 20 years.
Contingent rentals are payable on certain retail store leases based on store revenues. The majority of the Group’s
operating leases provide for their renewal by mutual agreement at the expiry of the lease term.
Additional information on the Group’s leasing commitments as at 26 January 2013 is detailed in the table below:
Minimum
lease
payments
£m
206.8
208.4
Less
sub-lease
income
£m
(6.2)
(5.4)
216.8
210.8
202.2
192.0
173.5
995.3
587.1
244.2
8.6
1,835.2
(3.9)
(3.5)
(3.2)
(2.9)
(2.7)
(16.2)
(6.7)
(0.5)
–
(23.4)
Net total
£m
200.6
203.0
212.9
207.3
199.0
189.1
170.8
979.1
580.4
243.7
8.6
1,811.8
Year to January 2012 (Actual)
Year to January 2013 (Actual)
Year to January 2014
Year to January 2015
Year to January 2016
Year to January 2017
Year to January 2018
Sub-total 5 years to January 2018
5 years from February 2018 to January 2023
10 years from February 2023 to January 2033
2033 and beyond
Total future obligations
90
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11 April 2013 9:52 AM
Proof 3
ANNUAL REPORT AND ACCOUNTS JANUARY 2013 COMPANY BALANCE SHEET
As at 26 January
ASSETS AND LIABILITIES
Non-current assets
Investments in subsidiaries
Other financial assets
Current assets
Trade and other receivables
Current tax asset
Other financial assets
Cash and short term deposits
Total assets
Current liabilities
Corporate bonds
Trade payables and other liabilities
Other financial liabilities
Non-current liabilities
Corporate bonds
Other financial liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
Approved by the Board on 21 March 2013
Lord Wolfson of Aspley Guise
Director
David Keens
Director
Notes
2013
£m
2012
£m
C2
C3
C3
C4
C4
C4
C4
2,475.7
30.9
2,506.6
6.3
4.1
10.8
96.2
117.4
2,624.0
(87.6)
(297.7)
(86.7)
(472.0)
(566.8)
–
(566.8)
(1,038.8)
2,475.7
44.6
2,520.3
7.4
5.5
–
10.6
23.5
2,543.8
–
(247.4)
(84.4)
(331.8)
(652.1)
(4.4)
(656.5)
(988.3)
1,585.2
1,555.5
1,585.2
1,555.5
22192-04
11 April 2013 9:52 AM
Proof 3
91
Additional informationGovernanceConsolidated accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsParent Company accounts COMPANY STATEMENT OF CHANGES IN EQUITY
For the financial year ended 26 January
Share
capital
£m
Share
premium
account
£m
Capital
redemp-
tion
reserve
£m
At January 2011
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Share buybacks and commitments (Note C5)
ESOT share purchases and commitments (Note C5)
Shares issued by ESOT
Share option charge
Equity dividends paid
At January 2012
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Shares issued
Share buybacks and commitments (Note C5)
ESOT share purchases and commitments (Note C5)
Shares issued by ESOT
Share option charge
Equity dividends paid
At January 2013
18.1
–
–
–
(1.2)
–
–
–
–
16.9
–
–
–
–
(0.8)
–
–
–
–
16.1
0.8
–
–
–
–
–
–
–
–
0.8
–
–
–
0.1
–
–
–
–
–
0.9
11.8
–
–
–
1.2
–
–
–
–
13.0
–
–
–
–
0.8
–
–
–
–
13.8
COMPANY CASH FLOW STATEMENT
For the financial year ended 26 January
ESOT
reserve
£m
(138.6)
–
–
–
–
(112.3)
109.8
–
–
(141.1)
–
–
–
–
–
(143.5)
69.0
–
–
(215.6)
Other
reserves
£m
Retained
earnings
£m
985.2
–
–
–
–
–
–
–
–
985.2
–
–
–
–
–
–
–
–
–
985.2
984.0
179.1
–
179.1
(323.0)
–
(42.2)
17.9
(135.1)
680.7
478.7
–
478.7
–
(220.0)
–
(24.7)
17.8
(147.7)
784.8
Cash flows from operating activities
Operating loss
Share option charge
Decrease in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Corporation taxes received
Net cash from operating activities
Cash flows from investing activities
Dividends received
Net cash from investing activities
Cash flows from financing activities
Repurchase of own shares
Purchase of shares by ESOT
Proceeds from disposal of shares by ESOT
Repayment of unsecured bank loans
Net proceeds from bond issue and tender
Interest paid
Interest received
Dividends paid
Net cash from financing activities
Net increase in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
92
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11 April 2013 9:52 AM
Proof 3
2013
£m
(0.1)
–
–
69.4
69.3
8.3
77.6
500.0
500.0
(241.9)
(123.0)
43.4
–
–
(23.0)
0.2
(147.7)
(492.0)
85.6
10.6
96.2
Total
equity
£m
1,861.3
179.1
–
179.1
(323.0)
(112.3)
67.6
17.9
(135.1)
1,555.5
478.7
–
478.7
0.1
(220.0)
(143.5)
44.3
17.8
(147.7)
1,585.2
2012
£m
(1.1)
1.1
1.2
252.3
253.5
6.8
260.3
200.0
200.0
(291.1)
(106.7)
67.6
(115.0)
153.3
(23.7)
1.0
(135.1)
(449.7)
10.6
–
10.6
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
C1. Accounting policies
The accounting policies adopted for the parent company, NEXT plc, are the same as those used for the Group
which are set out on pages 60 to 63. As permitted by Section 408 of the Companies Act 2006, the income
statement of the Company is not presented as part of the financial statements. The profit after taxation dealt with
in the accounts of the holding company was £478.7m (2012: profit of £179.1m).
C2. Investments in subsidiaries
The Company has taken advantage of Section 410(2) of the Companies Act 2006 to list only its principal subsidiary
and associated undertakings at 26 January 2013. All of these are wholly owned by the Company or its subsidiary
undertakings, registered in England and Wales, and operate predominantly in the United Kingdom unless otherwise
stated.
Subsidiary undertakings
NEXT Group Plc
NEXT Retail Limited ¹
NEXT Directory ²
NEXT Distribution Limited ¹
Lipsy Limited ¹
Intermediate holding company
Retailing of fashion and home products
Home shopping, including international online
Warehousing and distribution
Fashion retailing
NEXT Sourcing Limited ¹
NEXT Manufacturing (Pvt) Limited ¹
Overseas sourcing services (Hong Kong)
Garment manufacture (Sri Lanka)
Associated undertakings
Choice Discount Stores Limited ¹
Cotton Traders Holdings Limited ¹
Retailing (40%)
Home shopping and retailing (33%)
¹ Shareholdings held by subsidiary undertakings
² The trade of the NEXT Directory is carried out as a division of NEXT Retail Limited
C3. Other financial assets
Other financial assets comprise interest rate derivatives as detailed in Note 15 of the consolidated financial
statements, which are carried at their fair value.
C4. Current and non-current liabilities
Details of the terms of bank overdrafts and unsecured bank loans are given in Note 17. Further information on the
Company’s corporate bonds is given in Note 20.
Trade and other payables comprise £286.1m (2012: £235.5m) of amounts due to subsidiary undertakings and £11.6m
(2012: £11.9m) of other creditors and accruals. Other current financial liabilities include interest rate derivatives
carried at fair value (Note 19) and amounts payable under the Company’s closed season buyback arrangements
and contingent purchase contracts, including those entered into by the ESOT for the Company’s own shares. Other
non-current financial liabilities comprise interest rate derivative instruments carried at fair value (Note 19).
C5. Share capital, ESOT and other reserves
Details of the Company’s share capital and share buybacks are given in Note 23. ESOT transactions are detailed
in Note 26. Other reserves in the Company balance sheet of £985.2m (2012: £985.2m) represent the difference
between the market price and the nominal value of shares issued as part of the capital reconstruction on
acquisition of NEXT Group plc which has been subject to Section 131 Companies Act 1985 merger relief.
C6. Financial instruments
The Company is exposed to liquidity, interest rate, credit and capital risks and adopts the same approach to the
management of these risks as the Group, as detailed in Note 27. The Company is not exposed to foreign currency
risk as it has no foreign currency assets or liabilities.
Trade and other receivables primarily comprise amounts due from Group companies and therefore the Company’s
exposure to credit risk is limited; none of these assets are overdue or impaired.
The Company hedges its exposure to interest rate risk associated with its corporate bonds as detailed in Notes 20
and 27. The fair values of the Company’s corporate bonds are shown in Note 29.
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Additional informationGovernanceConsolidated accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsParent Company accounts 2012
£m
(1.4)
1.4
2012
£m
13.2
31.4
10.6
2013
£m
7.7
34.0
96.2
(3.4)
(654.4)
(371.2)
(4.4)
(652.1)
(331.8)
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
C6. Financial instruments (continued)
Interest rate increase of 0.5%
Interest rate decrease of 0.5%
Income statement
2012
2013
£m
£m
(1.1)
(1.4)
1.1
1.4
Equity
2013
£m
(1.1)
1.1
The following table shows the carrying values of the Company’s financial instruments by category:
Financial assets
Derivatives at fair value through profit and loss – held for trading
Derivatives in designated hedging relationships
Cash and short term deposits
Financial liabilities
Derivatives at fair value through profit and loss – held for trading
Corporate bonds
Amortised cost
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows, including
interest, of the Company’s financial liabilities:
2013
Trade and other payables
Other liabilities
Corporate bonds
Derivatives: net settled
Total cash flows
2012
Trade and other payables
Other liabilities
Corporate bonds
Derivatives: net settled
Total cash flows
Less than 1
year
£m
287.9
83.3
120.0
491.2
(13.0)
478.2
Less than 1
year
£m
237.7
84.4
34.4
356.5
(11.6)
344.9
1 to 2
years
£m
–
–
30.0
30.0
(4.5)
25.5
1 to 2
years
£m
–
–
120.0
120.0
(10.6)
109.4
2 to 5
years
£m
–
–
290.0
290.0
(11.8)
278.2
2 to 5
years
£m
–
–
302.5
302.5
(10.3)
292.2
Over 5
years
£m
–
–
394.9
394.9
(11.3)
383.6
Over 5
years
£m
–
–
412.3
412.3
(10.4)
401.9
Total
£m
287.9
83.3
834.9
1,206.1
(40.6)
1,165.5
Total
£m
237.7
84.4
869.2
1,191.3
(42.9)
1,148.4
C7. Related party transactions
During the year the Company entered into transactions, in the ordinary course of business, with other related
parties as follows.
Transactions with subsidiary undertakings:
Recharge of costs
Funds advanced/(borrowed)
Dividends received
Interest payable
Amounts due to subsidiary undertakings
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2013
£m
2012
£m
(386.3)
(164.3)
500.0
–
(419.4)
(16.3)
200.0
(1.0)
(286.1)
(235.5)
ANNUAL REPORT AND ACCOUNTS JANUARY 2013
HALF YEAR AND SECTOR ANALYSIS
Revenue
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Other activities
Total – continuing
Ventura (discontinued)
Profit before tax
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Other activities
Operating profit
Net finance costs
Total – continuing
Ventura (discontinued)
First
half
£m
Second
half
£m
Year to
Jan 2013
£m
First
half
£m
Second
half
£m
Year to
Jan 2012
£m
1,009.9
551.7
37.9
3.0
26.9
2.7
8.2
1,640.3
–
1,181.0
640.9
39.8
5.8
31.2
17.6
6.2
1,922.5
–
2,190.9
1,192.6
77.7
8.8
58.1
20.3
14.4
3,562.8
–
1,008.2
486.7
33.6
3.2
22.7
3.1
8.0
1,565.5
64.8
1,183.2
602.0
42.7
4.3
32.2
3.1
8.1
1,875.6
–
2,191.4
1,088.7
76.3
7.5
54.9
6.2
16.1
3,441.1
64.8
122.7
137.7
3.4
11.8
0.5
3.6
(20.2)
259.5
(14.5)
245.0
–
208.4
164.4
5.0
19.0
1.5
9.0
28.3
435.6
(14.1)
421.5
–
331.1
302.1
8.4
30.8
2.0
12.6
8.1
695.1
(28.6)
666.5
–
122.5
112.8
3.2
10.1
(0.4)
3.4
(10.3)
241.3
(13.3)
228.0
2.9
201.2
149.8
4.7
11.0
1.7
2.2
(10.1)
360.5
(9.0)
351.5
–
323.7
262.6
7.9
21.1
1.3
5.6
(20.4)
601.8
(22.3)
579.5
2.9
FIVE YEAR HISTORY
Year to January
Continuing operations
Revenue
Operating profit – underlying
Net finance costs – underlying
Profit before taxation – underlying
Exceptional items (pre-tax)
Ventura profit before tax (discontinued)
Taxation
Profit after taxation
2013
£m
2012
£m
2011
£m
2010
£m
2009
£m
3,562.8
3,441.1
3,297.7
3,260.9
3,109.6
650.2
(28.6)
621.6
44.9
–
(157.9)
508.6
598.7
(28.4)
570.3
47.2
2.9
(145.6)
474.8
566.8
(23.4)
543.4
–
8.0
(150.5)
400.9
523.8
(24.5)
499.3
–
6.0
(141.3)
364.0
473.2
(49.5)
423.7
–
5.1
(126.5)
302.3
Total equity
285.6
222.7
232.4
133.4
140.5
Shares purchased for cancellation
7.5m
12.5m
10.0m
5.9m
3.9m
Dividends per share
105.0p
90.0p
78.0p
66.0p
55.0p
Basic earnings per share
Underlying
Total
297.7p
320.1p
255.4p
282.0p
221.9p
221.9p
188.5p
188.5p
156.0p
156.0p
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Parent Company accountsGovernanceConsolidated accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsAdditional information NOTICE OF MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should
take, you are recommended to seek your own personal financial advice from your stockbroker, bank manager, solicitor,
accountant or other financial advisor authorised under the Financial Services and Markets Act 2000.
If you have sold or otherwise transferred all your NEXT shares, please send this document, together with the accompanying
Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom
the sale or transfer was effected, for delivery to the purchaser or transferee.
Notice is given that the Annual General Meeting of NEXT plc will be held at the Leicester Marriott Hotel, Smith Way, Grove Park,
Leicester LE19 1SW on Thursday 16 May 2013 at 9.30 a.m. at which the following resolutions will be proposed; resolutions 1 to 15
as Ordinary Resolutions and 16 to 19 as Special Resolutions.
Further information on these resolutions can be found in the Directors’ Report and Business Review on pages 21 to 24 and
in the appendix to this Notice. Biographies of directors seeking election/re-election are shown on page 27 of the Annual
Report.
1
2.
3.
4.
5.
6.
7.
8.
9.
To receive and adopt the accounts and reports of the directors and auditor for the year ended 26 January 2013.
To approve the remuneration report for the year ended 26 January 2013.
To declare a final dividend of 74p per share in respect of the year ended 26 January 2013.
To re-elect John Barton as a director.
To re-elect Christos Angelides as a director.
To re-elect Steve Barber as a director.
To re-elect Christine Cross as a director.
To re-elect Jonathan Dawson as a director.
To elect Caroline Goodall as a director.
10.
To re-elect David Keens as a director.
11.
To re-elect Francis Salway as a director.
12.
To re-elect Andrew Varley as a director.
13.
To re-elect Lord Wolfson as a director.
14.
To re-appoint Ernst & Young LLP as auditor and authorise the directors to set their remuneration.
15. Directors’ authority to allot shares
That:
(a)
the directors be authorised to allot equity securities (as defined in section 560 of the Companies Act 2006) in the
Company:
(i)
in accordance with article 7 of the Company’s articles of association (the “Articles”), up to a maximum
nominal amount of £5,300,000; and
(ii) up to a maximum nominal amount of £10,600,000 (as reduced by any equity securities allotted under
paragraph (a)(i) above) in connection with an offer by way of a rights issue (as defined in article 8 of the
Articles);
(b)
in accordance with article 7 of the Articles this authority shall expire at the conclusion of the next annual general
meeting of the Company after the passing of this resolution, or, if earlier, at the close of business on 1 August 2014;
and
(c) all previous unutilised authorities under section 551 of the Companies Act 2006 shall cease to have effect (save to
the extent that the same are exercisable pursuant to section 551(7) of the Companies Act 2006 by reason of any
offer or agreement made prior to the date of this resolution which would or might require shares to be allotted on or
after that date).
16. Disapplication of pre-emption rights
That:
(a)
in accordance with article 8 of the Company’s articles of association (the “Articles”), the directors be given power to
allot equity securities for cash;
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013
(b)
the power under paragraph (a) above (other than in connection with a rights issue, as defined in article 8(b)(ii)
of the Articles) shall be limited to the allotment of equity securities having a nominal amount not exceeding in
aggregate £806,000;
(c)
in accordance with article 8 of the Articles this authority shall expire at the conclusion of the next annual general
meeting of the Company after the passing of this resolution or, if earlier, at the close of business on 1 August 2014;
and
(d) all previous unutilised authorities under sections 570 and 573 of the Companies Act 2006 shall cease to have effect.
17. On-market purchase of own shares
That in accordance with the Companies Act 2006 (the “Act”), the Company be granted general and unconditional
authority to make market purchases (as defined in Section 693 of the Act) of any of its own ordinary shares on such terms
and in such manner as the directors may determine provided that:
(a)
the authority conferred by this resolution shall be limited to the lesser of 24,169,000 ordinary shares of 10p each and
no more than 14.99% of the issued ordinary shares outstanding at the date of the Annual General Meeting, such limit
to be reduced by the number of any shares purchased pursuant to the authority granted at resolution 18 below;
(b)
the minimum price which may be paid for ordinary shares (exclusive of expenses) is 10p per ordinary share;
(c)
the maximum price which may be paid for each ordinary share (exclusive of expenses) is an amount not more than
the higher of 105% of the average of the middle market price of the ordinary shares of the Company according to
the Daily Official List of the London Stock Exchange for the five business days immediately preceding the date of
purchase and the amount stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation 2003;
(d)
the authority hereby conferred, unless renewed, shall expire on whichever is the earlier of the conclusion of the
Annual General Meeting of the Company held in 2014 and 1 August 2014;
(e)
the Company may make a contract or contracts to purchase ordinary shares under the authority hereby conferred
prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority
and may make a purchase of ordinary shares in pursuance of any such contract; and
(f)
all existing authorities for the Company to make market purchases of its own ordinary shares are revoked, except in
relation to the purchase of shares under a contract or contracts concluded before the date of this resolution and
which has or have not yet been executed.
18. Off-market purchases of own shares
That, in accordance with section 694 of the Companies Act 2006, the proposed programme agreements to be entered
into between the Company and any of Goldman Sachs International, UBS AG, Deutsche Bank AG, HSBC Bank plc and
Barclays Bank plc (in the form produced to this meeting and initialled by the Chairman for the purpose of identification)
(“the Programme Agreements”) be and are approved and the Company be and is authorised to enter into the Programme
Agreements and all and any forward trades which may be effected or made from time to time under or pursuant to the
Programme Agreements for the off-market purchase by the Company of its ordinary shares of 10 pence each, as more fully
described in Appendix 1 on pages 98 to 99 (the authority conferred by this special resolution to expire on whichever is the
earlier of the conclusion of the next annual general meeting of the Company held in 2014 and 1 August 2014, unless such
authority is renewed prior to that time (except in relation to the purchase of ordinary shares under any forward trade effected
or made before the expiry of such authority and which might be completed wholly or partly after such expiry)), and provided
that shares purchased pursuant to this authority will reduce the number of shares that the Company may purchase under
the general authority granted under resolution 17 above.
19. Notice of general meetings
That, in accordance with the Company’s articles of association, a general meeting (other than an annual general meeting)
may be called on not less than 14 clear days’ notice.
By order of the Board
Andrew McKinlay
Secretary
Registered Office: Desford Road, Enderby, Leicester, LE19 4AT
15 April 2013
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APPENDIX I (CONTINUED)
FURTHER INFORMATION ON RESOLUTION 18: OFF MARKET PURCHASES OF OWN SHARES
As noted on pages 23 and 24 in the Directors’ Report and Business Review, approval will be sought from shareholders to renew
the Company’s authority to make off-market purchases of its shares.
By virtue of special resolution number 16 passed at the Company’s 2012 Annual General Meeting (“AGM”) shareholder authority
was given to the Company to make on-market purchases of shares. This authority was limited to a maximum of 24.95 million
shares and expires on the earlier of the date of the AGM held in 2013 or 1 August 2013. At the same AGM, authority was granted
to the Company to make off-market purchases of shares for cancellation under contingent purchase contracts to be entered
into with any of Goldman Sachs International, UBS AG, Deutsche Bank AG, HSBC Bank plc and Barclays Bank plc (the “Bank(s)”).
This authority was limited to a maximum of 8 million shares and expires on the earlier of the date of the AGM to be held in 2013
or 1 August 2013. Pursuant to those authorities and up to 19 March 2013, the Company has bought back 4,767,669 shares for
cancellation, representing 2.9% of its issued share capital as at the date of the 2012 AGM, at a total cost of £162.9 million. Of
these, 650,190 shares were bought back under contingent purchase contracts.
Under Sections 693 and 694 of the Companies Act 2006 (the “Act”), the Company is not permitted to make off-market purchases or
contingent purchases of its shares unless it obtains advance shareholder approval to the proposed contract terms. Furthermore,
under the rules of the UK Listing Authority (the “Listing Rules”) the Company may not purchase its shares at a time when any
director is in receipt of unpublished price sensitive information about the Company. Accordingly, no purchases of shares would
normally be made in periods when the directors might be in receipt of unpublished price sensitive information (“Close Periods”).
Typically, these include the periods from the Company’s half year end up to the announcement of its interim results in September
and the January year end up to the announcement of full year results in March each year. These Close Periods inevitably reduce
the number of shares the Company is able to purchase.
In order to achieve maximum flexibility in its share purchase activities, the Company is able to enter into irrevocable and non-
discretionary programmes to allow it to buy shares during Close Periods. Another method of providing flexibility in its share
purchase activities, and reducing the cost of share buybacks, is for the Company to enter into contingent forward purchase
contracts outside of Close Periods. Pursuant to the authority granted at the 2012 AGM, the Company entered into agreements
with the Banks (the “Existing Agreements”) and the Company intends to terminate the Existing Agreements and enter into new
agreements with each of the Banks. Under these agreements (the “Programme Agreements”), the Company may (although it is
not obliged to) enter into contingent forward trades (“Contingent Forward Trades” or “CFT”) from time to time. The terms of each
CFT will provide for the Company to purchase a fixed number of shares each week over a period of between 20 to 30 weeks. The
maximum number of shares that can be purchased under each CFT is limited to 50,000 shares per week. Details of each CFT will
be announced to shareholders on the day it is entered into by the Company.
Whether or not the Company purchases shares in a particular week during the term of a CFT is dependent upon the Company’s
share price not reaching a level set at the time that contract is entered into (the “Suspension Level”). The Suspension Level is
determined by the Company and must be between 104% and 110% of the Company’s share price as at the start of the CFT.
The price at which the Company may purchase shares during the term of a CFT (the “Forward Price”) shall also be fixed at the
start of the CFT. The Forward Price is subject to a maximum of 99% of the share price at the start of the contract and a minimum
of 10 pence (the par value of an ordinary share).
This structure would allow the Company to purchase shares at a discount to the market price (as at the time each CFT
commences), for so long as the Suspension Level is not reached, without breaching the Listing Rules. If the Suspension Level is
reached, the CFT would terminate automatically at that time and no further shares would be purchased under that contract.
Under the provisions of sections 693 and 694 of the Act, the Programme Agreements and Contingent Forward Trades are
contingent purchase contracts to purchase shares by the Company off-market. Accordingly resolution 18, which will be proposed
as a special resolution, seeks shareholder approval to the terms of the Programme Agreements to be entered into between the
Company and each of the Banks. The Programme Agreements will have a duration of the shorter of the period to the date of the
next AGM to be held in 2014 or 1 August 2014 and will incorporate the terms of an ISDA Master Agreement and Schedule. The
Programme Agreements will be entered into and each CFT will be effected outside a Close Period but shares may be purchased
during a Close Period by the Company. The minimum and maximum amount of time between a CFT being effected and shares
being purchased is 5 days and 30 weeks respectively.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Should shareholder approval be granted, any number of CFT may be effected with the Banks at any time, provided that:
❚
❚
❚
❚
❚
the total maximum number of shares which the Company is permitted to purchase pursuant to this authority would be
5.0 million, representing circa 3% of its issued share capital at 19 March 2013;
the total cost of shares that the Company would be permitted to purchase pursuant to this authority may not exceed
£200 million (including costs);
the Forward Price may not exceed the higher of 105% of the average middle market closing price of the Company’s shares as
derived from the Official List of the London Stock Exchange for the five days immediately preceding the day on which the CFT
was effected and the amount stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation 2003;
the Forward Price will be no more than 99% of the share price at the time the Contingent Forward Trade was effected;
the minimum price that can be paid for any share is £0.10; and
❚ only one Contingent Forward Trade will be entered into on any particular day.
Subject to the limits set out above, the Company will select the Suspension Level and the duration of each CFT, and the Forward
Price will be determined by the relevant Bank. Shares purchased via the Programme Agreements will reduce the number of
shares that the Company may purchase under any authority granted at the AGM on 16 May 2013 for on-market purchases. No
shares will be purchased under that authority on the same day that a CFT is entered into. The authority granted to the Company
under this resolution will expire at the conclusion of the AGM of the Company held in 2014 or on 1 August 2014, whichever is the
earlier, unless such authority is renewed prior to that time (except in relation to the purchase of shares under any CFT effected
before the expiry of such authority and which might be completed wholly or partly after such expiry). The purchase of shares
under the Programme Agreements will always be physically settled by delivery of shares to the Company (except in the case of
certain events of default or termination events).
A copy of each of the Programme Agreements will be available at the AGM on 16 May 2013. Copies will also be available for
inspection at the Company’s registered office at Desford Road, Enderby, Leicester LE19 4AT and at the offices of Pinsent Masons,
30 Crown Place, Earl Street, London EC2A 4ES during usual business hours until the date of the AGM and at the Meeting itself.
The total number of employee share options to subscribe for shares outstanding at 19 March 2013 was 8,468,294. This represents
5.3% of the issued share capital at that date. If the Company were to buy back the maximum number of shares permitted
pursuant to both the existing authority for off-market purchases granted at the 2012 AGM (which will expire at the 2013 AGM) and
the authority sought by this special resolution, then the total number of options to subscribe for shares outstanding at 19 March
2013 would represent 5.7% of the reduced issued share capital.
Attendance, voting and questions
All members who hold ordinary shares are entitled to attend and vote at the AGM. A member who is entitled to attend and vote
may appoint one or more proxies to attend and vote instead of him, provided that each proxy is appointed to exercise the rights
attached to a different share or shares held by him. A proxy need not also be a member. A proxy may vote on any other business
which may properly come before the meeting. If you do not intend being present at the meeting please either sign and return
a hard copy form of proxy so as to reach the Company’s registrars at least 48 hours before the meeting or follow the instructions
for electronic proxy appointment through CREST or through www.sharevote.co.uk set out below. The return by a member of a fully
completed form of proxy will not preclude any such member from attending in person and voting at the meeting.
A person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information
rights (a “Nominated Person”) may, under an agreement between them and the shareholder by whom they were nominated,
have a right to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, they may, under any such agreement, have a right to give instructions to
the shareholder as to the exercise of voting rights.
The statements of the rights of members in relation to the appointment of proxies in the above paragraph and in the paragraphs
headed “Electronic proxy appointment through CREST” and “Proxy card” below do not apply to a Nominated Person. The rights
described in these paragraphs can only be exercised by registered members of the Company. Nominated persons are reminded
that they should contact the registered holder of their shares (and not the Company) on matters relating to their investments in
the Company.
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Parent Company accountsGovernanceConsolidated accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsAdditional information NOTICE OF MEETING
APPENDIX I (CONTINUED)
Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to the same shares.
In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted
by the most senior holder will be accepted, the senior holder being the first named of the joint holders to appear in the Company’s
share register.
A member who appoints as their proxy someone other than the Chairman, is responsible for ensuring that the proxy attends
the meeting and is aware of the voting intention of the member. If no voting instruction is given, the proxy has a discretion on
whether and how to vote.
If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt
of proxies will take precedence.
The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 and its articles of association, specifies
that only those shareholders registered in the register of members of the Company as at 6pm on 14 May 2013 shall be entitled
to attend or vote at the aforesaid general meeting in respect of the number of shares registered in their name at that time.
Changes to entries on the relevant register of securities after 6 pm on 14 May 2013 (or 6 pm on the day that is two days before
any adjourned meeting) shall be disregarded in determining the rights of any person to attend or vote at the meeting.
All resolutions will be put to poll votes. This means that the votes of all shareholders, including those who cannot attend the
meeting but who validly appoint a proxy, are counted. The procedures for the poll votes will be explained at the AGM.
In respect of resolution 18 on off-market share purchase contracts, the Companies Act 2006 provides that this resolution will not
be effective if any member of the Company holding shares to which it relates (i.e. those which may be purchased pursuant to
the Programme Agreements) exercised the voting rights carried by any of those shares in voting on the special resolution and
the resolution would not have been passed if they had not done so. Therefore, NEXT intends to disregard any poll votes which are
cast in favour of resolution 18 attaching to 5.0 million shares (being the total maximum number of shares which the Company
is permitted to purchase pursuant to the Programme Agreements) from both the total number of votes cast in favour of this
resolution and the total number of votes cast.
As at 19 March 2013 (being the latest practicable date prior to the publication of this Notice) the Company’s issued share capital
consists of 161,234,237 ordinary shares. All of the ordinary shares carry one vote each and there are no shares held in treasury.
A member attending the meeting has the right to ask questions. The Company must ensure any such question relating to the
business being dealt with at the meeting is answered but no such answer need be given if (a) to do so would interfere unduly
with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given
on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the company or the good order of
the meeting that the question be answered.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Electronic proxy appointment through CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for
the AGM to be held on 16 May 2013 and any adjournment(s) thereof by using the procedures described in the CREST Manual.
CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on
their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications
and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of
whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy
must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA19) by the latest time(s) for receipt
of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to
retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies
appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations
will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to
take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s),
to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a
message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings. The CREST Manual is available at www.euroclear.com/CREST.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
Documents available for inspection
The following documents will be available for inspection at the registered office of the Company during usual business hours and
will be available for fifteen minutes prior to and for the duration of the AGM:
❚ Copies of the terms of appointment of the non-executive directors
❚ Copies of each of the Programme Agreements pursuant to resolution 18
Copies of each of the Programme Agreements pursuant to resolution 18 will be available for inspection at the offices of Pinsent
Masons, 30 Crown Place, Earl Street, London EC2A 4ES during normal working hours until the close of the Annual General Meeting.
You may not use any electronic address provided in this notice of meeting to communicate with the Company for any purposes
other than those expressly stated.
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101
Parent Company accountsGovernanceConsolidated accountsANNUAL REPORT AND ACCOUNTS JANUARY 2013Business reportsAdditional information OTHER INFORMATION
Registered Office
Desford Road, Enderby, Leicester, LE19 4AT
Registered in England, no. 4412362
Company website
A full copy of this Annual Report, together with those for prior years, and other information required by section 311A
of the Companies Act 2006 can be found on the NEXT plc website at www.nextplc.co.uk
Under section 527 of the Companies Act 2006 members meeting the threshold requirements set out in that section
have the right to require the Company to publish on a website a statement setting out any matter relating to: (i)
the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to
be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor of the Company
ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance
with section 437 Companies Act 2006. The Company may not require the members requesting such website
publication to pay its expenses in complying with sections 527 or 528 Companies Act 2006, and it must forward the
statement to the Company’s auditor not later than the time when it makes the statement available on the website.
The business which may be dealt with at the Annual General Meeting includes any statement that the Company
has been required under section 527 Companies Act 2006 to publish on its website.
Payment of dividend
The recommended final ordinary dividend, if approved, will be paid on 1 August 2013 to holders of ordinary shares
registered at close of business on 28 June 2013. The ordinary shares will trade ex-dividend from 26 June 2013.
Annual General Meeting
The Annual General Meeting will be held at 9.30 a.m. on Thursday 16 May 2013 at the Leicester Marriott Hotel,
Smith Way, Grove Park, Leicester LE19 1SW. The notice of the meeting on pages 96 to 101 sets out business to be
transacted. Full access is available to the venue for those with special requirements.
Proxy card
Completed proxy cards should be sent to our registrars, Equiniti, and must be received by 9.30 a.m. on 14 May
2013 (or 48 hours before any adjourned meeting). As an alternative to completing and returning this form of proxy,
you may submit your proxy electronically by accessing the Registrar’s website www.sharevote.co.uk. You will be
asked to enter your unique Voting ID, Task ID and Shareholder Reference Number as printed on your form of proxy.
The use by members of the electronic proxy appointment service will be governed by the terms and conditions
of use which appear on the website. Electronic proxies must be completed and lodged in accordance with the
instructions on the website by no later than 48 hours before the Annual General Meeting. A member must inform
the Registrar in writing of any termination of the authority of a proxy.
Share price data
(Stock Exchange Code: NXT.L)
Share price at financial year end
Market capitalisation
Share price movement during year:
High mid-market quotation
Low mid-market quotation
2013
£40.59
2012
£26.39
£6,544m £4,453m
£40.59
£26.19
£28.10
£18.68
Registrars and transfer office
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA
Telephone 0871 384 2164. Calls to this number are charged at 8p per minute plus network extras. Overseas
Shareholder Helpline Number +44 (0)121 415 7047. Lines are open 8.30am to 5.30pm Monday to Friday.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2013 Discount voucher
The Company offers a discount voucher to any first named, registered shareholder holding 500 or more ordinary
shares as at 1 April each year. The voucher entitles the recipient or their immediate family to a 25% discount against
most purchases at any one time of full price merchandise in NEXT Retail stores. It cannot be used in conjunction
with any other discount voucher or offer, nor can it be used for the purchase of gift cards, Sale merchandise,
electrical goods, non-NEXT branded goods or at any branch of NEXT Clearance or purchases from NEXT Directory.
The voucher has no monetary purchase limit and expires on 31 October of the same year. Shareholders holding
shares in nominee or PEP/ISA accounts are also eligible, but must request the voucher through their nominee or
PEP/ISA account manager who should email alyson_wenlock@next.co.uk.
Shareholder enquiries
The Company’s share register is maintained by Equiniti. Please contact them if you have any enquiries about your
NEXT plc shareholding including the following matters:
❚ change of name and address
❚
❚
if you receive duplicate sets of company mailings as a result of an inconsistency in name or address and wish,
if appropriate, to combine accounts.
loss of share certificate, dividend warrant or tax voucher
The Shareview Portfolio service from our registrar, Equiniti, gives you more online information about your NEXT plc
shares and other investments. For direct access to information held for you on the share register, including recent
balance movements and a daily valuation of investments held in your portfolio, visit www.shareview.co.uk.
if requested future communications produced by them will be sent in the appropriate format.
For shareholders with disabilities, Equiniti provides the following:
❚
❚
❚ hearing loop facilities in their buildings for use by visiting shareholders.
textphone number 0871 384 2255 for shareholders with hearing difficulties.
CREST
The Company’s ordinary shares are available for electronic settlement.
Payments of dividends to mandated accounts
Shareholders who do not at present have their dividends paid directly into a bank or building society may wish to
do so. A mandate form is attached to your dividend warrant and tax voucher or is available to download from the
NEXT plc website on www.nextplc.co.uk or from Equiniti, telephone 0871 384 2164.
FORWARD LOOKING STATEMENTS
This Report and Accounts contains “forward looking statements” which are all matters that are not historical facts, including
anticipated financial and operational performance, business prospects and similar matters. These forward looking statements
are identifiable by words such as “aim”, “anticipate”, “believe”, “budget”, “estimate”, “expect”, “forecast”, “intend”, “plan”, “project”
and similar expressions. These forward looking statements reflect NEXT’s current expectations concerning future events and
actual results may differ materially from current expectations or historical results. Any such forward looking statements are subject
to risks and uncertainties, including but not limited to those risks described in “Risks & Uncertainties” on pages 17 to 19; failure by
NEXT to predict accurately customer fashion preferences; decline in the demand for merchandise offered by NEXT; competitive
influences; changes in level of store traffic or consumer spending habits; effectiveness of NEXT’s brand awareness and marketing
programmes; general economic conditions or a downturn in the retail industry; the inability of NEXT to successfully implement
relocation or expansion of existing stores; insufficient consumer interest in NEXT Directory; acts of war or terrorism worldwide; work
stoppages, slowdowns or strikes; and changes in financial or equity markets. These forward looking statements do not amount
to any representation that they will be achieved as they involve risks and uncertainties and relate to events and depend upon
circumstances which may or may not occur in the future and there can be no guarantee of future performance. Undue reliance
should not be placed on forward looking statements which speak only as of the date of this document. NEXT does not undertake
any obligation to update publicly or revise forward looking statements, whether as a result of new information, future events or
otherwise, except to the extent legally required.
This report has been printed on recycled paper.
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A n n uA l R e p oR t A n d Ac co un t s
J A n uA R y 2013