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N E X T . C O . U K
N E X T P LC .CO. U K
J A N U A R Y 201 5
Annual Report & Accounts 2015 FINAL.indd 1
23849.04 8 April 2015 7:29 AM Proof 4
26/02/2015 10:41
Annual Report and Accounts
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 over more than
500 stores in the UK and Eire;
NEXT Directory, our home
shopping division with over 4
million active customers in the
UK and overseas; and NEXT
International Retail, with almost
200 mainly franchised stores.
Business reports
Highlights
1
Strategic Report:
2
2
3
22
23
24
27
28
Chairman’s Statement
Chief Executive’s Review
Business Model
Key Performance
Indicators
Risks & Uncertainties
Employees
Social, Community &
Human Rights
Environmental Matters
29
31 Directors’ Report
including Annual General
Meeting & other matters
Governance
37 Directors’ Responsibilities
Statement
38 Directors and Officers
39 Corporate Governance
45 Audit Committee Report
47
74
Remuneration Report
Independent Auditor’s
Report
Consolidated accounts
80 Consolidated Income
Statement
81 Consolidated Statement
of Comprehensive
Income
82 Consolidated Balance
Sheet
83 Consolidated Statement
of Changes in Equity
84 Consolidated Cash Flow
Statement
85 Group Accounting
Policies
89 Notes to the
Consolidated Financial
Statements
Parent Company accounts
117
Parent Company
Balance Sheet
Parent Company
Statement of Changes
in Equity
118
119 Notes to the Parent
Company Financial
Statements
Additional information
120
Half Year and Sector
Analysis
Five Year History
120
121 Notice of Meeting
132 Other Information
This document contains Forward Looking Statements
— see the important information on page 133.
23849.04 8 April 2015 7:29 AM Proof 2
plc
HIGHLIGHTS:
• Another year of good growth. Sales up
7% to £4.0bn and underlying growth
in profit of 12.5% to £782m and in EPS
of 15% to 420p.
• Strong net cash generation of £574m
before dividends and share buybacks.
• Final ordinary dividend of 100p,
making 150p for the year, up 16%.
Remains covered 2.8 times.
• £572m
returned
to shareholders
through a combination of ordinary
dividends £211m, special dividends
£223m and share buybacks £138m.
• Strategy remains focused on products,
profitability and returning cash to
shareholders through dividends and
share buybacks.
23849.04 8 April 2015 7:29 AM Proof 4
Total Sales*
Underlying continuing
business
+7.2%
Jan 15
Jan 14
Jan 13
Jan 12
Jan 11
£4.0bn
£3.8bn
£3.6bn
£3.5bn
£3.3bn
Profit before tax
Underlying continuing
business
+12.5%
Jan 15
Jan 14
Jan 13
Jan 12
Jan 11
£782m
£695m
£622m
£570m
£543m
Earnings per share
Underlying
+14.7%
Jan 15
Jan 14
Jan 13
419.8p
366.1p
297.7p
Jan 12
255.4p
Jan 11
221.9p
Dividends per share
Excluding special
dividends
+16.3%
Jan 15
Jan 14
Jan 13
Jan 12
150p
129p
105p
90p
Jan 11
78p
* Total Sales excludes VAT and includes the full
value of commission based sales (see p. 89)
1
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015 STRATEGIC REPORT
CHAIRMAN’S STATEMENT
The year to January 2015 was a good year for NEXT. Underlying Earnings Per Share (EPS) grew by 15% to 420p and
we propose to increase our total full year ordinary dividend by 16% to 150p. This is the sixth consecutive year that
our EPS and ordinary dividend have grown by 15% or more.
Sales for NEXT Directory, our online and catalogue business, increased by 12% and NEXT Retail by 5%. Total Group
sales rose 7% and reached £4 billion for the first time.
Our share price rose by 14% during the year, from £62.80 to £71.50. As a result of the increase we did not buy back
as many of our own shares as in previous years. Instead we returned surplus cash to shareholders through special
dividends. Cash flow remained strong and we returned £572 million to shareholders through a combination of
dividends (£434 million) and buybacks (£138 million). We paid another special dividend of 50 pence per share in
February and have since announced a further special dividend of 60 pence, to be paid in May. We will continue
to undertake buybacks but only when it would give an effective return on the cash expended of at least 8%.
Returning cash to shareholders has not been at the expense of investment in the business nor has it increased
our net debt, which ended the year at the same level as last year. NEXT Retail continues to invest in new, often
larger, stores. NEXT Directory continues to increase its active customer base, it now delivers to 71 countries and
has a growing business in the sale of third party branded products through the LABEL. We are also increasing our
warehouse capacity and improving our distribution capabilities.
We have had a number of changes to the Board. Christos Angelides left the Company in September after 28
years’ service. Christos was a very able and effective Director and we wish him well in his new endeavours in the
United States. David Keens, who has been with NEXT for 29 years and our Finance Director for 24 years, retires from
the Board in April. David has seen many changes over that time and has been an outstanding guardian of our
finances. Our financial position today is testament to his diligence and hard work. I am delighted that Amanda
James, our Brand Finance Director, will succeed him on the Board.
Jonathan Dawson, our Senior Independent Director, is leaving the Board in May. Jonathan has made a major
contribution as a non-executive. I would like to thank him for the wise counsel which he has given both me and
the Board over the last ten years. Francis Salway will replace Jonathan as the Senior Independent and Caroline
Goodall will become Chairman of the Remuneration Committee.
Finally, I am pleased that Dame Dianne Thompson has joined us as a non-executive Director. She has had a long
and distinguished career with Camelot and is a good addition to our Board.
The continued success of NEXT is built on the hard work and dedication of our management team and all the
people who work for NEXT. I would like to thank them all for their contribution during the year.
2015 will bring new challenges and opportunities. Our strategy will remain the same, focussed on our products,
our profitability and returning cash to our shareholders.
John Barton
Chairman
2
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc CHIEF EXECUTIVE’S REVIEW
OVERVIEW
NEXT has had another good year. Overall sales increased by 7.2% which was close to the top end of guidance
we issued in March 2014. However, it was a year of two very different halves. NEXT Brand sales in the first half were
exceptionally strong, up +11%, whilst the second half was relatively disappointing and up just +5%.
Growth in underlying profit before tax of £782m was up 12.5%. This figure is flattered by 1.3% as a result of a £9m
accounting profit on currency instruments, which is unlikely to recur in the year ahead. Strong cash generation
enabled us to buy back 1.4% of the shares outstanding which, along with the effect of buybacks in the previous
year, meant that underlying Earnings Per Share (EPS) grew by 14.7%.
For much of the year the Company’s share price was above our internal buyback price limit and we were unable
to return all surplus cash through share buybacks. As a result, and in keeping with our stated intentions, we
returned a further £223m to shareholders through three special dividends of 50 pence each. Ordinary dividends
for the full year will increase by 16.3%, to £1.50.
SALES excluding VAT *
NEXT Retail
NEXT Directory
NEXT BRAND
Other
Total Sales excluding VAT
Statutory Revenue
January
2015
£m
2,348.2
1,540.6
3,888.8
139.0
4,027.8
3,999.8
January
2014
£m
2,240.5
1,373.9
3,614.4
143.8
3,758.2
3,740.0
+ 4.8%
+ 12.1%
+ 7.6%
+ 7.2%
+ 6.9%
* See pages 88 and 89 for Total Sales definition (reflected throughout the Strategic Report) and change in segment sales from previously reported.
PROFIT and EPS
NEXT Retail
NEXT Directory
NEXT BRAND
Other
Operating profit
Net interest
Profit before tax – underlying
Exceptional disposal gains
Taxation
Profit after tax
EPS – underlying
Ordinary dividends per share
January
2015
£m
January
2014
£m
383.8
376.8
760.6
51.5
812.1
347.7
358.5
706.2
16.6
722.8
+ 10.4%
+ 5.1%
+ 7.7%
+ 12.3%
(29.9)
(27.6)
782.2
12.6
695.2
+ 12.5%
–
(159.9)
(142.0)
634.9
553.2
+ 14.8%
419.8p
150.0p
366.1p
129.0p
+ 14.7%
+ 16.3%
3
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc STRATEGIC REPORT
NEXT PLC ECONOMICS
2014/15 PROFIT DRIVERS
The table below sets out the main drivers of the Group’s Profit and Loss account for the year. This shows how the
sales from (1) new Retail space, (2) existing stores and (3) additional online sales added to the Group’s profit. It
also shows how (4) cost inflation has, once again, been offset by (5) cost savings. Other Group profits and costs,
such as NEXT Sourcing, Lipsy, Estates and Treasury added an unusually large profit this year (see Other Trading
Businesses on page 17 and Central Costs on page 18).
Profit Year to January 2014
Profit from sales increases/decreases
(1) New Retail space
(2) Existing stores
(3) Additional online sales
Cost increases and savings
(4) Inflation in cost base
(5) Cost savings
(6) Other Group profits and costs
Profit Year to January 2015
2013/14
Profit
£695m
Cost Increases
£41m
£695m
+£57m
+£13m
+ £9m
+£35m
- £41m
+£42m
+£29m
+£30m
+£782m
+12.5%
2014/15
Profit
£782m
Other Group
Profits &
Costs
£29m
Cost Savings
£42m
Directory
Sales
£35m
LFL
£9m
New
Space
£13m
NEXT’S OBJECTIVES
NEXT’S Operating Objectives
The Company has five operational objectives, as set out in the table below. These aims remain broadly unchanged
from those given in this report last year.
Develop the NEXT
Brand
Invest in online growth
Invest in profitable new
space
Improve service
Control costs
4
Continue to focus on delivering better design. In particular focus on improving our
buying processes to (1) make better use of the time spent developing long lead time
product and (2) respond more powerfully to emerging trends with short lead time
product.
Invest in growth from our online business, through (1) improving UK delivery services, (2)
expanding our new branded business, LABEL, and (3) developing the NEXT Brand in
overseas markets.
Open profitable new retail space, maintaining the Company’s payback and profitability
hurdles of 15% net store profit (before central overheads) and payback on net capital
invested in 24 months.
Continue to improve the quality of our service provided in our shops, in our call centres,
through website systems and our distribution networks.
Control costs through constantly innovating and developing more efficient ways of
operating. This must be done without detracting from the quality of our products and
services.
23849.04 8 April 2015 7:29 AM Proof 2
2014/15
Profit £782m
New Space £13m
LFL £9m
Directory Sales £35m
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
NEXT PLC ECONOMICS
2014/15 PROFIT DRIVERS
The table below sets out the main drivers of the Group’s Profit and Loss account for the year. This shows how the
sales from (1) new Retail space, (2) existing stores and (3) additional online sales added to the Group’s profit. It
also shows how (4) cost inflation has, once again, been offset by (5) cost savings. Other Group profits and costs,
such as NEXT Sourcing, Lipsy, Estates and Treasury added an unusually large profit this year (see Other Trading
Businesses on page 17 and Central Costs on page 18).
Profit Year to January 2014
Profit from sales increases/decreases
(1) New Retail space
(2) Existing stores
(3) Additional online sales
Cost increases and savings
(4) Inflation in cost base
(5) Cost savings
(6) Other Group profits and costs
Profit Year to January 2015
2013/14
Profit
£695m
Cost Increases
£41m
£695m
+£57m
+£13m
+ £9m
+£35m
- £41m
+£42m
+£29m
+£30m
+£782m
+12.5%
2014/15
Profit
£782m
Other Group
Profits &
Costs
£29m
Cost Savings
£42m
Directory
Sales
£35m
LFL
£9m
New
Space
£13m
NEXT’S OBJECTIVES
NEXT’S Operating Objectives
from those given in this report last year.
The Company has five operational objectives, as set out in the table below. These aims remain broadly unchanged
Develop the NEXT
Continue to focus on delivering better design. In particular focus on improving our
Brand
buying processes to (1) make better use of the time spent developing long lead time
product and (2) respond more powerfully to emerging trends with short lead time
product.
overseas markets.
invested in 24 months.
Invest in online growth
Invest in growth from our online business, through (1) improving UK delivery services, (2)
expanding our new branded business, LABEL, and (3) developing the NEXT Brand in
Invest in profitable new
Open profitable new retail space, maintaining the Company’s payback and profitability
space
hurdles of 15% net store profit (before central overheads) and payback on net capital
Improve service
Continue to improve the quality of our service provided in our shops, in our call centres,
through website systems and our distribution networks.
Control costs
Control costs through constantly innovating and developing more efficient ways of
operating. This must be done without detracting from the quality of our products and
services.
2014/15
Profit £782m
New Space £13m
LFL £9m
NEXT’s Financial Objective
In last year’s annual review we refined the Company’s core financial objective. Up until that point, our goal had
been the delivery of long term, sustainable growth in EPS. However this measure did not take account of the
value created by paying out surplus cash as dividends; and this has become much more important as we have
increasingly paid special dividends in lieu of share buybacks.
So we restated our objective as the delivery of long term, sustainable growth in Total Shareholder Returns (TSR). We
define TSR as growth in Earnings per Share added to the total dividend yield. Taking dividends as a percentage of
our share price at the beginning of our financial year (February 2014) our TSR is set out in the table below:
Total Shareholder Returns
Growth in underlying EPS
Special Dividend Yield* 150p
Ordinary Dividend Yield* 150p
Total Shareholder Returns*
+14.7%
+2.3%
+2.3%
+19.3%
* Based on £63.45, being the average share price for the
first month of the financial year (i.e. to 25 February 2014)
The inclusion of growth in EPS in Total Shareholder Returns is grounded in the belief that, over time, share price
growth will follow growth in EPS. The graph below shows how our share price has tracked EPS over the last 16 years.
The graph also demonstrates that our shares now enjoy a rating well above their historical average. It is important to
point out that the high rating means that the deployment of surplus cash, as special dividends or share buybacks,
will provide lower returns for shareholders than if the shares were at a lower rating.
P/E Ratio
13
17
16
11
14
13
13
13
8
7
10
9
10
14
17
17
■ Underlying EPS
Closing share price £
146p
127p
120p
47p
58p
39p
94p
69p
298p
255p
189p 222p
169p
156p
420p
366p
£80
£70
£60
£50
£40
£30
£20
£10
£0
1999
00
01
02
03
04
05
06
07
08
09
10
11
12
13 2014
The Company maintains its 8% Equivalent Rate of Return (pre-tax) investment hurdle for share buybacks. At the
mid-point of guidance issued in this report, our share price limit is £68.27.
5
Directory Sales £35m
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
STRATEGIC REPORT
PRODUCT AND THE NEXT BRAND
Over the course of the year we have focused on improving the design content of our ranges. We believe the
investment in time, effort and resources has been worthwhile. Unusually, our ranges in Spring and Summer 2014
were successful across all of our five product divisions (Womenswear Clothing, Women’s Shoes and Accessories,
Menswear, Childrenswear and Home). The focus on design continues in the year ahead with further investment in
our fabric and print resources.
We also aim to develop and improve our buying processes. Traditionally, NEXT has begun to develop design
themes eight months before the launch of a season. We will continue to work this way but believe that we can
make much better use of the intervening time to improve our fabrics, design details, prints, trims, shapes and prices
on long lead-time product.
In addition to our more traditional buying cycle, we also develop a small amount of product much closer to the
season, using shorter lead time territories and quicker response suppliers. This approach to buying is newer and
less comfortable for NEXT, and requires a different mind-set to our traditional techniques. We aim to build on the
success we have had with shorter lead-time product and make more of this buying method going forward.
RETAIL
Total Retail sales were 4.8% ahead of last year, of which new space contributed 3.4%.
RETAIL SPACE EXPANSION
Space added in the year
Trading space increased by 330,000 square feet to 7.4 million square feet. Store numbers remained broadly the
same, with the increase from new stores being offset by the closure of smaller, less profitable stores.
January 2014
New stores, including re-sites (9)
Closures
Extensions (7)
January 2015
Store
Numbers
541
+20
- 22
–
539
Sq. Ft.
(000’s)
7,045
+439
- 181
+70
7,373
+4.7%
Returns on Capital and Profitability
Profitability of stores opened in the last 12 months is forecast to average 20% and payback on the net capital
invested is expected to be 20 months. Both figures are within Company investment hurdles of 15% store profitability
and 24 months capital payback. The table below sets out the profitability and returns of new space, broken down
into Fashion and Home.
Sales vs
target
+9%
+13%
+10%
Forecast
profitability
Forecast
payback
20% 19 months
20% 21 months
20% 20 months
New space
Fashion
Large Home format
Total
6
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Aspirational Out-of-Town Architecture
An unusually large percentage, 75%, of new space was large format Home and Fashion stores. These side-by-side
stores give the Company the opportunity to re-define the way we trade out of town, investing in the architecture
of our buildings and the quality of shop-fit. We have radically changed the appearance of existing retail park
buildings, adding glass frontages, light-wells, and improved facades. We have also built two stores from the ground
up (Hedge End and Maidstone), and these have enabled us to create beautiful and iconic buildings. Over the
next three years we hope, subject to planning, to open at least eight more of these bespoke new stores.
Maidstone – Opened November 2014
Retail Space – Pipeline to 2017
We continue to look for opportunities to profitably increase UK selling space. For the coming year we expect to add
350,000 square feet (net of closures). Looking further ahead into 2016 and 2017 our pipeline is less certain, but we
believe that we will add around 350,000 square feet of net trading space in each of these two years.
High Wycombe – Under construction February 2015
7
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc STRATEGIC REPORT
THE LONG VIEW – RETAIL PORTFOLIO ECONOMICS & LEASE TERMS
Since the beginning of the credit crunch in 2008, sales in our existing stores have moved backwards in almost
every season. The combined effect of a weak economy and growth in online sales has meant that same-store
growth has been hard to achieve across the sector. Despite this, the profitability of our store portfolio remains
extremely healthy. The reason for this apparent contradiction is that the active expansion and relocation of our
portfolio has allowed us to manage the economics of our retail portfolio to reflect the current retail environment.
In the seven years since 2008 NEXT has increased its net trading space from 5.2 million square feet to 7.4 million
square feet. Of the 539 stores we trade in today, almost half are either new or have been significantly extended.
Those stores represent 60% of our current trading space. The table below shows the changes to store numbers and
square footage since 2008.
January 2008
New stores, including re-sites (63)
Closures
Extensions (82) gross 1.8m sq.ft.
January 2015
Store
Numbers
502
179
- 142
539
Sq. Ft.
5.2m
2.6m
- 0.8m
0.4m
7.4m
Long Term Profitability Comparisons
The table below gives key measures of performance since 2008. It shows how the 26% fall in sales per square foot have
not resulted in the proportionate increase that might be expected in rent, rates, depreciation and branch wages.
In fact, store profitability (before central overheads) has moved forward in the period. This is because savings
achieved through more effective Sale stock clearance, lower shrinkage and management of other branch costs
have more than offset any increases in rents and rates. Wages have reduced as a percentage of sales, because
productivity improvements have more than compensated for the dis-economies of lower sales per square foot and
inflationary wage increases.
The table below shows key branch costs as a percentage of VAT inclusive sales in 2008 and 2015.
2007/8
2014/15
£491/sq. ft. £365/sq. ft.
10.9%
6.5%
3.0%
3.2%
5.0%
23.7%
11.3%
5.5%
2.2%
3.1%
8.7%
21.4%
Store Variables
Sales per square foot
Wages
Rent
Rates
Depreciation
Markdown, obsolescence & shrinkage
Net Branch Profitability
8
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Current Profitability Profile
As a result of the active management of our store portfolio, the vast majority of our stores make a healthy profit, with
97% of our space delivering a net branch profit of more than 10%. The table below sets out the percentage of our
turnover within stores of different levels of profitability.
Mainline store profitability
>20%
>15%
>10%
>5%
>0%
Percentage of turnover
81%
94%
97%
99%
99.7%
Lease Terms
Over the last ten years we have seen a move away from long lease terms. We are currently only entering into leases
of more than 10 years in situations where (1) we believe that the trading location is very unlikely to deteriorate
within 20 years, (2) landlords are making a very substantial investment in a new trading location or (3) we are
swapping out of an existing store with a significant number of unexpired years on the lease.
The graph below shows the remaining lease commitment in years by percentage of our portfolio (by rental value).
This shows that in 2008 approximately 50% of our store leases would have expired in just over ten years’ time. Today
50% of our leases will expire in just six years’ time.
Lease Expiries by Rental Value
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
0
5
6
10
15
20
Remaining Lease Commitment (years)
Jan 2015
Jan 2008
9
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc STRATEGIC REPORT
RETAIL SERVICE
At the beginning of last year we set ourselves the objective of improving our customer service across the Group.
Our starting point was a rather disappointing set of customer surveys conducted in June 2013. We re-defined what
we meant by great service, focusing on serving our customers in the way they want to be served, not on traditional
retail salesmanship designed to maximise short term sales.
Over the last eighteen months we have:
Introduced new service training
Increased our lowest wage rates by 6%
❚ Overhauled our recruitment process, focusing on attitude rather than experience
❚
❚
❚ Changed our store staff bonus scheme to be awarded on the basis of service, rather than sales
❚ Re-allocated contract hours throughout the day to achieve better service at peak times
❚
Increased the average contract hours worked per member of staff. (Any consequent reduction in head count
has been achieved through natural wastage and without any redundancies)
Introduced a shift market-place to allow staff to offer up, swap and accept additional shifts
❚
❚ Changed our staff appraisal and performance management systems
We believe that all the above changes have had a significant and positive effect on the levels of service we
provide in our stores. The two charts below are taken from an independent survey which assesses the number of
customers rating service as “Very Good” or “Outstanding”, both in our own stores and in other major competitors.
As can be seen, we have achieved a marked improvement but still have some way to go to get to best in class.
June 2013: Customer rating Very Good/Outstanding
68%
68%
62%
62%
57%
57%
54%
54%
53%
53%
46%
46%
40%
40%
39%
39%
39%
39%
35%
35%
Retailer 1
Retailer 2
Retailer 3
Retailer 4
Retailer 5
NEXT
Retailer 7
Retailer 8
Retailer 9
Retailer 10
Retailer 1
68%
Retailer 8
November 2014: Customer rating Very Good/Outstanding
Retailer 7
Retailer 3
Retailer 2
Retailer 5
Retailer 4
NEXT
Retailer 9
Retailer 10
68%
60%
60%
57%
57%
57%
57%
56%
56%
55%
55%
49%
49%
49%
49%
45%
45%
44%
44%
Retailer 1
Retailer 2
NEXT
Retailer 4
Retailer 3
Retailer 7
Retailer 9
Retailer 5
Retailer 10
Retailer 8
Retailer 1
Retailer 2
NEXT
Retailer 4
Retailer 3
Retailer 7
Retailer 9
Retailer 5
Retailer 10
Retailer 8
10
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc RETAIL PROFIT ANALYSIS
Full year operating margin improved by 0.8% to 16.3%. The table below sets out significant margin movements by
major heads of costs.
Net operating margin on total sales last year
Bought-in gross margin
Underlying gross margin improved by +0.3% due to a planned increase in
Home furniture. In addition, we were able to buy currency at slightly better
rates than initially anticipated, resulting in a margin gain of +0.2%.
Higher markdown
Retail stock for Sale was up 13% and markdown sales were up 8.5%. Margin
reduced as a result of markdown sales growing faster than full price sales
and lower Sale clearance rates.
Decrease in occupancy
costs
This improvement was due to (1) store asset write-offs in the prior year
+0.5%, (2) lower depreciation due to fully depreciated assets +0.3% and
(3) leverage of fixed costs from strong first half sales +0.3%.
Store payroll
Increased rates of pay would have cost -0.6% but were partially offset by
in-store productivity initiatives.
Central overheads
Investment in IT infrastructure.
Net operating margin on total sales this year
15.5%
+0.5%
- 0.4%
+1.1%
- 0.3%
- 0.1%
16.3%
DIRECTORY
DIRECTORY SALES AND CUSTOMER BASE
Directory sales were 12.1% ahead of last year. Sales in the UK grew by 8.2% and overseas online sales increased by
61%. The table below shows the contribution to total Directory growth made by our UK and Overseas businesses.
The UK has been broken down to show the contribution made by our brands business, LABEL.
UK NEXT
UK LABEL
UK Total
Overseas
Total sales growth
Contribution to
sales growth
5.7%
1.9%
7.6%
4.5%
12.1%
Active customers increased by 11.3% to 4.1 million. The table below sets out the growth in our UK and Overseas
customer base. Most of our new customers in the UK have chosen to pay on order with a debit or credit card
(Cash customers).
Average customers (‘000s)
UK credit account
UK cash
Total UK
Overseas
Total active customers
Jan
2015
2,724
899
3,623
495
4,118
Jan
2014
2,798
633
3,431
268
3,699
Change
- 74
+266
+192
+227
+419
% Change
- 2.6%
+42.0%
+85.0%
+11.3%
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DIRECTORY DEVELOPMENT – UK
We have developed the UK business through improving our delivery service, improving the levels of customer
service, and increasing the frequency of our publications.
Delivery Service
During the year we extended the ordering window for deliveries to stores. From October store orders could be
placed until midnight for next day delivery. This service provided the ground work for the much harder exercise of
extending our window for deliveries to home, we have recently extended our cut-off to 11pm and hope to extend
to midnight by August. Currently we take around 9% of our orders between 10pm and midnight.
NEXT Directory Customer Service
We have made some progress in improving customer service in our call centres. We have taken many of the lessons
learnt from Retail and used them to change our recruitment methods, training courses, staff bonus schemes and
appraisal methods.
Enquiry levels and complaints have fallen. However, we still feel we have a long way to go to get to the levels of
service we would like. In particular we need to ensure that more enquiries are dealt with first time. Of course, much
of the effort is about preventing mistakes in the first place. To that extent, our warehouses and distribution network
can contribute more to preventing repeat enquiries than our call centres.
We also aim to improve the functionality of our website, with particular emphasis on:
Improvements to payment processing and account management screens
❚
❚ Re-launch of our iPad and iPhone Apps in addition to a redesign of our mobile site (m.next.uk)
❚
Improvements to the operation of specialist Home product web pages where clothing search and selection
methods are inappropriate (e.g. dining chairs, tables, fitted wardrobes and beds)
Publications
In 2013 we experimented with a number of small “New In” publications. These are now published at six week
intervals between the launch our four big hardback Spring, Summer, Autumn and Winter catalogues.
During the year we increased the size and extended the distribution of these publications. In the year ahead we
will add one further small new publication in May to offer High Summer and holiday product.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc FOCUS ON NEXT DIRECTORY CREDIT BUSINESS
Over the last few years, NEXT Directory has made the transition from Catalogue to Online. In doing so, we have
made it easy for new customers to trade using a debit card or credit card (we refer to these customers as “Cash”
as opposed to “Credit” customers). This has dramatically increased the reach of the NEXT Directory and we now
have 900,000 active Cash customers. However, this has meant that, over the last few years, our Credit customer
growth has slowed and this year it has declined by -2.6%. The graph below shows the growth in total Directory sales
relative to our Credit customer base, the figures are indexed to 2007. The dotted line shows the growth in Credit
sales in the same period.
Total Directory Sales, Credit Sales and Credit Customers indexed to 2007
200
190
180
170
160
150
140
130
120
110
100
90
2007
2008
2009
2010
2011
2012
2013
2014
Total Directory Sales
Credit Sales
Average Credit Actives
Effect on Profitability
Net interest income accounts for 8% of the 25.4% net margin made on Credit sales. However, the difference in
the profitability of our Cash customers is not as great as might first be expected. Our Cash business experiences
much lower returns and marketing costs, boosting the profitability of Directory Cash sales to 23%, and narrowing
the difference to 2.4%.
Effect on Credit Sales
Interestingly, the decline in Credit customers has not yet been matched by a decline in Credit sales. Growth in
sales to our Credit customers is more than compensating for the decline in customer numbers. Interest income
has also started to grow slightly faster than Credit sales. We believe that this is because the customers who are
leaving are those who are most likely to have been paying down their balance in full.
Both of these effects do not change the underlying reality, that our Credit business is in decline, but they do mean
that the decline is likely to be slower than we initially anticipated.
Promoting the Credit Offer
We have not directly promoted our Credit business but will begin to do so over the course of this year. In addition to
providing flexible payments, the account also allows customers to try items before they buy them (customers have
at least 28 days to return items without incurring interest charges on them). Most Credit account holders are also
eligible to get early access to our End of Season online Sale. Whilst it is very unlikely that we will return to our Credit
customer base growing in line with Directory’s total UK sales, we may be able to take steps to arrest the decline. We
will have further information on this subject at the half year.
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DEVELOPING DIRECTORY OVERSEAS
NEXT’s online business continues to do well overseas. Around 85% of Directory’s overseas sales come from our own
website, the remainder is being sold through local third party home shopping operators.
Over the last three years the emphasis of our work overseas has been on opening new territories, translating our
website and accepting local currencies. Much of this work is now done and we will shift our focus to improving our
delivery service. This can be achieved either through increasing the speed of distribution from our UK warehouses
through 3rd party networks or by distributing from our overseas hub warehouses.
Faster From the UK
We have recently improved our delivery service to Germany and France, offering most of our customers a next day
delivery service. Initial sales response has been encouraging and we will look to extend this service to other close
European countries.
Local Distribution Hubs
In September 2014 we successfully opened a local hub in Northern Ireland. This has allowed us to offer next day
delivery in both Northern Ireland and Eire. We will shortly open a local distribution hub and, later in the year, a call
centre in Russia. Total investment in this project is £2.5m. Our current delivery promise in Russia is 8 to 12 days.
The new hub will allow us to offer a stated day service, next-day to customers in Moscow and St Petersburg, and
between 2–5 days for our other Russian customers.
New Territories – China
The only significant new territory launched last year was China. Sales started slowly but are now exceeding our
expectations and we believe that China will shortly be one of our top ten trading territories. We are currently
working on a local distribution hub to serve mainland China, Hong Kong, Taiwan and Japan. We hope to be
operational within the current year. Our aim is to reduce mainland China lead times for most of our customers
from 14 days to 1–2 days.
Sales, Profitability History and Outlook for the year ahead
The table below sets out the last three years’ sales, profits and net margins for overseas online. The fourth column
gives an estimate of the sales and profitability we are expecting in the year ahead.
£m
Sales
Net Profit
Profitability
January
2013
54
10
19%
January
2014
101
18
18%
January
2015
163
30
18%
January
2016(e)
205(e)
37(e)
18%(e)
We expect our international online sales to grow by 25% in the year ahead, to around £205m. This rate of growth is
significantly lower than last year. This is partly because we have now opened in all our target territories and have
limited further opportunities to add local currencies and languages. In addition two of our largest markets, Russia
and Ukraine, have both suffered significant currency devaluations. We have had to increase our prices in local
currency to maintain profitability in these territories and as a result sales (measured in £ Sterling) are no longer
growing. We believe that both countries will return to growth if and when their currencies stabilise. Despite the
tough trading environment we remain confident that our Russian distribution hub will be operational with the next
two months.
LABEL
We launched our first LABEL catalogue in March last year. The business was an extension of the small number of
third party brands we had been selling through the NEXT Directory. The aim was to offer premium non-competing
brands to the 4 million NEXT Directory customer base, leveraging the next day service we are able to offer through
our warehouses and distribution networks.
The business has started well and we continue to recruit new, premium brands to the business. Last year we added
34 new major brands to LABEL. In the year ahead we intend to add at least another 30 premium brands. LABEL
will publish four catalogues a year with around 400 pages in each. LABEL products can be ordered through a
dedicated part of the NEXT website and through LABELONLINE.CO.UK
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Sales, Profitability and Outlook
The table below sets out the last three years’ sales, profits and net margins for our third party branded business.
The fourth column gives an estimate of the sales and profitability we are expecting in the year ahead. Profitability
is shown excluding any interest income from those customers who buy items using their Directory account.
January
2013
81
11%
January
2014
89
19%
January
2015
110
14%
January
2016(e)
150+ (e)
15% (e)
£m
Sales excluding VAT
Profitability*
* Profit excluding interest income.
Profitability in the year just ended was lower than the previous year,
partly as a result of more partner brands switching to trade with
LABEL on a commission basis. This means we take a commission
on sales rather than purchase wholesale. The commission model
is less profitable for us, but gives partner brands far more freedom
to manage the ranges they sell through LABEL and allows us to
draw on their selection expertise. Our experience so far is that
brands which switch to trading on commission can dramatically
increase their sales.
DIRECTORY PROFIT ANALYSIS
Operating margin reduced by 1.6% to 24.5%. The table below sets out significant margin movements by major
heads of costs.
Net operating margin last year
Bought-in gross margin
Markdown
Stock write downs
Interest income
Underlying gross margin improved by +0.3% due to a planned
increase in Home furniture margin. In addition, we were able to buy
currency at slightly better rates than initially anticipated, resulting in
a gain of +0.2%. This has been offset by an increase in Branded and
International sales which have lower margins.
Directory stock for Sale increased by more than Sales, up 25%. In
addition lower clearance rates have reduced overall margin.
More stock was damaged whilst in transit. In particular flat pack
furniture and items returned via our stores. In addition, we incurred a
£0.9m one-off sofa recall cost.
Interest income increased, but at a lower rate than total sales. Interest
income was also reduced by a 1% APR reduction made in September
2014.
Bad Debt
Bad debt costs have reduced, increasing margin.
Warehouse & distribution
Margins have reduced by -0.6% due to increasing International
sales. This has been partially offset by savings in International parcel
rates, operational savings and increased use of our store network for
customer returns.
Photography & catalogue
production
A combination of additional LABEL and New In publications increased
print costs faster than sales. In addition, we have incurred creative
costs for the Summer 2015 LABEL in 2014.
Central overheads
Start-up costs associated with our Russian hub.
Net operating margin this year
26.1%
- 0.1%
- 0.4%
- 0.3%
- 0.4%
+0.3%
- 0.3%
- 0.3%
- 0.1%
24.5%
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COST INFLATION AND COST CONTROL
This year we have offset cost increases with cost savings. The tables below outline the main contributors to cost
increases and cost savings over the last year. Cost control remains at the heart of the business and we remain
determined that cost savings must come through innovation and efficiency rather than any compromise to our
product quality or services.
Cost Increases
Cost of living awards and other wage related inflation
Rent, rates & other occupancy costs
Systems investments (mainly new till systems)
Additional costs associated with overseas deliveries
2015/16 LABEL costs incurred and charged in 2014/15
Change in net achieved margin on product (markdown, slippage, gross margin, etc.)
Total Cost Increases
Cost Savings
Reduction in the cost of senior management and staff incentives
Non-recurring prior year store asset write-offs
Fully depreciated store assets no longer incurring a depreciation charge
Directory distribution efficiencies
Retail manpower productivity improvements
Lower bad debt charges
Total Cost Savings
£m
19
6
5
4
4
3
41
£m
12
12
8
4
4
2
42
In the year ahead we expect cost increases of around £36m. Anticipated wage increases account for £18m of
this, the majority of which comes from our annual wage award. We again expect cost increases to be more than
offset by cost savings. In NEXT Retail, the profit from new stores should offset lower profits from existing stores. In NEXT
Directory, profit from growth in UK sales should exceed that from growth in International sales.
Head Office, Warehouse and Systems Projects
The rapid growth of our Online and Home businesses meant that we commenced an unusual number of big
systems, warehousing and Head Office Infrastructure projects in 2014.
These projects will give some operational benefits but are mainly required to facilitate continued growth or replace
obsolete systems and buildings. Most systems development costs are revenue costs and written off in the year they
are incurred. Hardware and other infrastructure are depreciated over the life of the asset.
The table below sets out the largest projects and their revenue and capital costs for the year ended and estimates
for the year ahead. The biggest number is the £20m investment in fitting out a new automated Home Sofa and
Furniture warehouse, located next to our existing warehouses in Doncaster. We expect to spend a further £12m on
this project in the year to January 2017.
Life
Project Description
2yrs
Store till, back office and payment systems upgrade
Mainframe upgrade and modernisation
2yrs
International website re-write and convergence with UK 2yrs
Head Office Product, Call Centre and Systems infrastructure 2yrs
Home warehouse expansion
3yrs
Total
Revenue Cost (£m)
Jan
2016(e)
1
1
–
–
–
2
Jan
2015
2
2
1
–
–
5
Capital Cost (£m)
Jan
Jan
2016(e)
2015
5
2
–
–
–
–
11
9
20
3
36
14
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc OTHER TRADING BUSINESSES
NEXT SOURCING
NEXT Sourcing (NS) continues to provide more than 40% of NEXT Brand stock from our global supplier base,
sourcing from 18 countries. It employs 3,600 people in 12 countries, including 2,700 in factories which we own. NS
provides the Group with an insight into manufacturing and the relative technical strengths of different parts of the
world. Although wholly owned, it operates as a stand-alone business and must compete (without favour) with our
other suppliers.
NS trades mainly in US Dollars and its sales were up 10% in Dollars. The table below shows sales and profits in
Sterling.
£m
Sales (mainly inter-company)
Operating margin %
Operating profit
2015
600.6
6.9%
41.4
2014
571.2
6.0%
34.1
+5.1%
+21.3%
We are forecasting NS profits of £47m for the year ahead, which includes a £3m currency benefit from the stronger
Dollar. NEXT Sourcing has made excellent progress controlling costs, and its margins are now approaching
historical highs. There is an opportunity for NS to be more competitive and their Board has taken the decision to
lower their commission rate by 1% for Spring 2016 stock.
INTERNATIONAL RETAIL AND FRANCHISE STORES
Our franchise partners operate 188 stores in 37 countries, sales and profits were little changed on the year. We own
13 stores in Central Europe, which made a small profit. We have no plans to open our own stores in new territories.
Revenue and profit are set out below. We are budgeting for International Retail to make £10m profit in the year
ahead. The anticipated drop in profit is due to the economic difficulties being experienced by our franchise
partners in some eastern European countries.
£m
Franchise income
Own store sales
Total revenue
Operating profit
2015
71.9
14.3
86.2
11.7
2014
71.0
14.6
85.6
12.1
+0.7%
- 2.9%
LIPSY
Lipsy performed well, and profit increased to £5.1m. Lipsy sales are broken down by distribution channel in the
table below. Lipsy sells stock directly through its own stores, website, to wholesale customers and to franchise
partners. Lipsy also sells stock in 34 units inset into NEXT Retail stores and through the NEXT Directory. Sales made
through NEXT Retail and Directory are now reported in those divisions (see Note 1 to the financial statements).
£m
Lipsy.co.uk, standalone stores, franchise and wholesale
NEXT Retail
NEXT Directory
Total Sales
Operating Profit
2015
36.8
12.9
23.3
73.0
5.1
2014
35.3
12.1
15.5
62.9
2.7
+4%
+7%
+50%
+16%
Currently, the majority of Lipsy’s sales are of Lipsy branded merchandise. Lipsy also sells some other, third party,
young fashion brands. These third party branded sales now account for 12% of Lipsy’s sales and we anticipate that
this participation will increase in the year ahead.
Outlook for Sales and Profits
One of Lipsy’s major wholesale customers, Bank, recently went into administration and this customer contributed
£1.3m to profit. We believe that some of the lost turnover will be recovered through other channels and the
balance of lost profit will be made up for with organic growth. We anticipate that Lipsy profit for the year ahead
will be broadly in line with last year.
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CENTRAL COSTS AND OTHER ACTIVITIES
The table below sets out other Group and non-trading activities. In aggregate these activities contributed £25m
to the growth in profit, a far greater difference than we would normally expect from these activities. Of this £25m,
the most significant was a £15m swing in unrealised accounting gains/losses on currency hedging instruments.
£m
Property management
Central costs
Unrealised foreign exchange
Associates
Total
2015
6.9
(23.4)
8.9
0.9
(6.7)
2014
1.8
(30.7)
(5.9)
2.5
(32.3)
Property Management
The Property Management profit of £7m includes a £4m one-off profit on sale of a NEXT Retail store lease. In the year
ahead we anticipate a similar one-off profit will be achieved from the development of at least one other new store.
Central Costs
The reduction in Central Costs is due primarily to lower share-based employee incentives, in the prior year the rate
of share price growth and the provisions required had been particularly high.
Unrealised Foreign Exchange IAS 39
The £9m gain this year compares with a £6m loss in the previous year. This accounting volatility is unhelpful and
hard to predict, we are working on the basis of no gain or loss in the year ahead.
INTEREST AND TAXATION
The interest charge was £30m as forecast and we expect a similar figure for the year ahead.
Our tax rate of 20.4% was unchanged and is commensurate with current headline UK corporation tax rates. We
expect our effective tax rate will be no higher than 21% in each of the next two years.
EXCEPTIONAL DISPOSAL GAINS
During the year we sold our investment in Cotton Traders for £15m, which was £11m above book value. We also
released £2m of other prior year disposal provisions.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc BALANCE SHEET AND ORDINARY DIVIDENDS
The balance sheet remains strong. Net debt at the end of the year was virtually unchanged at £515m. During
the coming year net debt is expected to move between a minimum of £500m and a maximum of £750m, and
is expected to finish at around the same level as it started. Our bonds and committed bank facilities of £1,088m
remain unchanged, as set out below.
2016 bonds
2021 bonds
2026 bonds
Total bonds nominal value
2019 committed bank facility
Total debt facilities available
£m
213
325
250
788
300
1,088
FINAL ORDINARY DIVIDEND
We have proposed raising our final ordinary dividend to 100p, taking the total ordinary dividend for the year to
150p. The increase of 16% is marginally ahead of growth in underlying EPS, although cover remains at 2.8 times.
CASH GENERATION, SHARE BUYBACKS AND SPECIAL DIVIDENDS
CASH GENERATION
Over the last year we generated £363m of surplus cash after capex, interest, ordinary dividends and tax. We
returned £361m of this to shareholders, through special dividends of £223m and share buybacks of £138m.
We expect to generate around £360m surplus cash in the year ahead and, again, we intend to return this to
shareholders. We paid a £74m special dividend in February and have committed to a further £90m which will be
paid in May. If our share price remains above our maximum limit for buybacks and our profit expectations remain
unchanged, then we intend to pay further quarterly special dividends in August and November this year.
SHARE BUYBACK LIMIT GOING FORWARD
We have, on several occasions, set out the criteria by which we would decide the maximum price the Company
would pay to buy back shares. We use the concept of Equivalent Rate of Return (ERR). This is the pre-tax return
required from an alternative investment, if that investment were to produce the same level of earnings enhancement
as the proposed buyback. We set the minimum ERR at 8%, which we consider a reasonable target for a return on
equity investments.
For the year to January 2016, the mid-point of our guidance for profit before tax is £810m. On this basis an 8% ERR
gives a new upper limit for buybacks of £68.27.
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STRATEGIC REPORT
OUTLOOK FOR 2015
ECONOMIC OUTLOOK
The economic outlook for the UK consumer looks benign. Low price inflation, an end to real wage decline, healthy
credit markets and strong employment all paint a more positive picture than in recent years.
Consumer Price and Wage Inflation
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
0
1
n
a
J
0
1
r
p
A
0
1
l
u
J
0
1
t
c
O
1
1
n
a
J
1
1
r
p
A
1
1
l
u
J
1
1
t
c
O
2
1
n
a
J
2
1
r
p
A
2
1
l
u
J
2
1
t
c
O
3
1
n
a
J
3
1
r
p
A
3
1
l
u
J
3
1
t
c
O
4
1
n
a
J
4
1
r
p
A
4
1
l
u
J
4
1
t
c
O
5
1
n
a
J
Source:
CPI: ONS 17 February 2015
Average weekly earnings: ONS 18 March 2015
CPI
Avg. weekly earnings exc. Bonus
SALES OUTLOOK FOR NEXT
Although the consumer economy looks benign, we remain very cautious in our sales budgets. Whilst we are
happy with most of our current product ranges, we recognise that some collections are not as strong as they
were at this point last year. In addition, during the Spring and Summer seasons, we face very tough comparative
numbers from last year, when sales were assisted by unusually warm weather. There is a potential upside in the
second half as the comparative performance last year weakens, particularly in the third quarter.
We are currently budgeting for full price sales growth for the full year to be up between +1.5% and +5.5%, with the
first half expected to be up 0% to 3%, and the second half up 3.5% to 7.5%.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
PROFIT AND EPS GUIDANCE FOR THE YEAR AHEAD
The table below sets out our guidance for the full year. For the purposes of this guidance, we have assumed that
surplus cash of £360m is generated and returned as special dividends rather than buybacks. In reality the choice
between buybacks and special dividends will depend on the prevailing share price as explained above. We have
expressed the dividend return as a percentage of our average share price during the first month of this financial year.
Guidance Estimates
Total full price NEXT Brand sales % growth
Group profit before tax £m
Group profit before tax % growth
Ordinary dividend yield (based on £72.33 share price)
Special dividend yield (based on £72.33 share price)
Total Shareholder Returns
Lower end
of guidance
+1.5%
£785m
+0.4%
+2.1%
+3.3%
+5.8%
Upper end
of guidance
+5.5%
£835m
+6.7%
+2.1%
+3.3%
+12.1%
This guidance is based on 52 weeks for the years ending January 2015 and 2016. This year will actually be the 53
weeks to 30 January 2016. Our Interim accounts will be for the comparable 26 weeks to 25 July 2015.
First Quarter Trading Update
Our next statement will cover the first thirteen weeks of the year, to 25 April 2015, and is provisionally scheduled for
Wednesday 29 April 2015.
CONCLUSION – A TOUGHER YEAR BUT PLENTY TO DO
Whilst the prospective returns detailed above would be very respectable by most standards, they are low by
comparison to NEXT’s historical performance. However, they are based on realistic sales estimates and we believe
that it would be a mistake to be over-optimistic at this stage. Our experience is that starting with prudent sales
budgets is the key to coping with lower sales growth. Stock purchases and other costs can then be tailored to get
the business through the year in good shape.
Whatever the sales environment in the current year, the Company has plenty of opportunities to lay foundations for
future growth. Of these, the most important are: further improvement to our buying techniques, customer service,
delivery capabilities, growing our store portfolio, initiating overseas fulfilment operations, and growing our third
party branded business through LABEL.
Lord Wolfson of Aspley Guise
Chief Executive
19 March 2015
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BUSINESS MODEL
NEXT is a UK based retailer offering exciting, beautifully designed, excellent quality clothing, footwear, accessories
and home products. NEXT is one of the largest clothing and home products retailers in the UK by sales, and a
member of the FTSE-100 index. The Group is primarily comprised of:
❚ NEXT Retail, a chain of more than 500 stores in the UK and Eire.
The majority of our stores sell clothing, footwear, accessories and home products; we also operate over 60 large Home Standalone and
department style stores. The predominantly leased store portfolio is actively managed, with openings and closures based on store profitability
and cash payback. Around 60% of Group sales are from NEXT Retail.
❚ NEXT Directory, an online and catalogue shopping business with over 4 million active customers and international
websites serving approximately 70 countries.
By embracing the internet, providing exceptional customer service and developing overseas opportunities, over the last ten years NEXT
Directory’s sales have grown by more than 150% and now represent almost 40% of Group sales.
There are strong synergies between NEXT Retail and NEXT Directory: through efficient stock management and customer service opportunities
(such as handling Directory collections and returns in-store) the Group has been able to successfully develop both parts of the business.
❚ NEXT International Retail, with around 200 mainly franchised stores across the world.
NEXT’s franchise partners operate over 180 stores in 37 countries; there are also a small number of stores which NEXT operates directly.
International Retail accounts for around 2% of Group sales.
❚ NEXT Sourcing, which designs, sources and buys NEXT branded products.
Last year, around 40% of the Group’s products were procured or produced by NEXT Sourcing. Further information on the Group’s supply chain
and NEXT’s commitment to ethical trading can be found on page 28.
❚
Lipsy, which designs and sells Lipsy branded younger women’s fashion products.
Lipsy trades from around 40 stores, online, and through wholesale and franchise channels. Lipsy contributes around 2% of Group sales.
Further detail on the performance and development of the Group’s businesses can be found in the Chief Executive’s
Review on pages 3 to 21, which forms part of this Strategic Report along with Key Performance Indicators (page
23), Risks & Uncertainties (page 24), Employees (page 27), Social, Community and Human Rights (page 28) and
Environmental Matters (page 29).
BUSINESS STRATEGIES AND OBJECTIVES
The primary financial objective of the Group is to deliver long term returns to shareholders through a combination
of sustainable growth in earnings per share (“EPS”) and payment of cash dividends. Underlying EPS increased
by 14.7% from last year. Over the last ten years EPS has increased by 250%, and the share price has increased by
350%. This long term value has been created through the pursuit of the following strategies:
❚
❚
❚
Improving and developing our 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 profit contribution and return on capital against
appraised targets.
Increasing the number of profitable NEXT Directory customers and their spend, both in the UK and through
international online sales.
Focussing on customer service and satisfaction levels in both Retail stores and Directory.
❚ 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 and returning surplus cash to shareholders by way of share buybacks or, more recently, special
dividends. Further information on the criteria we use to determine the method by which surplus cash is returned
can be found in the Chief Executive’s Report.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc KEY PERFORMANCE INDICATORS
KPIs of earnings per share, group cash flows and divisional sales, 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
2015
539
7,373
2014
541
7,045
Annual
change
-2
+4.7%
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
2015
2014
No. stores
523
462
LFL Sales %
+0.7%
+1.4%
No. stores
535
498
LFL Sales%
-1.8%
-1.4%
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 movement
Net operating margin last year
Increase in achieved gross margin
Increase/decrease in store payroll
Decrease/increase in store occupancy
Increase in other costs
Net operating margin this year
2015
15.5%
+0.1%
-0.3%
+1.1%
-0.1%
16.3%
2014
15.0%
+1.3%
+0.1%
-0.7%
-0.2%
15.5%
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 (000’s)
Average active customers – credit
Average active customers – cash
Average active customers – total
2015
2,724
1,394
4,118
2014
2,798
901
3,699
Annual
change
-2.6%
54.7%
11.3%
Active customers are defined as those who have placed an order or made a payment in the last 20 weeks, calculated as a weighted average
of each week’s figure. Credit customers are those who order using a Directory credit account, whereas cash customers are those who pay when
ordering.
NEXT Directory operating margin movement
Net operating margin last year
Decrease/increase in achieved gross margin
Decrease in bad debt expense
Decrease in interest income
Increase in other costs
Net operating margin this year
Share buybacks
Number of shares purchased (000’s)
% of opening share capital
Total cost
Average cost per share
2015
26.1%
-0.8%
+0.3%
-0.4%
-0.7%
24.5%
2014
24.8%
+1.9%
+0.1%
-0.6%
-0.1%
26.1%
2015
2,158
1.4%
£137.9m
£63.89
2014
6,202
3.8%
£295.8m
£47.70
Total cost of shares purchased includes stamp duty and associated costs. The average price before costs was £63.50 (2014: £47.40).
* Sales includes the full value of commission based sales (as described in Note 1 to the accounts). Prior year figures have been restated.
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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 and Audit
Committee on their outcomes. The principal risks and uncertainties are described below:
Description of risk or uncertainty
How the risk or uncertainty is managed or mitigated
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 therefore needs to
understand and properly manage strategic risk in
order to deliver long term growth for the benefit of
NEXT’s stakeholders.
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’s
staff may be targeted by other companies.
PRODUCT DESIGN & SELECTION
NEXT’s success depends on designing and
selecting products that customers want to buy, at
appropriate price points and in the right quantities.
This includes anticipating and responding to
changing consumer preferences and trends, as
well as taking into account the wider consumer
and economic environment. In the short term, a
failure to properly manage this area may mean
that NEXT is faced with surplus stocks that cannot
be sold at full price and may have to be disposed
of at a loss. In the longer term, the reputation of
the NEXT Brand may suffer. Product design and
selection is therefore at the heart of the business.
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 includes the setting of seasonal and annual
budgets and longer term financial objectives to identify
ways 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. In addition, the Audit Committee
monitors strategic and operational risk regularly and any
significant matters are reported to the Board.
The Remuneration and Nomination Committees identify
senior personnel, review remuneration at least annually
and formulate packages to retain and motivate these
employees, including share incentive schemes. 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.
Executive directors and senior management continually
review the design, selection and performance 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. To some extent, product risk is also
mitigated by the diversity of NEXT’s ranges.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Description of risk or uncertainty
How the risk or uncertainty is managed or mitigated
KEY SUPPLIERS & SUPPLY CHAIN
MANAGEMENT
NEXT relies on its supplier base to deliver products
on time and to the quality standards it specifies.
Failure to do so may result in an inability to service
customer demand or adversely affect NEXT’s
reputation.
NEXT continually seeks ways to develop its supplier base
so as to reduce over-reliance on individual suppliers of
products and services, and maintain the quality and
competitiveness of its product offer. The Group’s risk
assessment procedures for key suppliers identify alternatives
and develop contingency plans in the event of key supplier
failure.
Changes in global manufacturing capacity and
costs may impact on profit margins.
Existing and new sources of supply are developed in
conjunction with NEXT Sourcing, external agents and/or
direct suppliers.
Non-compliance by suppliers with the NEXT Code
of Practice may increase reputational risk.
WAREHOUSING & DISTRIBUTION
NEXT regularly reviews the warehousing and
distribution operations that support the business.
Risks include business interruption due to physical
restrictions, breakdowns,
damage, access
capacity shortages, IT systems failure (see next
page),
inefficient processes and third party
failures.
CUSTOMER EXPERIENCE
NEXT’s performance depends on the recruitment
and retention of customers, and on its ability to
drive and service customer demand. This includes
having an attractive, functional and reliable
website and effective call centres, operating
successful marketing strategies, and providing
both Retail and Directory customers with service
levels that meet or exceed their expectations.
inspections of
NEXT carries out regular
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. Further details can be found on page 28.
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.
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, inbound logistics and
delivery costs are monitored continuously to ensure goods
are delivered to our warehouses, Retail stores and Directory
customers in a timely and cost-efficient manner. Business
continuity plans and insurance are in place to mitigate the
impact of business interruption.
The Group continuously monitors website and call centre
operations that support the business to ensure that there is
sufficient capacity to handle volumes. Capacity forecasting
is used to manage peak demands and growth in business
volumes.
Market research is used to assess customer opinions and
satisfaction levels, and regular customer experience visits to
our stores help to ensure that our staff remain focussed on
delivering excellent customer service.
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Description of risk or uncertainty
How the risk or uncertainty is managed or mitigated
RETAIL STORE NETWORK
NEXT Retail’s performance depends on profitably
developing the trading space of the store
network. The successful development of new
stores depends on a number of factors including
the identification of suitable properties, obtaining
planning permissions and the negotiation of
acceptable lease terms. Prime retail sites will
generally remain in demand, and increased
competition for these can result in higher future
rents.
INFORMATION SECURITY, BUSINESS
CONTINUITY & CYBER RISK
NEXT is dependent upon the continued availability
and integrity of its IT systems, which must record
and process substantial volumes of data and
conduct inventory management accurately and
quickly. The Group’s systems require continuous
enhancement and
to prevent
obsolescence and maintain responsiveness. The
threat of unauthorised or malicious attack is an
on-going risk, the nature of which is constantly
evolving.
investment
FINANCIAL, TREASURY, LIQUIDITY &
CREDIT RISKS
The main financial risks are the availability of funds
to meet business needs, default by counterparties
to financial transactions, the effect of fluctuations
in foreign exchange rates and interest rates, and
compliance with regulation.
NEXT has a longstanding policy of returning surplus
cash to shareholders through share buybacks
and special dividends, whilst maintaining an
appropriate level of debt. Adequate financing
facilities are therefore required to support the
operational needs of the business.
The predominantly
is actively
managed by senior management, with openings, refits and
closures based on store profitability and cash payback.
leased store portfolio
NEXT will continue to invest in new space where its financial
criteria are met, and will renew and refurbish its existing
portfolio when appropriate. New store appraisals include
the estimated effects of sales deflection from existing stores,
but there remains a risk that actual performance may differ
from those estimates.
Systems’ vulnerability and penetration testing, business
continuity plans and back up facilities 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. IT risks are also managed
through the application of internal policies and change
level
management procedures, contractual
agreements with third party suppliers, and IT capacity
management.
service
The Audit Committee received regular briefings on cyber
risk during the year (see page 45).
NEXT operates a centralised treasury function which is
responsible for managing its liquidity, interest and foreign
currency risks. The Group’s treasury function operates under
a Board-approved policy. This includes approved counter-
party and other limits which are designed to mitigate NEXT’s
exposure to financial risk. Further details of the Group’s
treasury operations are given in Note 27 to the financial
statements.
NEXT has adequate medium and long term financing in
place to support its business operations, and the Group’s
cash position and forecasts are regularly monitored and
reported to the Board.
NEXT is also exposed to credit risk, particularly
in respect of its Directory customer receivables,
which at £712m represents the largest item on the
Group balance sheet.
Rigorous procedures are in place with regard to the
Group’s Directory account customers, including the use
of external credit reference agencies and applying set risk
criteria before acceptance. These procedures are regularly
reviewed and updated.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc EMPLOYEES
NEXT’s employees 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 and diversity
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. The following table shows the gender mix of the Group’s
employees at the end of the financial year:
Directors of NEXT plc
Subsidiary directors and other senior managers
Total employees
2015
2014
Males
7
29
15,447
Females
3
15
32,115
Males
8
29
15,929
Females
3
13
34,138
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 11,600 employees held options or awards over 6.4 million shares in NEXT at January 2015, being 4.2%
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 5.0 million shares; the Trustee generally does not
vote on this holding on any resolution at General Meetings.
Pension provision
NEXT offers pension benefits to participating employees, details of which are set out in the Remuneration Report
and in Note 21 to the financial statements. At January 2015, there were 1,093 (2014: 1,169) active members in the
Defined Benefit Section of the NEXT Group Pension Plan and 2,853 (2014: 2,775) UK active members of the Defined
Contribution Section. In addition, 12,114 employees (2014: 10,134) participate in the Group’s Auto Enrolment
defined contribution scheme.
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SOCIAL, COMMUNITY AND HUMAN RIGHTS
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.
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. NEXT’s commitment to CR matters is recognised externally by its membership of the FTSE4Good
Index Series.
Suppliers
In common with other retailers, NEXT’s product supply chain is both diverse and dynamic. Last year, NEXT used
over 500 third party suppliers with products manufactured across some 40 countries. The challenge of trading
ethically and acting responsibly towards the workers within our own and our suppliers’ factories is a key priority.
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 45 staff
(2014: 45) which carried out more than 1,900 factory audits last year. 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 and 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.
Human rights
NEXT is committed to upholding all basic human rights, as outlined in the United Nations’ Guiding Principles of
Business and Human Rights. In 2014 we carried out an initial risk assessment of potential human rights impacts
across our business, looking at the activities of our own direct operations, as well as those of our UK and overseas
partners. Labour rights in our supply chain is a key potential impact area, and is monitored and managed through
the Next COP programme which reflects international labour conventions. In 2015 we will be using the findings
from our initial human rights assessment to engage specific business functions as well as some external partners,
and to prioritise our broader human rights activity.
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. NEXT 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 its 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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 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.
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 (2014: nil).
2015
£000
1,003
183
75
2015
£000
279
1,442
353
54
2014
£000
945
115
120
2014
£000
34
1,613
363
37
ENVIRONMENTAL MATTERS
NEXT recognises that it has a responsibility to manage the impact of its business on the environment both now and
in the future. For several 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 2015/16.
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: 3% 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: Target achieved in 2012 with 16% reduction
❚ Waste created in stores, warehouses, distribution centres and offices
Target: To send less than 5% of operational waste to landfill
Progress: 91% of operational waste diverted from landfill achieved to date
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Greenhouse gas emissions
In our Corporate Responsibility Report last year we provided detailed information on NEXT’s global emissions
footprint. In accordance with the disclosure requirements for listed companies under the Companies Act, the
table below shows the Group’s greenhouse gas emissions during the financial year:
Combustion of fuel & operation of facilities (Scope 1)
Electricity, heat, steam and cooling purchased for own use (Scope 2)
Total Scope 1 and Scope 2 emissions
Intensity metric: tonnes of CO2e per £m of sales
Note: 2014 Scope 1 has been re-stated as a result of data reclassification relating to transport from Scope 3 to Scope 1
2015
Tonnes
of CO2
equivalent
48,747
129,491
178,238
44.25
2014
Tonnes
of CO2
equivalent
47,764
117,950
165,714
44.09
Methodology
The methodology used to calculate our emissions is in compliance with the ‘Environmental Reporting Guidelines:
Including mandatory greenhouse gas emissions reporting guidance’ and the UK Government’s GHG Conversion
Factors for Company Reporting (June 2014) issued by the Department for Environment, Food and Rural Affairs
(DEFRA). We report our emissions data using an operational control approach which means we include emissions
from all parts of the business where we are able to control activities and operating policies. This approach meets
the definitional requirements of the Regulations in respect of those emissions for which we are responsible, following
the guidelines and principles of the WBCSD/WRI Greenhouse Gas Protocol.
NEXT remains 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.
On behalf of the Board
David Keens
Director
19 March 2015
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc DIRECTORS’ REPORT
Disclosures required under the 2013 amendment to the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 in respect of employee matters (including the employment, training
and advancement of disabled persons), future developments, political donations and greenhouse gas emissions
are given in the Strategic Report. Information on financial instruments is given in Notes 27 to 30 of the financial
statements.
ANNUAL GENERAL MEETING & OTHER MATTERS
Notice of the Annual General Meeting (“AGM”) is on pages 121 to 131 and includes the following business:
Dividends
The Directors recommend that a final dividend of 100p per share be paid on 3 August 2015 to shareholders on
the register of members at close of business on 10 July 2015. This resolution relates only to the final dividend. As
described in the Chief Executive’s Review on page 19 the directors may in future decide to pay special dividends
as long as NEXT’s share price remains consistently above the Board’s buyback price limit. This arrangement will
ensure the Company continues to return surplus cash to shareholders, whilst maintaining the flexibility to return to
buying back shares if and when the share price returns to levels commensurate with the required Equivalent Rate
of Return. Any such special dividends will be declared by the directors as interim dividends. The announcement
of any dividend will clearly indicate whether it is a special dividend or not.
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
Dame Dianne Thompson was appointed as a non-executive director on 1 January 2015. Dame Dianne has
significant senior management experience including 14 years as Chief Executive of Camelot Group after joining
in 1997 as Commercial Operations Director. During her 42 year career she has also worked in marketing for several
retail companies and more recently was Chairman of RadioCentre and a non-executive director of the Home
Office. She is currently President of the Market Research Society.
Amanda James, Group Finance Director from 1 April 2015 following the retirement of David Keens, has been at
NEXT for 19 years, led the management accounting and commercial finance teams from 2005 and became NEXT
Brand Finance Director in 2012. Amanda has comprehensive knowledge of NEXT’s operations and has played a
central role in the financial management of the business.
On 15 May 2014, following the 2014 AGM, Christine Cross stepped down as a non-executive director after nine
years of service and on 10 June 2014 Christos Angelides, Group Product Director, resigned from the Board to pursue
an external career opportunity.
The UK Corporate Governance Code recommends that all directors of FTSE companies stand for election every
year and all members of the Board will do so at this year’s AGM, other than Jonathan Dawson who is stepping
down. Directors’ biographies are set out on page 38. Each of the directors standing for re-election has undergone
a performance evaluation and demonstrated that they remain committed to the role and continue to be an
effective and valuable member of the Board. The Board is satisfied that each non-executive director offering
themselves for election or re-election is independent in both character and judgement, and their knowledge and
other business interests enable them to contribute significantly to the work and balance of the Board.
When Jonathan Dawson steps down from the Board in May, Francis Salway will succeed him as Senior Independent
Director and Caroline Goodall will succeed him as Remuneration Committee Chair.
The interests of the directors who held office at 24 January 2015 and their families are shown in the Remuneration
Report on page 56.
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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 (the “2006 Act”), 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.
The NEXT Long Term Incentive Plan (“LTIP”)
Ordinary resolution 14 seeks authority from shareholders to allow the continued operation of the NEXT Long Term
Incentive Plan (“LTIP”). This plan, which was previously named the NEXT 2006 Performance Share Plan, has been
operated by NEXT for senior executives since it was initially approved by shareholders at the 2006 AGM.
The LTIP is a senior executive share plan, and its key features remain in line with market and best practice.
Whilst not a provision of the LTIP rules, it is the Company’s policy that for awards granted after January 2014 main
Board executive director participants must retain the shares acquired for a holding period of 2 years from vesting
(allowing for any sales to cover payment of tax). In addition, the Company includes suitable claw-back provisions
in those executives’ service agreements.
The Company’s initial 10 year authority to operate the LTIP will expire in 2016 and, accordingly, in resolution 14 the
Company is asking shareholders for a renewed authority to operate the LTIP for a further 10 years. The directors
believe that it is appropriate to renew a share plan which has operated as intended and which remains “fit for
purpose” rather than introducing an entirely new share plan where it is not necessary to do so. The Company is also
proposing to renew its standard authority to operate LTIP with appropriate amendments in overseas jurisdictions
where this is necessary to take account of local laws and regulations.
A summary of the principal terms of the LTIP is set out at Appendix 1 to the Notice of the AGM on page 124. The
NEXT LTIP rules 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.
Authority to allot shares
Under the 2006 Act, the directors may only allot shares or grant rights to subscribe for, or convert any security into,
shares if authorised to do so by shareholders in general meeting. The authority conferred on the directors at last
year’s AGM under section 551 of the 2006 Act expires on the date of the forthcoming AGM and ordinary resolution
15 seeks a new authority to allow the directors to allot ordinary shares up to a maximum nominal amount of
£5,000,000, representing approximately one third of the Company’s existing issued share capital as at 18 March
2015. In accordance with 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
£10,000,000, representing approximately two thirds of the Company’s existing issued share capital as at that date.
As at 18 March 2015 (being the latest practicable date prior to publication of this document) the Company’s
issued share capital amounted to £15,287,356 comprising 152,873,556 ordinary shares of 10 pence each, none of
which are held in treasury. The directors have no present intention of exercising this authority which will expire at
the conclusion of the AGM in 2016 or, if earlier, 1 August 2016.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Authority to disapply pre-emption rights
Special resolution 16 will, if passed, renew the directors’ authority pursuant to sections 570 to 573 of the 2006 Act 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 £764,000, being less than 5% of the issued ordinary share capital as at 18 March 2015. 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 2016 or, if earlier, 1 August 2016. In accordance with the Pre-Emption Group’s Statement of Principles,
the directors do not intend to issue more than 7.5% of the share capital of the Company for cash under this or
previous authorities in any rolling three year period without prior consultation with shareholders.
On-market purchase of own shares
NEXT has been returning capital to its shareholders by share repurchases as well as special and ordinary dividends
since March 2000 as part of its strategy for delivering sustainable long term growth in earnings per share. Over
this period, and up to 18 March 2015, NEXT has returned over £3.2bn to shareholders by way of share buybacks
and over £2bn in dividends, of which £297m comprised special dividends. This buyback activity has enhanced
earnings per share, given shareholders the opportunity for capital returns (as well as dividends) 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 £567m 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 2006 Act) 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 22,915,000 ordinary
shares of 10p each (being less than 15% of the issued share capital at 18 March 2015) 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 2016 or, if earlier, 1 August 2016.
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 currently of
0.5% of the consideration paid.
The total number of employee share awards and share options to subscribe for shares outstanding at 18 March
2015 was 6,223,008. This represents 4.1% 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 2014 AGM
(which will expire at the 2015 AGM) and the authority sought by this resolution, then the total number of options
to subscribe for shares outstanding at 18 March 2015 would represent 5.7% of the reduced issued share capital.
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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. No shares have been bought back under contingent purchase
contracts pursuant to the authority granted at the 2014 AGM up to 18 March 2015.
❚
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 spread the cash outflow.
❚ Contingent contracts entered into prior to any close period allow the Company to take delivery of shares
during these periods.
❚ 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.
❚
The Company would also have the option to set a suspension price in individual contracts whereby they would
automatically terminate if the Company’s share price was to fall.
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
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 3,000,000 shares or a total cost of £200 million.
The principal features of the contracts are set out in Appendix 2 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 2006 Act 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 2014, 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 2016. 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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Recommendation
The Board are of the opinion that all resolutions which are to be proposed at the 2015 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 2014 AGM to purchase its own shares. During the year the
Company purchased and cancelled 2,158,761 ordinary shares with a nominal value of £215,876 (none of which
were purchased off-market), at a cost of £137.9m, representing 1.4% of its issued share capital at the start of the
year. Share buybacks enhanced this year’s earnings per share by around 2%. Buybacks during the year were
made out of cash and profits generated during the year, and therefore did not result in a reduction in the Group’s
net assets or an increase in debt compared with January 2014.
At the financial year end (24 January 2015) the Company had 152,873,556 shares in issue, which remained the
same as at 18 March 2015.
The following information has been received from holders of notifiable interests in the Company’s issued share
capital:
FMR LLC (Fidelity)
BlackRock, Inc.
NEXT plc Employee Share Option Trust
Notifications received up to 24 January 2015 and as at date of notification
Nature of holding
Indirect interest
Indirect interest
Direct interest
No. of voting rights
21,470,075
15,449,829
6,190,747
% of voting rights
13.99
9.97
3.99
No other notifications were received after 24 January up to 18 March 2015.
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 2015 AGM will be on a poll. The Notice of Meeting on pages 121 to 131 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. Under the articles of
association, 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 re-election at
the 2015 AGM other than David Keens who is retiring from the Board in April 2015 and Jonathan Dawson who is
stepping down from the Board at the 2015 AGM.
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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 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.
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 Conduct 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.
The following disclosures are required under Listing Rule 9.8.4 R:
Topic
Publication of unaudited financial
information
Shareholder waivers of dividends
In December 2014 NEXT published a PBT forecast of £765m to £785m for
the year to January 2015. Actual performance was £782m.
The NEXT Employee Share Ownership Trust waived its rights to receive
dividends during the year.
No further LR 9.8.4 disclosures are required.
David Keens
Director
19 March 2015
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc DIRECTORS’ RESPONSIBILITIES STATEMENT
DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in
accordance with applicable law and regulations.
As a listed company within the European Union, the directors are required to prepare the Group Financial
Statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the EU. The
directors have elected to prepare the parent company financial statements in accordance with Companies Act
2006 and UK Accounting Standard FRS 101 “Reduced Disclosure Framework”.
Under company law the directors must not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for
that period. In preparing the financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
❚
❚ make judgements and estimates that are reasonable and prudent;
❚ present information, including accounting policies, in a manner that provides relevant, reliable, comparable
and understandable information;
❚
❚
❚
in respect of the Group financial statements, 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 Group has complied with IFRS, subject to any material departures disclosed and explained in the
financial statements.
in respect of the parent company financial statements, state whether applicable UK accounting standards
have been followed, subject to any material departures disclosed and explained in the financial statements;
and
❚ prepare the financial statements on a going concern basis, unless they consider that to be inappropriate.
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 Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements comply with the Companies
Act 2006 and, as regards the Group financial statements, 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.
Responsibilities Statement
We confirm that to the best of our knowledge:
a) the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and results of the Group; and
b) the Strategic Report contained in this annual 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; and
c) the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s performance, business model and strategy.
On behalf of the Board
Lord Wolfson of Aspley Guise
Chief Executive
19 March 2015
David Keens
Group Finance Director
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DIRECTORS AND OFFICERS
CHAIRMAN OF THE BOARD
John Barton
Aged 70. 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 easyJet plc
and a non-executive director of SSP. John 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.
INDEPENDENT NON–EXECUTIVE DIRECTORS
Jonathan Dawson,
Senior Independent Non-executive Director
Aged 63. 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 Chairman of Penfida Limited.
Previous experience includes non-executive directorships of
National Australia Group Europe Ltd, Standard Life Investments
(Holdings) Limited and Galliford Try plc, eight years in the
Ministry of Defence and over twenty years in investment
banking with Lazard.
EXECUTIVE DIRECTORS
Lord Wolfson of Aspley Guise, Chief Executive
Aged 47. 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.
Amanda James, Group Finance Director
(from 1 April 2015)
Aged 43. Joined the Group in 1995, and has led the
management accounting and commercial finance teams
since 2005. In 2009 Amanda was appointed Commercial
Finance Director and was promoted to NEXT Brand Finance
Director in 2012. Amanda has comprehensive knowledge of
NEXT’s operations and has played a central role in the financial
management of the business.
David Keens, Group Finance Director
(to 1 April 2015)
Aged 61. 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.
Michael Law, Group Operations Director
Aged 53. Joined the Group in 1995 as Call Centre Manager for
the NEXT Directory. Michael was appointed Call Centre Director
in 2003 and in 2006 took responsibility for Group IT. In 2010 he was
appointed Group Operations Director, adding Warehousing and
Logistics to his portfolio. Michael is now responsible for all Systems,
Warehousing, Logistics and Call Centres within the Group and
was appointed to the Board in 2013.
Jane Shields, Group Sales and Marketing
Director
Aged 51. Joined NEXT Retail in 1985 as a Sales Assistant in
one of our London stores. Jane worked her way through
Store Management to be appointed Sales Director in 2000,
responsible for all store operations and training. In 2006 Jane
took additional responsibility for Retail Marketing and in 2010
was appointed Group Sales and Marketing Director, adding
Directory and online marketing to her portfolio. She was
appointed to the Board in 2013.
COMPANY SECRETARY
Seonna Anderson
Steve Barber
Aged 63. 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, a member of the Audit Quality Forum
and Chairman of Design Objectives Worldwide.
Caroline Goodall
Aged 59. Became a member of the Board in January 2013.
Caroline is currently an independent non-executive on the
Partnership Board of the accountancy firm Grant Thornton UK
LLP and a Trustee of the National Trust and a member of its
Council. She was a non-executive director of SVG Capital plc,
a FTSE 250 listed private equity investor, from 2010 to October
2014. Prior to that, Caroline had over thirty years’ experience
in corporate finance and was a corporate finance partner at
the international law firm Herbert Smith including five years as
Head of the Global Corporate Division.
Francis Salway
Aged 57. Became a member of the Board in June 2010. He is
also Chairman of Town & Country Housing Group, Chairman of
the Property Advisory Group for Transport for London 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.
Dame Dianne Thompson
Aged 64. Joined the Board in January 2015. Dianne has
significant senior management experience including fourteen
years as Chief Executive Officer of Camelot Group. During her
42 year career, she has worked in marketing for several retail
companies. More recently she was Chairman of RadioCentre
and a non-executive director of the Home Office. She is
currently President of the Market Research Society.
BOARD COMMITTEES
Audit Committee
Steve Barber (Committee Chairman)
Caroline Goodall
Dame Dianne Thompson
Francis Salway
Jonathan Dawson
Remuneration Committee
Jonathan Dawson (Committee Chairman) Dame Dianne Thompson
Steve Barber
John Barton
Caroline Goodall
Francis Salway
Nomination Committee
John Barton (Committee Chairman)
Jonathan Dawson
Steve Barber
Dame Dianne Thompson
Caroline Goodall
Francis Salway
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc CORPORATE GOVERNANCE
Chairman’s introduction
Effective corporate governance is essential to the long term 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 and changing external environment. This is the ultimate measure of our success and
reflects our strong corporate governance structure and the effective management team we have in place. We
remain committed to the robust approach to governance which has served the business well.
Code compliance
Except as noted below under Board composition, the Group complied throughout the year under review with the
provisions set out in the 2012 UK Corporate Governance Code (copies of which can be downloaded from the
Financial Reporting Council website www.frc.org.uk) and the UK FCA Disclosure and Transparency Rules. Disclosures
required by DTR 7.2.6 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
During the year there have been a number of Board changes. The Board currently 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.
Provision B.1.2 of the UK Corporate Governance Code requires that at least half of the Board, excluding the
Chairman, should comprise non-executive directors determined by the Board to be independent. The Group
complied with this requirement save for a four week period between the retirement of Christine Cross, a non-
executive director, on 15 May 2014 and the resignation of Christos Angelides, NEXT’s Group Product Director, on
10 June 2014. Mr Angelides resigned to pursue an external career opportunity.
On 1 January 2015 Dame Dianne Thompson was appointed to the Board as a non-executive director. Her
appointment will ensure the continued good balance of skills and experience on the Board after Jonathan
Dawson stands down from the Board at the end of the 2015 AGM. Francis Salway will become Senior Independent
Director in place of Mr Dawson, and Caroline Goodall will succeed him as Chair of the Remuneration Committee.
The Board considers that all of its non-executive directors are independent in character and judgement, and their
knowledge, diversity of 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.
As announced last year, David Keens will retire as Group Finance Director shortly and Amanda James will be
appointed in his place. Amanda has been with NEXT for 19 years and her appointment continues to demonstrate
NEXT’s successful history of promoting internal candidates to most senior management and executive Board
positions through career development.
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 re-election at each
AGM in accordance with the UK Corporate Governance Code.
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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.
The Board has a formal schedule of matters reserved for it and 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 other executive 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 ten formal meetings during the year and these were fully attended with the exception that Christine
Cross missed two meetings and Dianne Thompson missed one meeting. The Audit Committee held five meetings
which were fully attended. The Remuneration Committee held nine meetings which were fully attended with the
exception that Francis Salway and Christine Cross each missed one meeting. The Nomination Committee held
one meeting which was fully attended. In advance of the meetings that the directors missed, they reviewed the
meeting papers and communicated their comments to the Company Secretary and Chairman who ensured
these were considered at the meetings.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Audit Committee
The Committee consists of the current five 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. Dame Dianne Thompson was appointed to the Committee in February 2015. Jonathan Dawson
will stand down at the 2015 AGM following which the Committee will consist of four independent non-executive
directors. The Audit Committee Report on page 45 describes the role and activities of the Committee.
Remuneration Committee
The Committee consists of the Chairman and currently five independent non-executive directors. The Committee
is chaired by Jonathan Dawson, who will stand down at the 2015 AGM and will be succeeded by Caroline Goodall.
Dame Dianne Thompson was appointed to the Committee in February 2015. The Committee determines the
remuneration of the executive directors in accordance with the Remuneration Policy and reviews the remuneration
of senior management. Page 64 of the Remuneration Report summarises the role and activities of the Committee.
Nomination Committee
The Committee consists of the Chairman and currently five independent non-executive directors (Jonathan
Dawson will stand down at the 2015 AGM), including the senior non-executive director. Dame Dianne Thompson
was appointed to the Committee in February 2015. 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 may be used to assist in identifying suitable external 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. In seeking
a suitable candidate for the recent non-executive vacancy, JCA Group, an external executive search agency, was
engaged. JCA Group has no other connection with the Company.
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 number of
directors, senior managers and employees by gender is given in the Strategic Report.
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 high calibre 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 became a member of the Board in 2002 and 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 38, 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.
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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 considered 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
This year an internal board and committee evaluation was completed with the process being facilitated by the
Company Secretary. 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.
An externally facilitated review was carried out in 2012/13 by PricewaterhouseCoopers; this concluded that there
were no significant weaknesses or risks that required attention. The Board intends to conduct the next externally
facilitated review during 2015/16 in line with the UK Corporate Governance Code’s recommendation that one is
conducted every three years.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 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.
Risk management and internal control is a continuous process and has been considered by the Board on a
regular basis throughout the year. This includes identifying and evaluating key risks, determining control strategies
and considering how they may impact on the achievement of the business objectives. The Board promotes the
development of a strong control culture within the business. The Audit Committee regularly reviews strategic and
operational risk, and has reviewed the key risks (described on pages 24 to 26) and the associated controls and
mitigating factors.
The Board confirms that it has reviewed the Group’s system of internal control and risk management (including
financial, operational, compliance and risk management) and considers it to be appropriate and effective. The
risk management process has been in place for the year under review and up to the date of approval of the
Annual Report.
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, and considers them to be appropriate.
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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. Whilst the Board recognises that it is
primarily accountable to the Company’s shareholders, the views of other providers of capital are also considered.
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 Strategic Report. The Strategic 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 Note 27 to 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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc AUDIT COMMITTEE REPORT
Audit Committee and external audit
The composition of the Committee is described on page 41.
The Committee holds regular, structured meetings and consults with external auditors and senior management,
including internal audit, where appropriate. The Committee frequently requests that executive directors and senior
managers attend meetings in order to reinforce a strong culture of risk management and to keep the Committee
up to date with events in the business. The Group Finance Director attended all of this year’s meetings and the
Group Chairman attended all but one.
The Audit Committee regularly reviews strategic and operational risk, and has reviewed the key risks (described on
pages 24 to 26) and the associated controls and mitigating factors. The Audit Committee receives regular reports
and briefings from internal audit and 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 Committee’s review of the interim and full year financial statements focused on the following areas of
significance:
a) Directory receivables and related provisions for doubtful debts. These, at £712m, represent the largest asset
class on the Group’s balance sheet. The Committee regularly reviews the basis and level of provisions and was
satisfied that the judgements taken were reasonable, consistent and appropriate;
b) Pension scheme funding, accounting and actuarial reports. Prepared in accordance with International
Accounting Standards, the Group’s balance sheet shows a net surplus of £38m, comprised of £775m assets
and £737m liabilities. This compares with a net surplus of £70m in the previous year. The assumptions underlying
the calculations are highly sensitive to small changes, particularly in respect of discount rates (see Note 21 to
the accounts), and are not intended to reflect the full cost of a fully funded pension buy-out;
c) Foreign currency hedging. Forward contracts and options are used to manage the Sterling cost of future
product purchases; this enables selling prices and gross margins to be set. The systems and processes in
relation to the valuation and accounting treatment of such contracts were reviewed with management and
agreed with the external auditor;
d) Judgemental accounting areas. There is a requirement for industry specific and general accounting estimates,
including those in respect of stock valuation, product returns rates, onerous leases, gift card redemptions,
taxation and share schemes. The Committee satisfied itself as to the reasonableness and consistency of these
estimates through discussions with management and the external auditor.
These were also addressed at the planning stage of the external audit and there were no significant differences
between management and external auditor conclusions.
The Audit Committee performed a detailed review of the Group’s projected cash flows, facilities and covenants
and reported to the Board that, in its view, the going concern assumption remains appropriate.
The operations of the Group and, in particular the Directory business, are highly reliant on the Group’s IT systems.
The Committee receives regular briefings from the IT and operations teams covering various aspects of IT and cyber
security. In this rapidly moving area, there is inevitably a risk that a systems failure or cyber-attack could cause
significant business disruption. Significant resources are therefore devoted to the development, maintenance and
security of the IT systems.
The Committee also received reports and presentations from senior management on significant activities of the
Group, including Directory marketing and e-commerce, regulatory developments, critical supplier risk management,
property, corporate responsibility and Code of Practice (ethical and responsible sourcing). The Group’s internal
control functions in areas such as Finance, IT, and Product are regularly reviewed by the Committee. Frequent
briefings are received on Health and Safety, Risk Management, Business Continuity, Whistleblowing and Corporate
Governance generally.
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The Committee is aware of the International Accounting Standards Board (IASB) proposal for bringing all leases
on to the balance sheet. The Chairman of the Committee and Group Finance Director have had meetings with
representatives of accounting standard setters, and other interested parties, to express the Group’s opposition to
the current proposals. Implementation of the IASB proposal would fundamentally change the Group’s balance
sheet by bringing on some £2bn (undiscounted) of theoretical “right to use” assets, together with broadly matching
lease liabilities. The proposals would have no impact on the Group’s cash flows; but would add volatility, complexity
and assumptions to the balance sheet as the Group actively manages the 500+ properties from which it trades or
leases, as well as adding compliance costs.
The Committee had discussions with the external auditor on audit planning, fees, accounting policies, audit
findings and internal control. The external auditor attended all of this year’s Committee meetings. Meetings are
also held with the auditor without management present. The effectiveness of the audit was assessed through
the review of audit plans, reports and conclusions and through discussions with management and the external
auditor. The Committee was satisfied that the audit was effective.
The Audit Committee is responsible for recommending the appointment, re-appointment and removal of
the external auditor. Consideration is given each year to an audit tender process, however, a tender was not
considered necessary during the current year. EY, or its predecessor firms, have been the Group’s auditor for over 20
years. There has been regular partner rotation, most recently in 2012. The Committee is satisfied that EY continues
to possess the skills and experience required to fulfil its 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. The
Committee also acknowledges the recent change in the law requiring mandatory auditor rotation.
EY 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 assessed the independence of the auditor, and concurs with this
statement.
In order to ensure the continued independence and objectivity of the Group’s external auditor, the Board has
strict policies regarding the provision of non-audit services by the external auditor. The Audit Committee’s approval
is required in advance for the provision of any non-audit services if the fee exceeds £100,000 for an individual
assignment, or if the aggregate non-audit fees for the year exceed either £150,000 or 20% of the audit fee. The
Committee reviews 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 competitive tender and decisions on the award
of work are made on the basis of competence, cost-effectiveness and legislation. A tender process may not be
undertaken where existing knowledge of the Group enables the auditor to provide the relevant services more cost-
effectively than other parties. The Group’s external auditor is prohibited from providing any services that would
conflict with their statutory responsibilities or which would otherwise compromise their objectivity or independence.
During the year, EY’s audit fee amounted to £0.5m and EY’s non-audit fees were less than £0.1m in total.
The Committee has reviewed its Terms of Reference and composition, and believes that both are appropriate.
Steve Barber
Chairman of the Audit Committee
19 March 2015
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
This report sets out the remuneration of NEXT’s directors for the year to January 2015 and is in three parts: (1)
Remuneration Committee Chairman’s statement, (2) annual report on remuneration, and (3) the directors’
remuneration policy which was approved by shareholders at the 2014 AGM. Each part is prepared in accordance
with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 (“the new regulations”), UK Listing Rules and UK Corporate Governance Code.
PART 1: REMUNERATION COMMITTEE CHAIRMAN’S STATEMENT
The approach of NEXT’s Remuneration Committee has remained consistent with previous years; executive directors
receive a mix of annual and long term incentives which reward strong business and financial performance in line
with the Company’s strategy and which are measured against robust benchmarks. We place special importance
on rewarding consistently strong performance over longer periods and, therefore, the balance of incentives is
tilted towards the Long Term Incentive Plan, with its 3 year performance period and 2 year holding period following
vesting.
During the past year NEXT has achieved record profit before tax of £782.2m and record Earnings Per Share (“EPS”)
of 419.8p (both measured before exceptional disposal gains) representing annual growth of 12.5% and 14.7%
respectively; over the past 3 years EPS has grown by a compound annual average of 18% and profit before tax by
11%. Ordinary dividends have grown by a compound annual average of 19% and a further £223m was paid as
special dividends. The Committee considers that the remuneration arrangements promote the long term success
of the Company within a suitable risk framework, are suitably aligned to enhancing shareholder value and that
the actual remuneration earned by the executive directors continues to be a good reflection of their and NEXT’s
overall performance.
The Committee has addressed the following matters this year:
Remuneration Policy
Our remuneration policy was approved at the 2014 AGM with 98% of votes cast in favour. The Committee gave
full consideration to the operation of the policy prior to proposing it to shareholders at the AGM and considers the
level of support obtained to be a strong endorsement. The Committee is not proposing changes to the current
policy.
Base salaries
Base salaries for executive directors were increased in February 2015 by 1% (having increased by 2% in both 2013
and 2014), in line with the wider company award.
Earlier in the year, the Committee determined that the base salaries for Michael Law and Jane Shields would be
reappraised. Michael and Jane were promoted to the Board in July 2013 but did not receive salary increases at
that time. The Committee agreed that from August 2014 their base salaries should increase from £306k to £400k
due to their development and contribution as executive directors since their promotion. This progression reflects
the Committee’s belief that salary increases should be timed to reflect performance and contribution rather than
simply promotion, and is consistent with the approved remuneration policy.
Annual bonus
As has been the case for many years at NEXT, annual bonus is calculated with reference to pre-tax EPS, including
the impact of share buybacks. In last year’s Remuneration Report we set out the basis on which we would ensure
that executive directors are not incentivised to recommend share buybacks to the Board in preference to special
dividends, or vice versa. This is achieved by making a notional adjustment to EPS growth for special dividends,
on the basis that the cash distributed had instead been used to purchase shares at the prevailing share price on
the day of the special dividend payment. Had no adjustment been made, this year’s performance would have
resulted in a bonus of 98%. After adjustment, the bonus increased to the capped maximum potential of 100% of
salary (150% for Lord Wolfson, with 50% payable in shares deferred for two years). It should also be noted that we
have excluded exceptional gains of £12.6m from this EPS calculation. Details of the targets set for last year are on
page 50.
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Long Term Incentive Plan (“LTIP”) and Share Matching Plan (“SMP”)
As set out in the Remuneration Report last year, the Committee simplified the overall structure of longer term
incentives for executive directors. They are now granted only LTIP awards and no longer receive SMP awards. We
believe that a single award is appropriate and in line with our philosophy of clarity to shareholders.
LTIP awards are granted twice a year (each at 100% of base salary for executive directors) and, therefore, during
the year, the Committee approved two grants and two awards matured. Over the performance periods for the
maturing awards, i.e. August 2011 to January 2015, NEXT’s share price rose from £23.36 to £71.50 and its market
capitalisation grew from £4.0 billion to £10.9 billion. £792m was paid to shareholders in ordinary and special
dividends and a further £778m was returned to shareholders through share buybacks. The LTIP for the three year
performance period to July 2014 vested 100% as NEXT’s TSR ranked first out of 21 companies in the comparator
group and the LTIP for the period to January 2015 also vested 100% as NEXT’s TSR ranked fourth. Details of the
comparator group are set out on pages 60 to 61.
The estimated value of these matured awards is substantial (see the Single Total Figure of Remuneration table on
page 52); as there was no change in the basis of grant, this is largely due to the 206% rise in NEXT’s share price
over the performance periods. As disclosed last year, since executive directors are no longer granted SMP awards,
the Committee removed the self-imposed £2.5m cap on the maximum value of LTIPs vesting for any participant in
any one year for LTIP awards granted after January 2014. The cap will remain in force for LTIPs with performance
periods ending in the financial years to January 2015 and 2016. Accordingly, the cap will be applied again this
year and, as a result, Lord Wolfson’s LTIP payments are expected to be reduced by an estimated £1,402k (2014
reduction £1,457k).
During 2014 the Committee reviewed the LTIP to ensure that it continues to operate as intended, and as a result
made a modification to the rules to ensure that the Committee has the ability to reduce or withdraw awards where
a person is subject to disciplinary processes. Taking into account the successful operation of the current LTIP, the
Committee agreed to recommend to shareholders at the 2015 AGM to support a resolution to renew the LTIP
rules for a further 10 years. The rules are the same as for the current LTIP and are consistent with best practice; the
principal terms are set out in the Notice of Meeting Appendix 1 on page 124.
SMP
While the Committee decided last year that executive directors should no longer participate in the SMP, legacy
awards will run their course. The 2012 SMP met its performance condition and will vest in full in April 2015, subject
to the continued employment of participants. Lord Wolfson did not participate in the 2012 SMP. The SMP remains
open to a small number of senior executives below Board level.
EPS and performance measurement
The Committee reviews each year the basis and performance measures used for the annual bonus and LTIP. The
performance measure for the annual bonus continues to be based on growth in pre-tax EPS.
The principal reasons for using the EPS measure have been set out in previous Remuneration Reports. They are:
it is consistent and transparent to participants and shareholders;
❚
❚ NEXT is predominantly a single business selling products through a number of channels under the NEXT and
third party brands. 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 is complemented by the application of TSR and consideration of the general economic underpin
condition for the LTIP.
❚
❚
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc As set out in previous years, 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 when the Board is satisfied
that the ability to invest in the business and to grow the ordinary dividend will not be impaired. Similarly, the
Board sets the minimum return required from share buybacks and makes special dividend payments where that
return cannot be achieved. As I explained last year, the Committee concluded that the basis of calculation for
this purpose should incorporate an appropriate adjustment to reflect the benefit to shareholders from special
dividends paid in the period. This ensures there is no unintentional reward or penalty for management arising from
buybacks or special dividends as a means of returning value to shareholders. The Board will maintain the same
robust discipline over the level of special dividends as it does with regard to share buybacks.
Recommendation
Each year the Committee reviews the level of performance-related pay earned by the executive directors. The
Committee considers that the remuneration earned continues to be a fair reflection of NEXT’s operating and
financial performance and is aligned to shareholders’ experience over the past 3 years. We believe that the
simplicity and transparency of our remuneration arrangements and their consistent application have contributed
positively to NEXT’s strong management team continuing to deliver resilient performance.
We focus on maintaining an appropriate balance between annual and long term incentive elements and also
between cash and share-based elements, with the aim of ensuring that remuneration drives the right behaviours
and rewards the right outcomes. We believe that weighting rewards towards the long term ensures proper
shareholder alignment, which is illustrated by the significant proportion of directors’ performance-related pay
derived from growth in NEXT’s share price.
There are no proposed changes to the remuneration policy approved last year by shareholders and accordingly
this year there is only an advisory vote on the implementation of the policy together with a separate resolution
to renew the LTIP. The Committee believes that last year’s remuneration has been in line with both the approved
policy and its spirit. Therefore, on behalf of the Committee, I commend the report and the renewal of the LTIP to you
for approval.
This is my final report to shareholders as Remuneration Committee chairman as I retire from the Board in May after
the AGM. It has been a great privilege serving on the Board. I have the highest confidence in NEXT and all of its
employees and I wish the Company every success in the future.
Jonathan Dawson
Chairman of the Remuneration Committee
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PART 2: ANNUAL REPORT ON REMUNERATION
Sections of the annual report on remuneration which have been subject to audit are noted accordingly.
IMPLEMENTATION OF REMUNERATION POLICY
The Committee has operated the remuneration policy in accordance with the policy approved by shareholders
at the AGM in May 2014. The table below sets out the way that the policy was implemented in 2014 and any
significant changes in the way the policy will be implemented in 2015.
Element of Remuneration Changes for 2014 and 2015
Salary
The Committee determined that the base salaries of Michael Law and Jane Shields
would be reappraised after their appointment to the Board. Michael and Jane were
appointed in July 2013 but did not receive an increase in base salary at that time.
The Committee agreed that from August 2014 their base salaries should increase
from £306k to £400k due to their growing experience and contribution over the year.
These increases reflect the Committee’s belief that salary increases should reward
performance and contribution rather than simply promotion. While the Committee
does not place significant emphasis on benchmark data, it is worth noting that the
increased salaries remain below a median level for directors of equivalent companies.
Base salaries of the executive directors increased by 1% in February 2015, in line with
the wider company award. Base salaries for the executive directors from February 2015
are:
Lord Wolfson
David Keens
Michael Law
Jane Shields
No change.
£’000
751
501
404
404
Annual Bonus
Annual bonus is calculated on pre-tax EPS and we ensure that the executive directors
are not incentivised to recommend share buybacks in preference to special dividends,
or vice versa. This is achieved by making a notional adjustment to EPS for special
dividends, on the basis that the cash distributed had instead been used to purchase
shares at the prevailing share price on the day of the special dividend payment.
For the year to January 2015, performance targets were set requiring pre-tax EPS growth
on the prior year, adjusted for special dividends and excluding exceptional gains, of
5% before any bonus became payable (being pre-tax EPS of 483p). Maximum bonus
of 100% and 150% of salary for the executive directors and Chief Executive respectively
was payable if pre-tax EPS exceeded growth of 15% (being pre-tax EPS of 529p).
Pre-tax EPS growth achieved in the year excluding exceptional gains was 14.7%, which
became 16.9% after making the prescribed adjustment for special dividends and was
well in excess of the 15% EPS growth at which point bonus reached its capped level.
Accordingly, a bonus of 100% of salary for the executive directors and 150% of salary
for the Chief Executive 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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Element of Remuneration Changes for 2014 and 2015
LTIP
No change. See Single Total Figure of Remuneration table, note 5 for details of LTIP
vestings in the year.
Claw-back & holding
periods
The Committee previously introduced malus/claw-back provisions in the service
contracts of all executive directors to cover the bonus and LTIP, and a 5 year from
grant holding period (comprising a 3 year vesting period and a 2 year holding period)
under the LTIP for executive directors. They reconsidered these matters following the
introduction of the new Corporate Governance Code and concluded that these
provisions remain appropriate.
SMP
No change to policy and with effect from 2014 executive directors are no longer eligible
to receive grants.
Chairman and non-
executive director fees
The fees of the Chairman and non-executive directors were increased by 1% in February
2015, in line with the wider company award. The Chairman will be paid an annual
fee of £262,701 (2014/15: £260,100). The basic non-executive director fee is £54,086
(2014/15: £53,550), with a further £10,817 (2014/15: £10,710) paid to the Chairmen of
the Audit and Remuneration Committees, and to the Senior Independent Director.
Pension
No change.
Other benefits
No change.
Save As You Earn
Scheme
No change.
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T
REMUNERATION REPORT
Executive directors’ external appointments
No current executive director holds any non-executive directorships outside the Group.
PENSION ENTITLEMENTS (AUDITED)
In 2013 all active members of the NEXT Group Pension Plan (the “NEXT Plan”), were transferred to the new 2013
NEXT Group Pension Plan (the “2013 Plan”) so that pensioners of the NEXT Plan could be issued individual policies
with Aviva. Most deferred pensioners and pensioners who had not previously been subject to a buy-in through
Aviva were also transferred to the 2013 Plan. Benefits within the 2013 Plan mirror those in the previous NEXT Plan.
Executive directors are now members of the 2013 Plan which has been approved by HM Revenue & Customs and
consists of defined benefit and defined contribution sections.
The trustee of both Plans is a limited company, NEXT Pension Trustees Limited (the “Trustee”). The Board of the
Trustee includes members of the 2013 Plan, a pensioner member and a Chairman who is independent with no
other connection to NEXT. 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 Plans’ investments are kept separate from the business of the NEXT Group and the Trustee holds them in
separate trusts. Responsibility for investment of the Plans’ funds has been delegated 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 2013 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.
54
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Defined benefit section
The defined benefit section was closed to new members in 2000. Since 2012 the accrual of pension benefits has
been based on pensionable salary frozen at October 2012, rather than final earnings. In addition, those employees
can elect to receive up to a 15% salary supplement or additional contributions to the defined contribution section.
The defined benefit section now provides members with a retirement benefit of one sixtieth or one eightieth
(depending on the member’s chosen contribution rate) of pensionable earnings at October 2012 for each year
of pensionable service.
Lord Wolfson and a small number of senior employees, on completion of at least 20 years’ pensionable service
at age 65, receive a retirement benefit of two-thirds of pensionable earnings at October 2012, which accrues
uniformly throughout their pensionable service. The deferred pensions for Christos Angelides, David Keens, Jane
Shields and Michael Law are based on their pensionable earnings at the time they became deferred pensioners
and accrued uniformly throughout their pensionable service.
The defined benefit 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 2013 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. There are no additional
benefits payable to directors in the event of early retirement.
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 NEXT Plan was carried out as at March 2013, and the first triennial
valuation of the 2013 Plan was carried out as at October 2013. As calculated in accordance with International
Financial Reporting Standards, the net pension surplus at January 2015 was £37.9m; further details are given in
Note 21 to the financial statements.
Certain members (including Lord Wolfson) 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 payment 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).
55
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS (AUDITED)
Directors’ interests
The Company has a formal share ownership requirement for executive directors: the Chief Executive’s minimum
shareholding is 1.5 times salary and for other executive directors 1 times salary. All executive directors exceed this
requirement and, at the year end, no executive director held less than 3 times their salary. Directors’ interests in
shares at the beginning and end of the financial year were as follows:
LTIP2
SMP2
Sharesave3
Ordinary
shares
2015
5,000
14,000
5,598
5,000
nil
2014
1,515,136 1,514,128
Lord Wolfson
Christos Angelides4 124,476 105,073
5,000
Steve Barber
14,000
John Barton
Christine Cross5
5,598
5,000
Jonathan Dawson
Caroline Goodall
nil
234,488 201,950
David Keens
11,627
Michael Law
7,790
Francis Salway
37,065
Jane Shields
Dianne Thompson6
n/a
Andrew Varley7
79,885
19,183
7,790
46,852
nil
n/a
Deferred
bonus shares1
2015
2014
13,694
–
–
–
–
–
–
–
–
–
–
–
n/a
2015
2014
9,844 109,856 149,221
93,440
–
–
–
–
–
74,715
34,493
–
34,493
n/a
55,531
–
–
–
–
–
–
59,111
32,139
–
32,139
–
n/a
–
–
–
–
–
–
–
–
–
–
n/a
–
2015
9,204
–
–
–
–
–
–
13,618
5,330
–
5,286
–
n/a
2014
9,204
63,986
–
–
–
–
–
58,414
13,282
–
13,318
n/a
40,020
2015
364
–
–
–
–
–
–
230
163
–
348
–
n/a
2014
364
431
–
–
–
–
–
388
431
–
494
n/a
431
1.
2.
3.
Full details of the basis of allocation and terms of the deferred bonus are set out on pages 66 and 67.
The LTIP and SMP amounts above are the maximum potential awards that may vest subject to performance conditions described on pages
61 and 69.
Executive directors can participate in the Company’s Sharesave scheme (see details on page 70) and the amounts above are the options
which will become exercisable at maturity.
4. Christos Angelides stepped down from the Board in June 2014 and his 2015 ordinary shareholding is as at that date. He left the business in
September 2014 and all unvested awards made to him under the LTIP, SMP and Sharesave lapsed in full at that time.
5. Christine Cross stepped down from the Board in May 2014 and her 2015 ordinary shareholding is at that date.
6. Dianne Thompson joined the Board in January 2015.
7. Andrew Varley stepped down from the Board in May 2013 and retired from the Company in May 2014.
There have been no other changes to directors’ interests in the shares of the Company from the end of the
financial year to 18 March 2015. 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.
56
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc The table below shows share awards held by directors and movements during the year. Those which have not yet
vested are in bold.
Awards
during
financial
year end
January
Market
price at
award
date
£
Date of
award
Option
price
£
Maximum
share
potential
awarded
Options
waived1/
lapsed
Shares
vested in
the year
Vesting date/
Exercisable dates2
Lord Wolfson
Deferred bonus
shares
LTIP
SMP
2013 Apr 2012
2014 Apr 2013
2015 Apr 2014
2012 Mar 2011
2012 Sept 2011
2013 Mar 2012
2013 Sept 2012
2014 Mar 2013
2014 Sept 2013
2015 Mar 2014
2015 Sept 2014
29.33
44.08
63.35
20.70
23.02
26.60
30.83
37.39
46.36
56.376
65.096
2012 Apr 2011
2014 Apr 2013
22.37
43.81
n/a
n/a
n/a
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1,9023
21,6934
11,9914
30,289
1,902
7,942
5,752
33,684
30,2895
26,8615
23,175
19,492
15,720
13,187
11,421
Apr 2014
Apr 2015
Apr 2016
Jan 2014
Jul 2014
Jan 2015
Jul 2015
Jan 2016
Jul 2016
Jan 2017
Jul 2017
67,098
9,204
67,098
n/a
Apr 2016 – Apr 2023
Sharesave
2014 Oct 2013
41.12
364
Dec 2018 – Jun 2019
Christos Angelides
LTIP
SMP
2012 Mar 2011
2012 Sept 2011
2013 Mar 2012
2013 Sept 2012
2014 Mar 2013
2014 Sept 2013
2015 Mar 2014
2012 Apr 2011
2013 Apr 2012
2014 Apr 2013
20.70
23.02
26.60
30.83
37.39
46.36
56.376
22.37
30.32
43.81
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
30,556
16,4865
14,619
12,614
10,609
8,556
9,570
48,690
8,392
6,904
16,2214
14,3354
16,486
14,619
12,614
10,609
8,556
9,570
8,392
6,904
48,6907
Sharesave
2012 Oct 2011
20.84
431
431
Notes to this table are on page 59.
Jan 2014
Jul 2014
n/a
n/a
n/a
n/a
n/a
May 2014
n/a
n/a
n/a
57
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
Awards
during
financial
year end
January
Market
price at
award
date
£
Date of
award
Option
price
£
Maximum
share
potential
awarded
Options
waived1/
lapsed
Shares
vested in
the year
Vesting date/
Exercisable dates2
20.70
23.02
26.60
30.83
37.39
46.36
56.376
65.096
22.37
30.32
43.81
20.70
23.02
26.60
30.83
37.39
46.36
56.376
65.096
22.37
30.32
43.81
2012 Mar 2011
2012 Sept 2011
2013 Mar 2012
2013 Sept 2012
2014 Mar 2013
2014 Sept 2013
2015 Mar 2014
2015 Sept 2014
2012 Apr 2011
2013 Apr 2012
2014 Apr 2013
2012 Oct 2011
2014 Oct 2013
2012 Mar 2011
2012 Sept 2011
2013 Mar 2012
2013 Sept 2012
2014 Mar 2013
2014 Sept 2013
2015 Mar 2014
2015 Sept 2014
2012 Apr 2011
2013 Apr 2012
2014 Apr 2013
2012 Oct 2011
2015 Oct 2014
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
16,866
15,1665
13,4495
11,604
9,759
7,871
8,804
7,624
44,796
6,714
6,904
16,866
15,166
Jan 2014
Jul 2014
Jan 2015
Jul 2015
Jan 2016
Jul 2016
Jan 2017
Jul 2017
44,7967
April 2014
Apr 2015 - Apr 2022
Apr 2016 - Apr 2023
20.84
41.12
158
230
1588
Jan 2015
Dec 2018 - Jun 2019
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
20.84
54.92
7,333
6,5945
5,8515
5,048
4,814
4,853
5,428
6,145
7,952
2,862
2,468
431
163
7,333
6,594
Jan 2014
July 2014
Jan 2015
Jul 2015
Jan 2016
Jul 2016
Jan 2017
Jul 2017
7,9527
Apr 2014
Apr 2015 – Apr 2022
Apr 2016 – Apr 2023
4318
Dec 2014
Dec 2017 – Jun 2018
David Keens
LTIP
SMP
Sharesave
Michael Law
LTIP
SMP
Sharesave
Notes to this table are on page 59.
58
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Jane Shields
LTIP
SMP
Sharesave
Awards
during
financial
year end
January
Market
price at
award
date
£
Date of
award
Option
price
£
Maximum
share
potential
awarded
Options
waived1/
lapsed
Shares
vested in
the year
Vesting date/
Exercisable dates2
2012 Mar 2011
2012 Sept 2011
2013 Mar 2012
2013 Sept 2012
2014 Mar 2013
2014 Sept 2013
2015 Mar 2014
2015 Sept 2014
2012 Apr 2011
2013 Apr 2012
2014 Apr 2013
2010 Oct 2009
2014 Oct 2013
2015 Oct 2014
20.70
23.02
26.60
30.83
37.39
46.36
56.376
65.096
22.37
30.32
43.81
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
14.34
41.12
54.92
7,333
6,5945
5,8515
5,048
4,814
4,853
5,428
6,145
8,032
2,820
2,466
195
299
49
7,333
6,594
Jan 2014
Jul 2014
Jan 2015
Jul 2015
Jan 2016
Jul 2016
Jan 2017
Jul 2017
8,0327
Apr 2014
Apr 2015 – Apr 2022
Apr 2016 – Apr 2023
1958
Dec 2014
Dec 2018 – Jun 2019
Dec 2019 – Jun 2020
1. As disclosed in the 2014 Annual Report, Lord Wolfson waived his potential entitlement under the 2011 SMP (options over 67,098 shares).
2.
For LTIP awards, the date in this column is the end of the three year performance period. Actual vesting will be the date on which the Committee
determines whether any Performance Condition has been satisfied.
The market value of shares at the time the deferred bonus vested was £63.35.
For LTIP awards granted prior to February 2014 the maximum value of LTIP awards that vest for a particular year is capped at £2.5m. The cap was
applied to the awards that vested in the year to January 2014 for Lord Wolfson and Christos Angelides. The impact of this cap was to reduce
the shares vested by 21,693 and 16,221 respectively.
See page 53 for details of the performance conditions and vesting levels applicable to the LTIP schemes vesting in the year.
The LTIP price at award date is NEXT’s average share price over the three months prior to the start of the performance period.
6.
7. David Keens, Jane Shields and Michael Law exercised their SMP options on 30 April 2014 when the market price for the shares was £65.20.
3.
4.
5.
8.
Christos Angelides exercised on 1 May 2014 when the market price was £66.50.
The market price for the shares at the date of Sharesave exercise was £67.55 for Michael Law and Jane Shields (1 December 2014) and £71.50
for David Keens (23 January 2015).
9. Within the above table, all awards are subject to performance conditions except for Sharesave options and Deferred Bonus Shares.
The aggregate gains of directors arising from the exercise of options granted under the SMP, Sharesave and LTIP
that vested in the year totalled £18,872,000 (2014: £14,150,000).
59
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
SCHEME INTERESTS AWARDED DURING THE YEAR TO JANUARY 2015 (AUDITED)
LTIP
Face value
In respect of the LTIP awards granted during the year to January 2015, the maximum “face
value” of awards (i.e. the maximum number of shares that would vest if all performance
measures are met multiplied by the average share price used to determine the award) is
summarised below:
Lord Wolfson
Christos Angelides1
David Keens
Michael Law
Jane Shields
Mar 2014
£’000
743
539
496
306
306
Sep 2014
£’000
743
–
496
400
400
Total
£’000
1,486
539
992
706
706
1. Christos Angelides left the Company in September 2014 and all his outstanding LTIP awards lapsed at that time.
20% of the entitlement will be earned for relative TSR at median and full vesting requires
relative TSR at upper quintile.
March 2014 grant: three years to January 2017.
September 2014 grant: period three years to July 2017.
Vesting if minimum
performance
achieved
Performance
period
Performance
measures
The LTIP performance measures are detailed on page 69. The companies in the TSR
comparator group for the awards granted during the financial year are:
ASOS
Burberry
Carpetright
Carphone
Warehouse1
Debenhams
Dixons/Dixons
Carphone1
Dunelm
Halfords
Home Retail
Group
J Sainsbury
JD Sports
Kingfisher
Marks & Spencer
Morrisons
Mothercare
N Brown
Poundland1
Supergroup
Ted Baker
Tesco
W H Smith
1.
Following the merger of Carphone Warehouse and Dixons Retail in August 2014, Poundland Group was added
to the comparator group for the September LTIP grant. For the LTIP grants prior to September 2014, Carphone
Warehouse and Dixons will continue as two entries with their relative TSRs being measured on pre (independent)
and post (identical) merger performance over each performance period.
Deferred bonus
In addition to the scheme interests detailed above, any annual bonus in excess of 100% of base salary payable to
the Chief Executive is deferred for a period of two years and subject to forfeiture if he voluntarily resigns prior to the
end of that period. The value of the deferred bonus (£372k) is included in the single total figure of remuneration
table on page 52.
PERFORMANCE TARGETS FOR OUTSTANDING AWARDS
Summarised below are the performance targets for all outstanding awards made under the LTIP and SMP schemes:
LTIP
Details of potential awards granted to executive directors for outstanding performance periods are as follows:
Maximum potential award granted (% of base salary)
Jane Shields &
Michael Law
60%
75%
100%
David Keens
75%
75%
100%
Lord Wolfson
100%
100%
100%
3 year performance periods commencing
August 2012 and February 2013
August 2013
February 2014 and August 2014
60
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc The comparator group for the LTIP three year performance periods commencing February 2014 and August
2014 are shown on the previous page. For preceding performance periods the changes to the February 2014
comparator group above are:
1. for the period commencing August 2013 - no change;
2. for the periods commencing February 2013, August 2012 and February 2012 – Kesa added and JD Sports
removed;
3. for the period commencing August 2011 – HMV added and Dunelm removed; and
4. for the period commencing February 2011 – HMV and Signet added and Dunelm and Supergroup removed.
SMP (legacy only)
Vesting of awards is dependent solely on achieving the fully diluted post-tax EPS targets detailed below.
Date of grant
April 2012
April 2013
Required fully diluted EPS (pence)
For 0.5:1 match
267.2
314.5
For 1:1 match
281.5
331.3
For 2:1 match
310.2
365.0
These targets require a minimum three year growth in EPS of 12% before any shares vest and a maximum award
is only achieved if EPS growth reaches 30% over three years. The effective matching ratio will be calculated on a
straight line basis for EPS falling between each of the threshold points. The same EPS growth performance targets
and matching ratios were also set for the April 2014 SMP (which was not granted to executive directors). Details of
the calculation of fully diluted EPS are provided in Note 9 to the financial statements.
PAYMENTS TO PAST DIRECTORS (AUDITED)
Andrew Varley stepped down from the Board in May 2013 and continued his role as Group Property Director until
he retired in May 2014. During the year he was paid £1,536k in relation to two LTIP awards which vested. The
second of these vested after he retired and, as a ‘good leaver’, his entitlement was time pro-rated proportionately
to his actual period of service. In April 2014 his award under the 2011 SMP also vested and he received shares
valued at £2,135k at that date. In November 2014 he exercised 431 options granted at £20.84 under the Sharesave
scheme, the market price at that time was £64.65. There were no other payments made to past directors.
PAYMENTS FOR LOSS OF OFFICE (AUDITED)
There were no payments made to any director in respect of loss of office.
PAY AND PERFORMANCE
Performance graph
The graph below illustrates the performance of the Company when compared with the FTSE All Share and
FTSE General Retailers indices. 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 six year period ending January 2015.
NEXT plc Performance Chart 2009-2015 Total Shareholder Return
820
740
660
580
500
420
340
260
180
100
20
2009
2010
2011
2012
2013
2014
2015
Re-based to 31 January 2009 = 100
NEXT
FTSE All Share
FTSE General Retailers
61
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
Analysis of Chief Executive’s pay over 6 years
Financial year to
January
2015
Single figure of total
remuneration
£’000
4,660
Annual bonus pay–out
against maximum
opportunity1
100%
2014
2013
2012
2011
2010
4,646
100%
4,630
99%
4,106
72%
3,010
2,833
100%
100%
LTIP pay-out against
maximum opportunity2
Two semi–annual
awards vested at
100% each, however
total value capped
at £2.5m
Two semi–annual
awards vested at
100% each, however
total value capped
at £2.5m
Two semi–annual
awards vested at
96% and 98%,
however total value
capped
at £2.5m
Two semi-annual
awards vested at
100% and 83%,
however total value
capped at £2.5m
65%
100%
SMP pay-out against
maximum opportunity
Did not participate in
2012–15 SMP
Entitlement waived3
Entitlement waived3
n/a
n/a
n/a
1
2
3
The maximum bonus for the Chief Executive is 150% of salary.
The first of semi–annual, rather than annual, awards vested in July 2011.
Lord Wolfson waived his entitlement to these SMP awards. Had he not done so, his total remuneration would have been £8,947k for January
2014 and £7,601k for January 2013.
The Remuneration Committee continues 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 NEXT’s TSR
over the last 10 years and shows that TSR grew by 383% more than his remuneration.
10 Year NEXT CEO Pay and NEXT TSR
700
600
500
400
300
200
100
0
62
£1.9m
£1.8m
£1.2m
£1.5m
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
£2.8m
£3.0m
£4.1m
£4.6m
£4.6m
£4.7m
CEO Total Remuneration
NEXT TSR
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc CHANGE IN REMUNERATION OF CHIEF EXECUTIVE
The table below shows the percentage changes in Lord Wolfson’s remuneration (i.e. salary, taxable benefits and
annual bonus) between 2014/15 and 2013/14 compared with the percentage changes in the average of each
of those components of pay for Group employees in the UK and Eire. This group has been selected as the most
appropriate comparator and represents over 87% of the Group’s workforce.
Lord Wolfson
UK/Eire Employees (average per FTE)
Salary
% change
+2.0%
+5.1%
Annual
bonus
% change
+2.0%
-13.2%
Taxable
benefits
% change
+3.0%
+3.7%
RELATIVE IMPORTANCE OF SPEND ON PAY
The graph below illustrates for the years ended January 2015 and 2014 the relative and actual spend on total
remuneration paid to all employees of the Group together with other significant distributions and payments (i.e.
for share buybacks/special dividends and ordinary dividends).
All Employee Remuneration Compared with Other Disbursements
£563.1m
£531.9m
2015
2014
£222.9m
Special
dividends
£295.8m
Buybacks
£137.9m
Buybacks
£211.5m
£164.8m
Total wages & salaries
Share buybacks and
special dividends
Ordinary
dividends
Dilution of share capital by employee share plans
The Company monitors and complies 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 in most cases satisfied from shares purchased and held by the ESOT – see Note 26.
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23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
CONSIDERATION OF MATTERS RELATING TO DIRECTORS’ REMUNERATION
Remuneration Committee
During the year the Committee comprised the following independent non-executive directors:
Jonathan Dawson (Committee Chairman)
Steve Barber
John Barton
Christine Cross (until May 2014)
Francis Salway
Caroline Goodall
The Committee met nine times during the year under review. All meetings were fully attended except that Christine
Cross and Francis Salway were each unable to attend one meeting. In advance of those meetings they reviewed
meeting papers and communicated their comments to the Committee Chairman who ensured their comments
were considered at the meeting.
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. Aon Hewitt
Ltd and FIT Remuneration Consultants LLP also provided independent external advice, mostly of a technical nature
and related to share plans and the implementation of the Directors’ Remuneration reporting regime. Aon Hewitt
and FIT have no other connection with the Company and were appointed by the Committee based on their
expertise in the relevant areas of interest. Based on the nature of the advice, the relatively small fees and no other
connection existing with these advisers, the Committee was satisfied that the advice received was objective and
independent. PricewaterhouseCoopers provided independent verification services of total shareholder returns for
NEXT and the comparator group of companies under the Long Term Incentive Plan and other technical assistance
and Eversheds LLP provided legal advice to the Company. Aon Hewitt and FIT are members of the Remuneration
Consultants Group, being the professional body for remuneration consultants and have confirmed to us that they
adhere to its code of conduct.
During the year Aon Hewitt, FIT Remuneration Consultants LLP and PricewaterhouseCoopers were each paid less
than £35k for the services described above, charged at their standard rates.
VOTING AT GENERAL MEETING
Resolutions to approve the directors’ remuneration policy and remuneration report were passed at the Company’s
2014 AGM, results as detailed below.
Votes
for
%
for
Votes
against
%
against
Total votes
cast
% of shares
on register
Votes
withheld
To approve the
remuneration policy
To approve the
Remuneration Report
100,456,860
97.9
2,132,633
2.1
102,589,493
102,217,243
99.6
372,175
0.4
102,589,418
66.2
66.2
672,096
672,171
64
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Service contracts
Executive directors
The Company’s policy on notice periods and in relation to termination payments is set out in the policy table on
pages 72 and 73. Apart from their service contracts, 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 re-election at Annual General Meetings.
Dates of appointment and notice periods for directors are set out below:
Date of appointment
Notice period
Chairman
John Barton
Executive directors
Lord Wolfson
David Keens
Michael Law
Jane Shields
Non-executive directors
Steve Barber
Jonathan Dawson
Caroline Goodall
Francis Salway
Dianne Thompson
17 May 2006
3 February 1997
24 May 1991
1 July 2013
1 July 2013
1 June 2007
13 May 2004
1 January 2013
1 June 2010
1 January 2015
12 months
12 months
12 months
12 months
12 months
1 month
1 month
1 month
1 month
1 month
PART 3: REMUNERATION POLICY TABLE
The table following summarises the Company’s policies with regard to each of the elements of remuneration
for existing directors, as approved by shareholders and in the same form as published last year. This is an edited
version of last year’s report and has not been updated or amended in any way. The full remuneration policy is
available in the 2014 Annual Report, pages 41 to 55, which can be accessed on www.nextplc.co.uk.
On behalf of the Board
Jonathan Dawson
Chairman of the Remuneration Committee
19 March 2015
65
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
REMUNERATION POLICY TABLE (AS APPROVED IN 2014)
ELEMENT
Purpose and link to strategy
Salary
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.
Annual bonus
To incentivise delivery of stretching annual
financial goals.
To provide focus on the Company’s key
financial objectives.
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.
Operation
Maximum potential value
Performance measures and targets
Reviewed annually, generally effective 1 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 only occasionally undertaken and the Committee has not adopted a
prescribed objective of setting salaries by reference to a particular percentile
or benchmark.
Performance measures and related performance targets are set at the
commencement of each financial year by the Committee. Company policy
is to set such measures by reference to pre-tax EPS but the Committee retains
flexibility to use different performance measures during the period of this
policy if it considers it appropriate to do so.
At the threshold level of performance, 20% of the maximum bonus may
be earned. A straight sliding scale of payments operates for performance
between the minimum and maximum levels. There is no in-line target level
although, for the purposes of the scenario charts on pages 52 and 53, 50% of
maximum bonus has been assumed because it is the mid-point.
There is no guaranteed annual increase. The Committee considers it
Not applicable
important that base salary increases are kept under tight control given the
multiplier effect of such increases on future costs. In recent years, increases in
executive directors’ salaries have been in line with the wider company cost
of living awards.
Under the new regulations the Company is required to specify a maximum
potential value for each component of pay. Accordingly, for the period of
this policy no salary paid to an executive director in any year will exceed
the median base salary of FTSE 100 Chief Executives as confirmed by
independent advisers. Currently this is circa £850,000 per annum.
At present Company policy is to provide a maximum bonus of 150% of salary
While the Committee reserves flexibility to
for the Chief Executive and 100% of salary for other executive directors.
apply different performance measures, it
Although the Committee has no current plan to make any changes, for the
targets set annually, which take account of
period of this policy the Committee reserves flexibility to:
currently uses stretching pre-tax EPS growth
factors including the Company’s budgets
and
the wider background of
the UK
increase maximum bonus levels for executive directors in any financial
economy. Pre-tax EPS has been chosen as the
year to 200% of salary. This flexibility would be used only in exceptional
basic metric to avoid executives benefitting
circumstances and where the Committee considered any such increase to
from external factors such as reductions in
be in the best interests of shareholders and after appropriate consultation
the rate of corporation tax. There has to be
with key shareholders;
lessen the current differentials in bonus maximums which exist between
the Chief Executive and other executive directors; and
introduce or extend an element of compulsory deferral of bonus
outcomes if considered appropriate by the Committee.
❚
❚
❚
growth in EPS before any bonus is payable to
executive directors. By contrast the threshold
for staff bonuses is set at a lower level than for
directors. The Committee reserves flexibility
to apply discretion in the interests of fairness
to shareholders and executives by making
adjustments it considers appropriate.
As noted in the Committee Chairman’s
Statement on page 39,
the basis of
performance measurement
is changing
to incorporate an appropriate adjustment
to EPS growth to reflect the benefit to
shareholders from special dividends paid in
any period.
All page references in the table above are to the January 2014 Annual Report and Accounts which is available at www.nextplc.co.uk
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION POLICY TABLE (AS APPROVED IN 2014)
ELEMENT
Salary
To provide a satisfactory base salary within
a total package comprising salary and
Reviewed annually, generally effective 1 February. The Committee focuses
particularly on ensuring that an appropriate base salary is paid to directors
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
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 only occasionally undertaken and the Committee has not adopted a
prescribed objective of setting salaries by reference to a particular percentile
experience.
or benchmark.
Purpose and link to strategy
Operation
Maximum potential value
Performance measures and targets
There is no guaranteed annual increase. The Committee considers it
important that base salary increases are kept under tight control given the
multiplier effect of such increases on future costs. In recent years, increases in
executive directors’ salaries have been in line with the wider company cost
of living awards.
Not applicable
Under the new regulations the Company is required to specify a maximum
potential value for each component of pay. Accordingly, for the period of
this policy no salary paid to an executive director in any year will exceed
the median base salary of FTSE 100 Chief Executives as confirmed by
independent advisers. Currently this is circa £850,000 per annum.
Annual bonus
financial goals.
To incentivise delivery of stretching annual
Performance measures and related performance targets are set at the
commencement of each financial year by the Committee. Company policy
is to set such measures by reference to pre-tax EPS but the Committee retains
At present Company policy is to provide a maximum bonus of 150% of salary
for the Chief Executive and 100% of salary for other executive directors.
To provide focus on the Company’s key
flexibility to use different performance measures during the period of this
financial objectives.
policy if it considers it appropriate to do so.
Although the Committee has no current plan to make any changes, for the
period of this policy the Committee reserves flexibility to:
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.
At the threshold level of performance, 20% of the maximum bonus may
be earned. A straight sliding scale of payments operates for performance
between the minimum and maximum levels. There is no in-line target level
although, for the purposes of the scenario charts on pages 52 and 53, 50% of
maximum bonus has been assumed because it is the mid-point.
❚
❚
❚
increase maximum bonus levels for executive directors in any financial
year to 200% of salary. This flexibility would be used only in exceptional
circumstances and where the Committee considered any such increase to
be in the best interests of shareholders and after appropriate consultation
with key shareholders;
lessen the current differentials in bonus maximums which exist between
the Chief Executive and other executive directors; and
introduce or extend an element of compulsory deferral of bonus
outcomes if considered appropriate by the Committee.
the wider background of
While the Committee reserves flexibility to
apply different performance measures, it
currently uses stretching pre-tax EPS growth
targets set annually, which take account of
factors including the Company’s budgets
and
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. There has to be
growth in EPS before any bonus is payable to
executive directors. By contrast the threshold
for staff bonuses is set at a lower level than for
directors. The Committee reserves flexibility
to apply discretion in the interests of fairness
to shareholders and executives by making
adjustments it considers appropriate.
As noted in the Committee Chairman’s
the basis of
Statement on page 39,
performance measurement
is changing
to incorporate an appropriate adjustment
to EPS growth to reflect the benefit to
shareholders from special dividends paid in
any period.
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Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
ELEMENT
Purpose and link to strategy
LTIP
To
to deliver
superior total shareholder returns (“TSR”) over
three year performance periods relative to a
selected group of retail companies.
incentivise management
Retention of key employees over three-year
performance periods.
Operation
Maximum potential value
Performance measures and targets
A variable percentage of a pre-determined maximum number of shares can
vest, depending on relative TSR performance against the comparator group
the Committee selects at grant (current practice is to select a comparator
group of retail companies (shown on page 64)).
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 grant, 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, grants.
The Company has the option to settle vested LTIP awards in cash.
The LTIP does not credit participants with additional value in respect of
dividends paid over any vesting period (except that the Committee has
discretion to award such credit for special dividends).
SMP
To encourage greater ownership of NEXT
shares by senior executives, excluding
executive directors, and thereby further align
their interests with shareholders.
Participants who invest a proportion of any annual cash bonus in NEXT
shares can receive up to a maximum of two times the original number of
shares they purchase with their bonus. Any matching is conditional upon
achieving performance measures over the following three years.
The Committee’s policy is to set such performance measures by reference to fully
diluted post-tax earnings per share but the Committee retains flexibility to use different
measures during the period of this policy if it considers it appropriate to do so,
including adjustments to reflect the benefit to shareholders from special dividends.
As noted in the Committee Chairman’s statement, executive directors will no
longer be granted awards under the SMP after January 2014 and participation
will be restricted to senior executives below Board level, although the Committee
reserves flexibility to re-introduce executive director participation within the
period of this policy if it considers it appropriate to do so.
The SMP does not credit participants with additional value in respect of
dividends paid over any vesting period (except that the Committee has
discretion to award such credit for special dividends).
All page references in the table above are to the January 2014 Annual Report and Accounts which is available at www.nextplc.co.uk
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Since 2008, the maximum aggregate annual award allowed under the
Performance is measured over periods of
current plan rules has been over shares worth 200% of base salary (and up
three years, which commence in February
to 300% in exceptional circumstances). With effect from 2012, the maximum
and August, by measuring NEXT’s TSR against
value of any LTIP awards that vest for a participant in a year has been
a group (currently 20 other UK listed retail
capped at £2.5m.
limits described above.
Within this maximum, the Chief Executive and other executive directors receive
size or nature of their business. Comparison
grants equal to 100% and 75% of annual salary respectively every six months.
against such a group is more likely to reflect
The Committee reserves the right to vary these levels within the overall annual
the Company’s relative performance against
companies) which are, in the view of the
Committee, most comparable with NEXT in
its peers, thereby resulting in awards vesting
on an appropriate basis.
For 2014 onwards, the Committee has decided that the maximum possible
aggregate value of awards granted to all executive directors will be 200%
of annual salary (i.e. 100% every six months). The Committee reserves the
Relative performance
right to vary these levels within the overall annual limits described above. In
addition, awards granted to executive directors which vest must be taken in
shares and the net shares (after payment of tax and NIC) must be held for
a minimum period of two further years. The Committee reserves the right
to lengthen (but not reduce) the performance period and to introduce a
retention period or to further increase this holding period.
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
In light of the cessation of further grants under the SMP (see below), the
award will lapse; there is no retesting.
Committee has reviewed the cap on the maximum value of LTIPs vesting for
any participant in any one year and has decided it is appropriate to remove
Before any of the awards vest, the Committee
the cap for LTIP awards granted to executive directors after January 2014. The
must have regard to the performance of the
£2.5m cap will remain in force for vesting LTIPs with three year performance
Company in the light of underlying economic
periods ending in financial years to January 2015 and January 2016.
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 for these purposes are disclosed in
the relevant year’s Remuneration Report.
The Committee reserves flexibility to apply
different performance measures and targets
in respect of new grants for the period of this
policy.
The maximum matching ratio available under SMP is 3:1, matching the pre-
Although the Company reserves flexibility to
tax equivalent of the amount invested in shares.
apply different performance measures, the
Committee currently uses measures based
Within this maximum matching ratio, a match of up to 2:1 based on the
on stretching fully diluted post-tax EPS targets.
actual number of investment shares has been offered in practice, although
the Company retains flexibility within the period of this policy to offer a different
The targets for awards in each year will be
matching ratio within the scope of the maximum ratio set out above.
detailed in the report and accounts.
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc ELEMENT
LTIP
To
incentivise management
to deliver
A variable percentage of a pre-determined maximum number of shares can
superior total shareholder returns (“TSR”) over
vest, depending on relative TSR performance against the comparator group
three year performance periods relative to a
the Committee selects at grant (current practice is to select a comparator
selected group of retail companies.
group of retail companies (shown on page 64)).
Retention of key employees over three-year
The maximum number of shares that may be awarded to each director is a
performance periods.
percentage of each director’s base salary at the date of each grant, 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, grants.
The Company has the option to settle vested LTIP awards in cash.
The LTIP does not credit participants with additional value in respect of
dividends paid over any vesting period (except that the Committee has
discretion to award such credit for special dividends).
Purpose and link to strategy
Operation
Maximum potential value
Performance measures and targets
Since 2008, the maximum aggregate annual award allowed under the
current plan rules has been over shares worth 200% of base salary (and up
to 300% in exceptional circumstances). With effect from 2012, the maximum
value of any LTIP awards that vest for a participant in a year has been
capped at £2.5m.
Within this maximum, the Chief Executive and other executive directors receive
grants equal to 100% and 75% of annual salary respectively every six months.
The Committee reserves the right to vary these levels within the overall annual
limits described above.
For 2014 onwards, the Committee has decided that the maximum possible
aggregate value of awards granted to all executive directors will be 200%
of annual salary (i.e. 100% every six months). The Committee reserves the
right to vary these levels within the overall annual limits described above. In
addition, awards granted to executive directors which vest must be taken in
shares and the net shares (after payment of tax and NIC) must be held for
a minimum period of two further years. The Committee reserves the right
to lengthen (but not reduce) the performance period and to introduce a
retention period or to further increase this holding period.
In light of the cessation of further grants under the SMP (see below), the
Committee has reviewed the cap on the maximum value of LTIPs vesting for
any participant in any one year and has decided it is appropriate to remove
the cap for LTIP awards granted to executive directors after January 2014. The
£2.5m cap will remain in force for vesting LTIPs with three year performance
periods ending in financial years to January 2015 and January 2016.
SMP
To encourage greater ownership of NEXT
Participants who invest a proportion of any annual cash bonus in NEXT
shares by senior executives, excluding
shares can receive up to a maximum of two times the original number of
executive directors, and thereby further align
shares they purchase with their bonus. Any matching is conditional upon
their interests with shareholders.
achieving performance measures over the following three years.
The maximum matching ratio available under SMP is 3:1, matching the pre-
tax equivalent of the amount invested in shares.
Within this maximum matching ratio, a match of up to 2:1 based on the
actual number of investment shares has been offered in practice, although
the Company retains flexibility within the period of this policy to offer a different
matching ratio within the scope of the maximum ratio set out above.
The Committee’s policy is to set such performance measures by reference to fully
diluted post-tax earnings per share but the Committee retains flexibility to use different
measures during the period of this policy if it considers it appropriate to do so,
including adjustments to reflect the benefit to shareholders from special dividends.
As noted in the Committee Chairman’s statement, executive directors will no
longer be granted awards under the SMP after January 2014 and participation
will be restricted to senior executives below Board level, although the Committee
reserves flexibility to re-introduce executive director participation within the
period of this policy if it considers it appropriate to do so.
The SMP does not credit participants with additional value in respect of
dividends paid over any vesting period (except that the Committee has
discretion to award such credit for special dividends).
Performance is measured over periods of
three years, which commence in February
and August, by measuring NEXT’s TSR against
a group (currently 20 other UK listed retail
companies) which are, in the view of the
Committee, most comparable with NEXT in
size or nature of their business. Comparison
against such a group is more likely to reflect
the Company’s relative performance against
its peers, thereby resulting in awards vesting
on an appropriate basis.
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 Committee
must have regard to the performance of the
Company in the 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 for these purposes are disclosed in
the relevant year’s Remuneration Report.
The Committee reserves flexibility to apply
different performance measures and targets
in respect of new grants for the period of this
policy.
Although the Company reserves flexibility to
apply different performance measures, the
Committee currently uses measures based
on stretching fully diluted post-tax EPS targets.
The targets for awards in each year will be
detailed in the report and accounts.
69
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Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
ELEMENT
Purpose and link to strategy
Pension
To provide for retirement through Company
sponsored schemes or a cash alternative for
personal pension planning.
Other benefits
To provide market competitive non-cash
benefits.
Save As You Earn Scheme
To encourage all employees to make a long
term investment in the Company’s shares.
Operation
Maximum potential value
Performance measures and targets
All executive directors are deferred members of the defined benefit (“DB”)
section of the 2013 NEXT Group Pension Plan (“the Plan”).
In addition to being deferred members of the DB section of the Plan, Lord
Wolfson and Christos Angelides are members of the unfunded, unapproved
supplementary pension arrangement (“SPA”), described on page 59. Their
future pensions will be calculated by reference to their October 2012 salaries,
rather than final earnings, and future salary changes will have no effect.
Jane Shields and David Keens ceased to contribute to the Plan in 2011 and
Michael Law in 2012. Their pensions are no longer linked to salary and will
increase in line with statutory deferred revaluation only (i.e. in line with CPI).
Executive directors receive salary supplements of 15% in lieu of past changes
to their pension arrangements, in line with other senior employee members
of the DB benefit section of the Plan.
New employees of the Group can join the defined contribution (“DC”)
section of the NEXT Plan or the statutory Auto-Enrolment plan, described on
page 59.
Bonuses are not taken into account in assessing pensionable earnings in
the Plan.
Executive directors receive benefits 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. A driver is
also made available to the executive directors for business purposes.
The Committee reserves discretion to introduce new benefits where it
concludes that it is in the interests of NEXT to do so, having regard to the
particular circumstances and to market practice and reserves flexibility to
make relocation related payments.
Whilst not considered necessarily to be benefits, the Committee reserves the
discretion to authorise attendance by directors and their family members
(at the Company’s cost if required) at corporate events and to receive
reasonable levels of hospitality in accordance with Company policies.
Executive directors can participate in the Company’s Save As You Earn
(Sharesave) scheme which is HMRC approved and open to all employees.
Option grants are generally made annually, with the exercise price
discounted by a maximum of 20% of the share price at the date an invitation
is issued. Options are exercisable three or five years from the date of grant.
Alternatively, participants may ask for their contributions to be returned.
Under the DB section and the SPA, the maximum potential pension is only
Not applicable
achieved on completion of at least 20 years pensionable service at age
65, when two thirds of the executive director’s annual pensionable salary at
October 2012 could become payable. The lump sum payable on death is
four times base salary.
No DC contributions, or equivalent salary supplement payments, will be
made to an executive director in any year that will exceed the median level
of contributions or payments made to FTSE 100 Chief Executives as at the
time the rate is set, as confirmed by independent advisers to the Committee.
During the policy period, the value of benefits (other than relocation costs)
Not applicable
paid to an executive director in any year will not exceed £100,000. In addition,
the Committee reserves the right to pay up to £250,000 relocation costs in
any year to an executive director if considered appropriate to secure the
better performance by an executive director of their duties.
During the policy period, the actual level of taxable benefits provided will be
included in the Single Total Figure of Remuneration.
Investment currently limited to a maximum amount of £250 per month but
Not applicable
may increase in line with new limits set by HMRC.
All page references in the table above are to the January 2014 Annual Report and Accounts which is available at www.nextplc.co.uk
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc ELEMENT
Pension
To provide for retirement through Company
sponsored schemes or a cash alternative for
personal pension planning.
Purpose and link to strategy
Operation
Maximum potential value
Performance measures and targets
Under the DB section and the SPA, the maximum potential pension is only
achieved on completion of at least 20 years pensionable service at age
65, when two thirds of the executive director’s annual pensionable salary at
October 2012 could become payable. The lump sum payable on death is
four times base salary.
Not applicable
No DC contributions, or equivalent salary supplement payments, will be
made to an executive director in any year that will exceed the median level
of contributions or payments made to FTSE 100 Chief Executives as at the
time the rate is set, as confirmed by independent advisers to the Committee.
Other benefits
benefits.
To provide market competitive non-cash
Executive directors receive benefits which may include the provision of a
During the policy period, the value of benefits (other than relocation costs)
paid to an executive director in any year will not exceed £100,000. In addition,
the Committee reserves the right to pay up to £250,000 relocation costs in
any year to an executive director if considered appropriate to secure the
better performance by an executive director of their duties.
Not applicable
During the policy period, the actual level of taxable benefits provided will be
included in the Single Total Figure of Remuneration.
Save As You Earn Scheme
To encourage all employees to make a long
term investment in the Company’s shares.
Investment currently limited to a maximum amount of £250 per month but
may increase in line with new limits set by HMRC.
Not applicable
All executive directors are deferred members of the defined benefit (“DB”)
section of the 2013 NEXT Group Pension Plan (“the Plan”).
In addition to being deferred members of the DB section of the Plan, Lord
Wolfson and Christos Angelides are members of the unfunded, unapproved
supplementary pension arrangement (“SPA”), described on page 59. Their
future pensions will be calculated by reference to their October 2012 salaries,
rather than final earnings, and future salary changes will have no effect.
Jane Shields and David Keens ceased to contribute to the Plan in 2011 and
Michael Law in 2012. Their pensions are no longer linked to salary and will
increase in line with statutory deferred revaluation only (i.e. in line with CPI).
Executive directors receive salary supplements of 15% in lieu of past changes
to their pension arrangements, in line with other senior employee members
of the DB benefit section of the Plan.
New employees of the Group can join the defined contribution (“DC”)
section of the NEXT Plan or the statutory Auto-Enrolment plan, described on
Bonuses are not taken into account in assessing pensionable earnings in
page 59.
the Plan.
company car or cash alternative, private medical insurance, subscriptions
to professional bodies and staff discount on Group merchandise. A driver is
also made available to the executive directors for business purposes.
The Committee reserves discretion to introduce new benefits where it
concludes that it is in the interests of NEXT to do so, having regard to the
particular circumstances and to market practice and reserves flexibility to
make relocation related payments.
Whilst not considered necessarily to be benefits, the Committee reserves the
discretion to authorise attendance by directors and their family members
(at the Company’s cost if required) at corporate events and to receive
reasonable levels of hospitality in accordance with Company policies.
Executive directors can participate in the Company’s Save As You Earn
(Sharesave) scheme which is HMRC approved and open to all employees.
Option grants are generally made annually, with the exercise price
discounted by a maximum of 20% of the share price at the date an invitation
is issued. Options are exercisable three or five years from the date of grant.
Alternatively, participants may ask for their contributions to be returned.
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Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc REMUNERATION REPORT
ELEMENT
Purpose and link to strategy
Termination payments
Consistent with market practice, to ensure
NEXT can recruit and retain key executives,
whilst protecting the Company from making
payments for failure.
Operation
Maximum potential value
Performance measures and targets
The Committee will consider the need for and quantum of any termination
payments having regard to all of the relevant facts and circumstances at
that time.
Future service contracts will take into account relevant published guidance.
Each of the executive directors has a rolling service contract which
Not applicable
Claw-back/malus
To ensure the Company can recover any
payments made or potentially due
to
executive directors under performance-
related remuneration structures.
Claw-back provisions are in service contracts of 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. These provisions allow for the recovery of sums paid
and/or withholding of sums to be paid.
Chairman and non-executive director
fees
To ensure fees paid to the Chairman and
non-executive directors are competitive
and comparable with other companies of
equivalent size and complexity.
Remuneration of the non-executive directors is reviewed annually and
determined by the Chairman and the executive directors. The Chairman’s
fee is determined by the Committee (excluding the Chairman).
Additional
fees are paid to non-executive directors who chair the
Remuneration and Audit Committees, and act as the Senior Independent
Director. The structure of fees may be amended within the overall limits.
All page references in the table above are to the January 2014 Annual Report and Accounts which is available at www.nextplc.co.uk
External benchmarking is undertaken only occasionally and there is no
prescribed policy regarding the benchmarks used or any objective of
achieving a prescribed percentile level.
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commenced on either 14 March 2013 or, for Michael Law and Jane Shields,
on 1 July 2013. The contract 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
in those circumstances generally be time pro-rated and remain subject to
the application of the performance conditions at the normal measurement
date. The Committee also has a standard discretion to vary the application
of time pro-rating in such cases. “Good leaver” treatments are applied in
exceptional cases only.
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, may seek
independent professional advice and consider the views of shareholders as
expressed in published guidance prior to authorising such payment.
Consistent with market practice, in the event of removal from office of an executive
director, the Company may pay a contribution towards the individual’s legal
fees and fees for outplacement services as part of a negotiated settlement and
such other amounts as the Committee considers to be necessary, having taken
legal advice, in settlement of potential claims. Any such fees would be disclosed
with all other termination arrangements. The Committee reserves the right, if
necessary, to authorise additional payments in respect of such professional fees
if not ascertained at the time of reporting such termination arrangements up to
a maximum of £10,000.
A departing gift may be provided up to a value of £1,000 (plus related taxes)
per director.
Not applicable
Not applicable
The total of fees paid to the Chairman and the non-executive directors in
Non-executive
directors
receive
staff
any year will not exceed the maximum level for such fees from time to time
discount on Group merchandise but do
prescribed by the Company’s articles of association (currently £750,000 per
not participate in any of the Group’s bonus,
annum).
pension, share option or other incentive
schemes.
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc ELEMENT
Purpose and link to strategy
Termination payments
Operation
Maximum potential value
Performance measures and targets
Consistent with market practice, to ensure
NEXT can recruit and retain key executives,
The Committee will consider the need for and quantum of any termination
payments having regard to all of the relevant facts and circumstances at
whilst protecting the Company from making
that time.
payments for failure.
Future service contracts will take into account relevant published guidance.
Each of the executive directors has a rolling service contract which
commenced on either 14 March 2013 or, for Michael Law and Jane Shields,
on 1 July 2013. The contract 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).
Not applicable
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
in those circumstances generally be time pro-rated and remain subject to
the application of the performance conditions at the normal measurement
date. The Committee also has a standard discretion to vary the application
of time pro-rating in such cases. “Good leaver” treatments are applied in
exceptional cases only.
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, may seek
independent professional advice and consider the views of shareholders as
expressed in published guidance prior to authorising such payment.
Consistent with market practice, in the event of removal from office of an executive
director, the Company may pay a contribution towards the individual’s legal
fees and fees for outplacement services as part of a negotiated settlement and
such other amounts as the Committee considers to be necessary, having taken
legal advice, in settlement of potential claims. Any such fees would be disclosed
with all other termination arrangements. The Committee reserves the right, if
necessary, to authorise additional payments in respect of such professional fees
if not ascertained at the time of reporting such termination arrangements up to
a maximum of £10,000.
A departing gift may be provided up to a value of £1,000 (plus related taxes)
per director.
Not applicable
Not applicable
The total of fees paid to the Chairman and the non-executive directors in
any year will not exceed the maximum level for such fees from time to time
prescribed by the Company’s articles of association (currently £750,000 per
annum).
receive
Non-executive
staff
directors
discount on Group merchandise but do
not participate in any of the Group’s bonus,
pension, share option or other incentive
schemes.
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Claw-back/malus
To ensure the Company can recover any
payments made or potentially due
to
executive directors under performance-
related remuneration structures.
Claw-back provisions are in service contracts of 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. These provisions allow for the recovery of sums paid
and/or withholding of sums to be paid.
Chairman and non-executive director
Remuneration of the non-executive directors is reviewed annually and
fees
To ensure fees paid to the Chairman and
non-executive directors are competitive
and comparable with other companies of
equivalent size and complexity.
determined by the Chairman and the executive directors. The Chairman’s
fee is determined by the Committee (excluding the Chairman).
Additional
fees are paid to non-executive directors who chair the
Remuneration and Audit Committees, and act as the Senior Independent
Director. The structure of fees may be amended within the overall limits.
External benchmarking is undertaken only occasionally and there is no
prescribed policy regarding the benchmarks used or any objective of
achieving a prescribed percentile level.
Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEXT PLC
Our opinion on the financial statements is unmodified
We have audited the financial statements of NEXT plc (the “Company”) and its subsidiaries (together the “Group”) for
the year ended 24 January 2015 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 Cash Flow Statement and the related notes. The financial
reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the Company financial statements is applicable law and
United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
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.
In our opinion:
❚
❚
❚
❚
The financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at
24 January 2015 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union;
the Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Overview of our audit approach:
Materiality
Audit scope
Principal risk areas
❚ Materiality of £40 million representing 5% of pre–tax profit.
❚ Audit differences in excess of £2 million reported to the Audit Committee.
❚ NEXT plc (the Company) and NEXT Retail Limited were subject to full scope audits
with the remaining entities and eliminations subject to specific audit testing based
on our judgement of risk and materiality.
❚ NEXT plc and NEXT Retail Limited account for 98% of the Group’s revenue and 97%
of total segment profit.
❚ Adequacy of the directory debt provisions.
❚
❚
The assessment of inventory provisions required in respect of unsold stock.
The valuation of financial instruments which hedge foreign exchange and interest
rate fluctuations.
❚
The risk of misstatement arising from management override with regard to estimates
and other provisions relevant to the retail environment.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 37, the Directors are responsible
for the preparation of the Group and the Company 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 Group and the Company 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.
74
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Our 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
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 and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements on our audit and on the financial statements. For the purposes of determining whether the financial
statements are free from material misstatement we define materiality as the magnitude of misstatement that
makes it probable that the economic decisions of a reasonably knowledgeable person, relying on the financial
statements, would be changed or influenced.
We also determine a lower level of performance materiality which we use to determine the extent of testing needed
to reduce to an appropriately low level the probability that the aggregate of any undetected misstatements added
to uncorrected misstatements exceeds materiality for the financial statements as a whole.
100%
£40m
Tolerance for potential
undetected misstatements
£30m
75%
Materiality
Performance
Materiality
Tolerance for
uncorrected misstatements
When establishing our overall audit strategy, we determined
materiality for the Group to be £40 million (2014: £35 million),
which is approximately 5% of underlying profit before tax. The
rationale for using underlying profit before tax as our basis for
materiality is that it provides a consistent year on year approach
excluding one off gains, and is considered to be the most
relevant performance measure to the Group’s stakeholders.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement is
that performance materiality for the Group should be 75% of
materiality (2014: 50%), namely £30 million, although we reduce
our testing thresholds in areas of significant risk to appropriately
reflect our assessment of risk in the business and to focus on
the key judgements and estimates. We have increased our
assessment of performance materiality from 50% to 75% during
the year as a result of limited historical audit findings in prior
years, except for the judgements and estimates associated with
the areas of significant risk. Our approach is designed to have a
reasonable probability of ensuring that the total of uncorrected
and undetected misstatements does not exceed our materiality
of £40 million for the Group financial statements as a whole.
5%
£2m
Uncorrected misstatement
reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of £2 million, as well
as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the quantitative measures of materiality discussed
above and in light of other relevant qualitative considerations.
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Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEXT PLC
An overview of the scope of our audit
Our Group audit scope focused on six entities along with group eliminations on consolidation. Two of these entities,
NEXT plc (the “Company”) and NEXT Retail Limited, were full scope with the remaining entities and eliminations
component subject to specific audit testing based on our judgement of risk and materiality.
The full scope audit of NEXT Retail Limited which includes the Retail and Directory business operations accounts for
98% of the Group’s external revenue and 97% of total segment profit. The overseas Group purchasing division (NEXT
Sourcing Limited), Lipsy Limited, and Property Management (NEXT Group plc) contribute 1% of the Group’s external
revenue and 2% of total segment profit and were subject to specific scope audits in areas where we assessed
there was a risk of material misstatement.
NEXT Sourcing Limited and Lipsy Limited are both subject to local statutory audits in their jurisdictions but these
are completed after the date of this report. The remaining adjustments to segment profit in deriving Group profit
before tax are incorporated within our full scope audit of the Company or specific scope audit of the elimination
components.
All the significant risks noted below are included in the full scope entities, NEXT Retail Limited and NEXT plc, and
the Group eliminations component.
The audits of the entities are performed at a materiality level calculated by reference to a proportion of the Group
materiality appropriate to the relevant scale of the business concerned. The full scope entities were allocated
80% of the Group performance materiality. The range of performance materiality allocated to the specific scope
entities was 20% to 30% of the Group performance materiality.
For the elimination components of the Group, we performed other procedures to confirm there were no significant
risks of material misstatement in the Group financial statements. The audit of both the full scope entities and all
specific scope entities, other than NEXT Sourcing Limited, were undertaken by one audit team in the UK. The NEXT
Sourcing Limited audit was performed by an EY team in Hong Kong.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Our assessment of risks of material misstatement
We consider that the following areas present the greatest risk of material misstatement in the Group financial
statements and consequently have had the greatest impact on our audit strategy, the allocation of resources, and
the efforts of the engagement team, including the more senior members of the team. In addition to understanding
the risks in each of these areas and how management controls these risks, our audit responses are set out below:
Principal risk area and rationale
for there being a risk of material
misstatement
Adequacy of the directory debt
provisions.
This is one of the largest provisions
within the Group financial statements
relating to a net debtor balance of
£712.5 million, see Note 14.
the provision
is calculated
Whilst
using a combination of internally and
externally sourced information there is
significant judgement in determining
the assumptions.
Key assumptions:
1. the
default
assumed
rates
representing
likelihood of
the
eventual default for debt within
each category of the debtor book;
and
2. the assumed recovery rate for debt
that has defaulted and passed to
debt collection agencies.
The assessment of inventory
provisions required in respect of
unsold stock.
The net stock balance at the year
end, £416.8 million, is significant to the
overall balance sheet.
The provision is calculated using post
year end trading performance and
historical sales patterns. Changes in
in
trading performance can result
significant judgement in determining
the provision required.
Audit response
Management record a provision where a loss event has occurred using historical
default rates and credit score information to determine the extent to which a loss event
will result in an actual loss.
❚ We tested management’s categorisation of the debtor book by stage of current
default based on whether payments have been made in accordance with “the
NEXT terms and conditions” for Directory accounts.
❚ We challenged the reasonableness of the key assumptions in determining
management’s provision as follows:
1. We compared the credit score data used by NEXT plc to stratify the customer
base back to third party data obtained. We recalculated the historical default
rates for each category of customer by comparison to prior year customer
balances and actual default during the last year, as support for the assumed
default rates.
2. We compared the assumed recovery rates to historical recovery rates, current
performance, and any observed changes in debtor profile in the current period.
❚ We checked how the credit score data used in determining the future default rates
was applied to the debtor book.
❚ We tested the arithmetical accuracy of the provision based on management’s
assumptions in respect of default rates and expected recovery rates, and we also
checked the underlying debtor book categorisation to recent customer payment
history.
❚ We tested a sample of stock items categorised as Spring Summer 2015, Autumn
Winter 2014, and older items, to gain comfort over the categorisation of stock used
in the provision calculation.
❚ We examined the Group’s historical trading patterns of stock sold at full price, stock
marked down below full price in a sale period, and the element of inventory that
is passed to a clearance route; together with the related margins/losses achieved
for each of these sales channels.
❚ We challenged the reasonableness of the inventory provision by projecting future
sales levels to calculate our own estimate of the required provision, taking into
account a combination of the evidence of these historical trading patterns and
any observed changes to the current year buying cycle and observed sales
trends. We also retrospectively assessed the appropriateness of the provision by
comparing the net inventory balance to actual post period end sales.
77
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Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEXT PLC
Principal risk area and rationale
for there being a risk of material
misstatement
Valuation of financial instruments
which hedge foreign exchange and
interest rate fluctuations.
The nature of the business is such that
there is exposure to foreign currency
receipts and purchases. The Group’s
hedging strategy to manage this risk is
such that at any one point in time there
is a significant value of outstanding
financial
instruments, which are
marked to market and whose values
are estimated based upon market
inputs,
than being directly
observable market values. Note 27
summarises the instruments held.
rather
The risk of misstatement arising from
management override of internal
controls with regard to estimates and
other provisions relevant to the retail
environment.
Other than stock and debtors dealt
with separately above, these primarily
relate to property related provisions.
Audit response
❚ We identified the different types of financial instruments held by the Group and
assessed the level of risk inherent in each of the transaction types such as forwards,
options and swaps.
❚ We analysed the features of a sample of the year end instruments per the
contractual agreements and checked the details match to the counterparty
valuations.
❚ We selected a sample of instruments for valuation testing. This sample covered
each instrument, and counterparty combinations for each type of instrument.
❚
The Group audit team was supported by EY experts who independently valued the
sample in order to challenge the reasonableness of the counterparty valuations
used by the Group.
❚ We performed analytical procedures and journal entry testing in order to identify
and test the risk of misstatement arising from management override of controls,
which in addition to the risks disclosed above, focused on accruals and provisions
of a judgemental nature capable of being manipulated through management
override.
❚
For material items we re–performed the calculation of the accrual to test
mathematical accuracy.
❚ We understood the different accruals and provisions in order to challenge
management’s underlying assumptions for under or over provision.
❚ We compared these assumptions to subsequent outcomes where available.
Where subsequent outcomes were not available to assess their accuracy, we
considered the appropriateness of management’s previous estimates against
historical outcomes.
❚ We considered each of
the key
judgements and estimates
evidence of bias,
indicating management override of
for any
internal controls.
The above risks are the same as in the prior year. Consistent with the prior year we have excluded revenue
recognition as this was not one of the areas requiring greatest audit effort.
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 Strategic Report and the Directors’ Report for the financial year for which the Group
financial statements are prepared is consistent with the Group financial statements.
❚
❚
78
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc Matters on which we are required to report by exception
ISAs (UK and Ireland)
reporting
Companies Act 2006
reporting
Listing Rules review
requirements
We are required to report to you if, in our opinion, information in the annual report is:
❚ materially inconsistent with the information in the audited Group financial
statements; or
❚ apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
is otherwise misleading.
❚
In particular, we are required to consider whether we have identified any inconsistencies
between our knowledge acquired during the audit and the Directors’ statement that
they consider the annual report is fair, balanced and understandable, and whether
the annual report appropriately discloses those matters that we communicated
to the Audit Committee which we consider should have been disclosed.
We are required to report to you if, in our opinion:
❚ adequate accounting records have not been kept by the Company, or returns
adequate for our audit have not been received from branches not visited by us;
or
❚
the 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.
We are required to review:
❚
❚
the Directors’ statement, set out on page 44, in relation to going concern; and
that 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.
We have no
exceptions to
report.
We have no
exceptions to
report.
We have no
exceptions to
report.
Nigel Meredith
Senior Statutory Auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham
19 March 2015
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Additional informationParent Company accountsConsolidated accountsGovernanceBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
CONSOLIDATED INCOME STATEMENT
For the financial year ended 24 January
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Unrealised foreign exchange gains/(losses)
Trading profit
Share of results of associates
Operating profit
Finance income
Finance costs
Profit before tax and exceptional items
Exceptional gains
Profit before taxation
Taxation
Profit for the year attributable to equity holders of the parent company
Basic earnings per share
Underlying
Total
Diluted earnings per share
Underlying
Total
Notes
1,2
3
3
5
5
6
7
9
9
9
9
2015
£m
2014
£m
3,999.8
(2,656.4)
1,343.4
(322.9)
(218.2)
8.9
811.2
0.9
812.1
0.8
(30.7)
782.2
12.6
794.8
(159.9)
634.9
3,740.0
(2,499.9)
1,240.1
(296.2)
(217.7)
(5.9)
720.3
2.5
722.8
0.7
(28.3)
695.2
–
695.2
(142.0)
553.2
419.8p
428.3p
366.1p
366.1p
409.7p
417.9p
355.6p
355.6p
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the financial year ended 24 January
Profit for the year
Other comprehensive income and expenses:
Items that will not be reclassified to profit or loss
Actuarial losses on defined benefit pension scheme
Tax relating to items which will not be reclassified
Sub–total items that will not be reclassified
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Foreign currency cashflow hedges:
– fair value movements
– reclassified to the income statement
– recognised in inventories
Tax relating to items which may be reclassified
Sub–total items that may be reclassified
Other comprehensive income/(expense) for the year
Total comprehensive income for the year attributable to
equity holders of the parent company
Notes
2015
£m
634.9
2014
£m
553.2
21
(34.7)
6.9
(27.8)
(12.6)
5.0
(7.6)
(6.6)
3.0
62.8
24.5
(13.5)
(14.1)
53.1
25.3
(21.9)
(14.9)
8.5
5.3
(20.0)
(27.6)
660.2
525.6
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
CONSOLIDATED BALANCE SHEET
As at 24 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
Deferred tax assets
Current assets
Inventories
Assets under construction
Customer and other receivables
Other financial assets
Cash and short term deposits
Total assets
Current liabilities
Bank loans and overdrafts
Trade payables and other liabilities
Dividends payable
Other financial liabilities
Current tax liabilities
Non–current liabilities
Corporate bonds
Provisions
Other financial liabilities
Other liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
Approved by the Board on 19 March 2015
Notes
2015
£m
2014
£m
10
11
12
21
15
7
13
14
15
16
17
18
8
19
20
22
19
18
503.3
44.0
2.1
37.9
65.7
13.3
666.3
416.8
12.7
844.3
66.7
275.5
1,616.0
2,282.3
(2.8)
(636.5)
(73.9)
(109.4)
(64.0)
(886.6)
(838.2)
(9.4)
(11.8)
(214.4)
(1,073.8)
(1,960.4)
321.9
321.9
509.2
44.4
7.9
70.3
17.7
27.0
676.5
385.6
–
808.0
1.2
273.3
1,468.1
2,144.6
(2.6)
(594.0)
(74.4)
(83.8)
(79.7)
(834.5)
(800.8)
(8.5)
(0.9)
(213.7)
(1,023.9)
(1,858.4)
286.2
286.2
Lord Wolfson of Aspley Guise
Chief Executive
David Keens
Group Finance Director
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
Share
premium
account
£m
Capital
redemption
reserve
£m
ESOT
reserve
£m
Fair
value
reserve
£m
Foreign
currency
translation
£m
Other
reserves
£m
Retained
earnings
£m
Share
holders’
equity
£m
Non–
controlling
interest
£m
Total
equity
£m
0.9
13.8
(215.6)
8.3
2.0 (1,443.8) 1,904.0
285.7
(0.1)
285.6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the financial year ended 24 January
At January 2013
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
Equity awards settled in cash
Tax recognised directly in
equity
Equity dividends
At January 2014
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
Equity awards settled in cash
Tax recognised directly in
equity
Equity dividends
At January 2015
Share
capital
£m
16.1
–
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
(55.0)
74.0
–
–
–
(24.3)
(24.3)
–
–
–
–
–
–
3.0
3.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.5
–
–
0.9
–
–
14.4
–
–
(196.6)
–
–
(16.0)
5.0 (1,443.8) 1,906.9
–
–
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
(79.8)
84.4
–
–
–
–
59.0
(6.6)
59.0
(6.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.3
–
–
0.9
–
–
14.6
–
–
(192.0)
–
–
43.0
(1.6) (1,443.8) 1,885.6
553.2
553.2
(6.3)
(27.6)
546.9
525.6
(311.9) (311.9)
–
(35.6)
15.8
(2.4)
(55.0)
38.4
15.8
(2.4)
29.0
29.0
(238.9) (238.9)
286.3
634.9
634.9
(27.1)
25.3
607.8
660.2
(180.6) (180.6)
–
(41.5)
13.4
(3.8)
(79.8)
42.9
13.4
(3.8)
17.3
17.3
(433.9) (433.9)
322.0
–
–
–
–
–
–
–
–
553.2
(27.6)
525.6
(311.9)
(55.0)
38.4
15.8
(2.4)
–
–
(0.1)
29.0
(238.9)
286.2
–
–
–
–
–
–
–
–
634.9
25.3
660.2
(180.6)
(79.8)
42.9
13.4
(3.8)
–
–
(0.1)
17.3
(433.9)
321.9
83
23849.04 8 April 2015 7:29 AM Proof 4
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc CONSOLIDATED CASH FLOW STATEMENT
For the financial year ended 24 January
Cash flows from operating activities
Operating profit
Depreciation, impairment and loss on disposal of property, plant
& equipment
Amortisation and impairment of intangible assets
Share option charge less amounts settled in cash
Dividends from associates less share of profits
Exchange movement
Increase in inventories and assets under construction
Increase in customer and other receivables
Increase in trade and other payables
Net 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 & equipment
Movement in capital accruals
Payments to acquire property, plant & equipment
Proceeds from sale of property, plant & equipment
Payment of deferred consideration
Proceeds from sale of investment in associate (Note 6)
Net cash from investing activities
Cash flows from financing activities
Repurchase of own shares
Purchase of shares by ESOT
Disposal of shares by ESOT
Bonds issued
Bonds redeemed
Interest paid
Interest received
Payment of finance lease liabilities
Dividends paid (Note 8)
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)
2015
£m
2014
£m
812.1
722.8
114.3
0.5
9.6
0.9
(15.6)
(43.9)
(28.9)
49.1
(2.3)
895.8
(152.6)
743.2
(110.2)
(3.3)
(113.5)
1.9
(1.4)
7.0
(106.0)
(137.9)
(79.8)
45.0
–
–
(29.7)
0.9
(0.2)
(434.4)
(636.1)
1.1
270.7
0.9
272.7
132.9
0.4
13.4
(0.7)
9.3
(53.8)
(90.9)
50.7
(17.3)
766.8
(152.0)
614.8
(105.3)
2.4
(102.9)
0.4
(0.1)
–
(102.6)
(295.8)
(97.5)
42.9
250.0
(85.5)
(21.5)
0.5
(0.1)
(164.8)
(371.8)
140.4
130.9
(0.6)
270.7
84
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
GROUP ACCOUNTING POLICIES
Basis of preparation
The financial statements of 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 24 January 2015 (last year 52 weeks to 25 January 2014).
Except for the change to sales presentation described below, there have been no changes to our accounting
policies this year and the principal policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of NEXT plc (“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 account interest 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. Where third party goods are sold on a commission basis, only the commission receivable
is included in statutory revenue.
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
50 years
10 – 25 years
6 – 15 years
2 – 6 years
the period of the lease, or useful life if shorter
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.
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GROUP ACCOUNTING POLICIES
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 arrangements
The Group offers pension benefits which include both defined benefit and defined contribution arrangements.
Pension assets are held in separate trustee administered funds and 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.
Corporate bonds and bank borrowings
Corporate bonds and bank borrowings are initially recognised at fair value 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 and
the fair value of equity settled LTIP awards is calculated at grant using a Monte Carlo 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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
For cash–settled awards, 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.
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.
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Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc GROUP ACCOUNTING POLICIES
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 and judgement
means that actual outcomes could differ from expectation. Significant areas of estimation and judgement for the
Group include:
❚
❚
❚
Expected future cash flows applied in measuring impairment of Directory customer receivables (Note 14). Bad
debt provisions are calculated using a combination of internally and externally sourced information, including
historical collection rates and other credit data.
Estimated selling prices applied in determining the net realisable values of inventories. Historical sales patterns
and post year-end trading performance are used to determine these.
The assumptions applied in determining the defined benefit pension obligation (Note 21), which is particularly
sensitive to small changes in assumptions. Advice is taken from a qualified actuary to determine appropriate
assumptions at each balance sheet date.
Other areas of estimation and judgement include sales returns rates, onerous lease provisions, gift card redemption
rates, taxation and share schemes.
Change to sales presentation
NEXT operates an increasing number of commission based agreements with third party brands, including some
which are sourced by Lipsy and sold on next.co.uk and in our Directory and Label publications. Lipsy brand
products are also sold through NEXT Directory and in some NEXT Retail stores.
To ensure consistency with all other non-NEXT brands sold by NEXT, this year we have adopted the following
approach (prior year figures have been restated, see Note 1 to the financial statements):
1. Lipsy sales made through NEXT Directory (£23m this year) are now reported in NEXT Directory rather than Lipsy.
2. Lipsy sales made in NEXT Retail stores (£13m this year) are now reported in NEXT Retail rather than Lipsy.
Total Sales includes the full customer sales value of commission-based sales, whereas Statutory Revenue (which in
total remains as previously reported) includes only the net commission receivable from the supplier.
This change of presentation has no impact on profit.
New accounting standards
Various new or revised accounting standards have been issued which are not yet effective, including IFRS 15
‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’. Neither of these have yet been
endorsed by the European Union. Our initial assessment is that they are unlikely to have a significant impact on
the Group.
88
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 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 Strategic Report on page 22. The Property Management
segment holds properties and property leases which are sub-let to other segments and external parties.
Segment sales and revenue
Year to January 2015
NEXT Retail*
NEXT Directory*
NEXT International Retail
NEXT Sourcing
Lipsy*
Property Management
Total segment sales/revenues
Third party distribution
Eliminations
Total
Year to January 2014
NEXT Retail*
NEXT Directory*
NEXT International Retail
NEXT Sourcing
Lipsy*
Property Management
Total segment sales/revenues
Third party distribution
Eliminations
Total
Total sales
excluding
VAT
£m
2,348.2
1,540.6
86.2
7.5
3,982.5
36.8
5.6
4,024.9
2.9
–
4,027.8
Commission
sales
adjustment
£m
(6.7)
(20.8)
–
–
(27.5)
(0.5)
–
(28.0)
–
–
(28.0)
Total sales
excluding
VAT
£m
2,240.5
1,373.9
85.6
11.0
3,711.0
35.3
4.8
3,751.1
7.1
–
3,758.2
Commission
sales
adjustment
£m
(0.8)
(17.4)
–
–
(18.2)
–
–
(18.2)
–
–
(18.2)
External
Revenue
£m
2,341.5
1,519.8
86.2
7.5
3,955.0
36.3
5.6
3,996.9
2.9
–
3,999.8
External
Revenue
£m
2,239.7
1,356.5
85.6
11.0
3,692.8
35.3
4.8
3,732.9
7.1
–
3,740.0
Internal
Revenue
£m
7.2
–
–
593.1
600.3
24.5
196.6
821.4
–
(821.4)
–
Internal
Revenue
£m
6.1
–
–
560.2
566.3
20.5
192.9
779.7
–
(779.7)
–
Total
Segment
Revenue
£m
2,348.7
1,519.8
86.2
600.6
4,555.3
60.8
202.2
4,818.3
2.9
(821.4)
3,999.8
Total
Segment
Revenue
£m
2,245.8
1,356.5
85.6
571.2
4,259.1
55.8
197.7
4,512.6
7.1
(779.7)
3,740.0
Where third party branded goods are sold on a commission basis, only the commission receivable is included in
statutory revenue. Total Sales represents the amount paid by the customer, excluding VAT.
* Lipsy sales made through NEXT Retail and Directory are now reported in those divisions. For comparability, prior year figures have been restated
resulting in £12.1m of Lipsy sales being re–allocated to NEXT Retail and £15.5m to Directory.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Segmental analysis (continued)
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 gains/(losses)
Trading profit
Share of results of associates
Finance income
Finance costs
Profit before tax and exceptional items
Exceptional gains
Profit before tax
2015
£m
383.8
376.8
11.7
41.4
813.7
5.1
6.9
825.7
(10.0)
(13.4)
8.9
811.2
0.9
0.8
(30.7)
782.2
12.6
794.8
2014
£m
347.7
358.5
12.1
34.1
752.4
2.7
1.8
756.9
(14.9)
(15.8)
(5.9)
720.3
2.5
0.7
(28.3)
695.2
–
695.2
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. The substantial majority of NEXT Sourcing’s revenues and profits are derived from
sales to NEXT Retail and NEXT Directory.
Segment assets, capital expenditure and depreciation
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Other
Total
Property, plant &
equipment
Capital
expenditure
Depreciation
2015
£m
342.1
81.3
1.1
2.3
2.3
74.1
0.1
503.3
2014
£m
347.8
80.7
0.9
2.4
4.7
72.5
0.2
509.2
2015
£m
91.4
13.5
0.6
0.6
–
4.1
–
110.2
2014
£m
88.0
8.4
0.4
0.8
0.9
6.6
0.2
105.3
2015
£m
96.2
13.0
0.3
0.8
1.5
0.1
0.1
112.0
2014
£m
101.8
11.8
0.4
0.9
1.9
0.1
0.1
117.0
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
1. Segmental analysis (continued)
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
2. Revenue by type
Sale of goods
Rendering of services
Rental income
Royalties
Revenue
2015
£m
3,648.0
225.6
60.4
37.5
28.3
3,999.8
2015
£m
508.3
7.3
4.7
27.0
–
547.3
2015
£m
3,813.3
169.2
5.6
11.7
3,999.8
2014
£m
3,447.0
197.7
46.5
19.6
29.2
3,740.0
2014
£m
514.1
7.5
4.3
27.6
0.1
553.6
2014
£m
3,564.5
158.8
4.8
11.9
3,740.0
Rendering of services includes £166.4m (2014: £151.8m) of account interest on Directory customer receivables.
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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
Intangible assets
Operating lease rentals:
Minimum lease payments (net of amortisation of incentives)
Contingent rentals payable
Net foreign exchange losses
Customer and other receivables:
Impairment charge
Amounts recovered
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
Auditor’s remuneration
Audit of the financial statements
Audit of subsidiaries
Total audit fees
Other services:
Tax compliance
Tax advisory services
Corporate finance (2026 bond issue)
Other assurance services
2015
£m
111.9
0.1
–
0.4
2.3
0.1
2014
£m
116.9
0.1
13.0
0.4
2.9
–
206.2
6.5
198.5
7.1
0.6
6.8
24.0
(2.4)
29.0
(4.6)
1,452.7
100.9
1,553.6
2015
£’000
1,363.5
80.7
1,444.2
2014
£’000
196
295
491
7
28
–
42
568
193
279
472
6
–
82
31
591
Gains and losses on cash flow hedges removed from equity and included in the income statement for the period
comprise losses of £24.5m (2014: gains of £14.9m) included in cost of sales.
Cost of inventories recognised as an expense consists of those costs which are directly attributable to goods sold
in the year, including packaging and inbound freight costs.
Unrealised foreign exchange gains/(losses) reported in the income statement represent foreign exchange gains
of £8.9m (2014: losses of £5.9m) in respect of derivative contracts which do not qualify for hedge accounting
under IAS 39.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
4. Staff costs and key management personnel
Total staff costs were as follows:
Wages and salaries
Social security costs
Other pension costs
Share-based payments expense – equity settled
Share-based payments expense – cash settled
2015
£m
563.1
36.5
17.7
617.3
13.4
15.4
646.1
2014
£m
531.9
36.0
16.0
583.9
15.8
26.8
626.5
Share–based payments comprise management options, sharesave options and potential LTIP and SMP awards,
details of which are given in Note 25.
Total staff costs by business sector were made up as follows:
NEXT Retail and Directory
NEXT International Retail
NEXT Sourcing
Other activities
Total
NEXT Retail and Directory
NEXT International Retail
NEXT Sourcing
Other activities
Total
2015
£m
603.7
2.5
26.9
13.0
646.1
2014
£m
580.7
2.8
26.4
16.6
626.5
Average
employees
Full–time
equivalents
2015
Number
45,864
205
3,642
307
50,018
2014
Number
48,417
204
3,573
339
52,533
2015
Number
25,457
157
3,642
213
29,469
2014
Number
24,618
164
3,573
213
28,568
The aggregate amount charged in the accounts 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.
23849.04 8 April 2015 7:29 AM Proof 4
2015
£m
6.2
0.1
4.6
10.9
2014
£m
6.6
0.3
14.2
21.1
93
Additional informationParent Company accountsGovernanceConsolidated accountsBusiness reportsANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 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
Other fair value movements
Total finance costs
2015
£m
0.7
0.1
0.8
30.6
0.1
30.7
2014
£m
0.7
–
0.7
25.3
3.0
28.3
Directory account interest is presented as a component of revenue.
6. Exceptional gains
During the year the Group disposed of its investment in Cotton Traders for £15m, realising a profit on disposal of
£10.6m. £7m was received on completion and the balance of £8m is due to be received during the period to
January 2016. In addition, £2m of other prior year disposal provisions were released.
7. Taxation
Current tax:
UK corporation and 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
2015
£m
168.9
(8.3)
160.6
(1.9)
1.2
159.9
2014
£m
170.6
(20.6)
150.0
(9.3)
1.3
142.0
None of this year’s tax charge relates to exceptional items (see Note 6). Adjustments in respect of previous years
relate to movements in provisions for items under review or 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
Overseas tax differentials
Tax over-provided in previous years
Effective total tax rate on profit before taxation
2015
%
21.3
0.3
(0.6)
(0.9)
20.1
2014
%
23.2
0.5
(0.5)
(2.8)
20.4
The 2015 effective tax rate stated above is based on total profit including exceptional items. The effective tax rate
on underlying profit was 20.4% (2014: 20.4%).
94
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 7. Taxation (continued)
In addition to the amount charged to the income statement, tax movements recognised in other comprehensive
income and directly in equity were as follows:
Current tax:
Pension benefit obligation
Exchange differences on translation of foreign operations
Deferred tax:
Pension benefit obligation
Fair value movements on derivative instruments
Tax charge/(credit) in other comprehensive income
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Tax credit in the statement of changes in equity
Deferred tax asset
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 2014
Recognised in the income statement:
Accelerated capital allowances
Revaluation of derivatives to fair value
Pension benefit obligations
Share-based payments
Other temporary differences
Recognised in other comprehensive income
Recognised in the statement of changes in equity
At January 2015
2015
£m
–
(0.6)
(6.9)
14.7
7.2
2015
£m
2014
£m
(3.4)
0.6
(1.6)
(5.9)
(10.3)
2014
£m
(23.9)
(13.4)
6.6
(17.3)
2015
£m
(3.9)
(11.7)
(7.6)
33.1
3.4
13.3
2015
£m
27.0
3.6
(1.9)
(0.4)
(1.4)
0.8
(7.8)
(6.6)
13.3
(15.6)
(29.0)
2014
£m
(7.5)
4.9
(14.1)
41.1
2.6
27.0
2014
£m
(4.0)
10.0
1.3
(0.6)
(2.5)
(0.3)
7.5
15.6
27.0
No recognition has been made of the following deferred tax assets:
Capital losses
Gross
value
2015
£m
53.4
Unrecognised
deferred tax
2015
£m
10.7
Gross
value
2014
£m
74.3
Unrecognised
deferred tax
2014
£m
14.9
The benefit of unrecognised capital losses will only accrue if taxable profits are realised on future disposals of the
Group’s capital assets.
95
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8. Dividends
Year to January 2015
First special dividend
Second special dividend
Third special dividend
Final ordinary dividend for year to Jan 2014
Interim ordinary dividend for year to Jan 2015
Fourth special dividend
Paid
3 Feb 2014
1 May 2014
1 Aug 2014
1 Aug 2014
2 Jan 2015
2 Feb 2015
Pence per
share
50p
50p
50p
93p
50p
50p
Cash flow
statement
£m
74.4
74.5
74.0
137.6
73.9
–
434.4
Statement
of changes
in equity
£m
–
74.5
74.0
137.6
73.9
73.9
433.9
Jan 2015
balance
sheet
£m
–
–
–
–
–
73.9
73.9
The fourth special dividend was announced on 30 December 2014 and shares in NEXT plc traded ex–dividend
from 15 January. The liability of £73.9m is recorded in the January 2015 balance sheet on the basis that it could
not realistically have been cancelled after the ex–dividend date and it was paid on 2 February 2015.
It is intended that this year’s ordinary final dividend of 100p per share will be paid to shareholders on 3 August 2015.
NEXT plc shares will trade ex–dividend from 9 July 2015 and the record date will be 10 July 2015. The estimated
amount payable is £148.4m.
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 shares held by the ESOT.
9. Earnings per share
Basic earnings per share
Total
Underlying
2015
2014
428.3p
419.8p
366.1p
366.1p
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 gains described in Note 6.
Diluted earnings per share
Total
Underlying
2015
2014
417.9p
409.7p
355.6p
355.6p
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 0.7m such share options in the current year (2014: nil).
96
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
9. Earnings per share (continued)
Fully diluted earnings per share
Total
Underlying
2015
2014
409.6p
401.5p
347.1p
347.1p
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
Less exceptional gains (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
2015
£m
634.9
(12.6)
622.3
153.9
(5.6)
148.3
3.6
151.9
148.3
6.7
155.0
2014
£m
553.2
–
553.2
157.9
(6.8)
151.1
4.5
155.6
151.1
8.3
159.4
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10. Property, plant & equipment
Freehold
property
£m
Leasehold
property
£m
Plant and
fittings
£m
Cost
At January 2013
Exchange movement
Additions
Disposals
At January 2014
Exchange movement
Additions
Disposals
At January 2015
Depreciation
At January 2013
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2014
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2015
Carrying amount
At January 2015
At January 2014
At January 2013
69.5
–
5.4
–
74.9
–
4.1
(4.2)
74.8
8.0
–
–
1.9
–
9.9
–
0.1
0.1
(2.3)
7.8
67.0
65.0
61.5
8.3
–
1.1
–
9.4
–
–
–
9.4
1.4
–
–
–
–
1.4
–
–
0.2
–
1.6
7.8
8.0
6.9
Total
£m
1,536.1
(0.9)
105.3
(62.3)
1,578.2
0.6
110.2
(63.5)
1,625.5
998.8
(0.7)
117.0
2.9
(49.0)
1,069.0
0.5
112.0
2.3
(61.6)
1,122.2
1,458.3
(0.9)
98.8
(62.3)
1,493.9
0.6
106.1
(59.3)
1,541.3
989.4
(0.7)
117.0
1.0
(49.0)
1,057.7
0.5
111.9
2.0
(59.3)
1,112.8
428.5
436.2
468.9
503.3
509.2
537.3
At January 2015 the Group had entered into contractual commitments for the acquisition of property, plant and
equipment amounting to £27.1m (2014: £18.2m).
98
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 11. Intangible assets
Cost
At January 2013 and January 2014
Additions
At January 2015
Amortisation and impairment
At January 2013
Provided during the year
At January 2014
Provided during the year
Impairment
At January 2015
Carrying amount
At January 2015
At January 2014
At January 2013
Brand
names &
trademarks
£m
Customer
relationships
£m
Goodwill
£m
4.0
–
4.0
1.7
0.4
2.1
0.4
0.1
2.6
1.4
1.9
2.3
2.0
–
2.0
2.0
–
2.0
–
–
2.0
–
–
–
44.1
0.1
44.2
1.6
–
1.6
–
–
1.6
42.6
42.5
42.5
Total
£m
50.1
0.1
50.2
5.3
0.4
5.7
0.4
0.1
6.2
44.0
44.4
44.8
Customer relationships relate 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
2015
£m
30.5
12.1
42.6
2014
£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 (2014: £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% (2014: 10%).
Lipsy
In assessing the recoverable amount of goodwill and intangibles, the most recent financial results and internal
budgets for next year were used and extrapolated for nine further years using a growth rate of 2% (2014: 2%) and
discounted at 12% (2014: 12%). The key assumption is that Lipsy will continue to trade profitably through its different
sales channels.
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.
99
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12. Interests in associates and other investments
Interests in associates
Other investments
2015
£m
1.1
1.0
2.1
2014
£m
6.9
1.0
7.9
During the year the Group sold goods and services in the normal course of business to its associated undertakings
as follows:
Choice Discount Stores Limited
Cotton Traders Limited
Sales
Amounts
receivable
2015
£m
6.0
3.2
9.2
2014
£m
5.6
5.9
11.5
2015
£m
0.8
–
0.8
2014
£m
0.5
0.5
1.0
During the year the Group received a dividend of £1m from Cotton Traders and sold its investment for £15m (see
Note 6).
13. Assets under construction
The balance of £12.7m in current assets primarily relates to costs incurred building a new retail store in High
Wycombe which will be sold and leased back in 2015/16.
14. Customer and other receivables
Directory customer receivables
Less: allowance for doubtful debts
Other trade receivables
Less: allowance for doubtful debts
Prepayments
Other debtors
Amounts due from associated undertakings
2015
£m
853.1
(140.6)
712.5
25.5
(0.2)
737.8
89.9
15.8
0.8
844.3
2014
£m
806.4
(124.2)
682.2
21.6
(0.2)
703.6
94.0
9.4
1.0
808.0
No interest is charged on Directory customer receivables if the statement balance is paid in full and to terms;
otherwise balances bear interest at a variable annual percentage rate of 24.99% (2014: 25.99%).
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 14. Customer and other receivables (continued)
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 can be assessed by reference to
the historical default rate for the preceding 365 days of approximately 1% (2014: 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.
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
Closing position
15. Other financial assets
Foreign exchange contracts
Interest rate derivatives
2015
£m
727.3
41.8
10.2
4.4
2.7
67.6
24.6
878.6
2015
£m
124.4
24.0
(5.2)
(2.4)
140.8
2014
£m
687.2
46.4
10.4
3.8
2.8
55.6
21.8
828.0
2014
£m
125.6
29.0
(25.6)
(4.6)
124.4
Current
£m
66.7
–
66.7
2015
Non-current
£m
–
65.7
65.7
Current
£m
1.2
–
1.2
2014
Non-current
£m
–
17.7
17.7
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge
exchange risk arising from the Group’s merchandise purchases (Note 27). These instruments are primarily for US
Dollars and Euros. Interest rate derivatives relate to the corporate bonds (Note 20).
101
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. Cash and short term deposits
Cash at bank and in hand
Short term deposits
2015
£m
95.5
180.0
275.5
2014
£m
70.0
203.3
273.3
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 short term market deposit rates.
17. Bank loans and overdrafts
Bank overdrafts and short term borrowings
2015
£m
2.8
2014
£m
2.6
Bank overdrafts and short term borrowings are repayable on demand and bear interest at a margin over bank
base rates. The Group also has medium term bank facilities of £300m (2014: £300m) committed until May 2019.
None of this facility was drawn down at January 2015 or January 2014.
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
Current
£m
224.9
83.9
73.7
26.2
15.4
212.3
0.1
636.5
2015
Non–current
£m
–
–
–
197.7
10.6
6.1
–
214.4
Current
£m
194.8
75.1
69.0
25.7
19.4
209.9
0.1
594.0
2014
Non–current
£m
–
–
–
195.6
16.0
1.9
0.2
213.7
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
2015
Non–current
£m
–
11.8
–
11.8
Current
£m
8.3
–
101.1
109.4
2014
Non–current
£m
–
0.9
–
0.9
Current
£m
25.4
–
58.4
83.8
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge
exchange risk arising from the Group’s merchandise 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 £101.1m (2014: £58.4m) arising under an irrevocable
closed season buyback agreement for the purchase of the Company’s own shares which subsequently expired
unfulfilled (Note 23).
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
20. Corporate bonds
Corporate bond 5.875% repayable 2016
Corporate bond 5.375% repayable 2021
Corporate bond 4.375% repayable 2026
Balance sheet
value
Nominal value
2015
£m
215.5
337.4
285.3
838.2
2014
£m
216.5
336.9
247.4
800.8
2015
£m
212.6
325.0
250.0
787.6
2014
£m
212.6
325.0
250.0
787.6
The Group uses interest rate derivatives to manage the interest rate risk associated with its bonds, the profile of
which is shown below:
2016 bonds
Fixed
Floating
2021 bonds
Fixed
Floating*
2026 bonds
Floating
Total
2015
Nominal
value
£m
2015
Effective
interest
rate
2014
Nominal
value
£m
2014
Effective
interest
rate
162.6
5.875%
50.0 6m LIBOR +1.7%
162.6
5.875%
50.0 6m LIBOR +1.7%
212.6
212.6
5.375%
150.0
175.0 6m LIBOR +1.9%
325.0
5.375%
150.0
175.0 6m LIBOR +1.9%
325.0
250.0 6m LIBOR +1.4%
787.6
250.0
787.6
6m LIBOR +1.4%
* £150m of which reverts to an average fixed rate of 5.1% from October 2016.
The fair values of the corporate bonds are shown in Note 29.
21. Pension benefits
The Group’s UK pension arrangements include defined benefit and defined contribution sections. The Group also
provides unfunded retirement benefits to some plan members whose benefits would otherwise be restricted by
the lifetime allowance. Pension assets are held in separate trustee administered funds which have equal pension
rights with respect to members of either sex and comply with the Employment Equality Regulations (2006). Further
information on the Group’s pension arrangements is given in the Remuneration Report on pages 54 and 55.
The defined benefit section was closed to new members in 2000 and over recent years the Group has taken steps
to manage the on-going risks associated with it:
❚
❚
❚
In 2010, most pensions in payment were subject to a buy-in contract with an insurance company. This was
followed in 2012 by a further buy-in contract for pensions that had come into payment since 2010;
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;
To enable future conversion of the buy-in to buy-out, in 2013 a new Plan was established for members whose
pensions are not insured through the buy-in contracts and the associated assets and liabilities were transferred
across. It is intended that the pensions and matching insurance contracts held by the original Plan will be
converted to buy-out and the original Plan will then be dissolved.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Pension benefits (continued)
The following table summarises the principal risks associated with the Group’s defined benefit arrangements:
Investment Risk
Interest Rate Risk
Inflation Risk
Longevity Risk
The present value of defined benefit liabilities is calculated using a discount rate set by
reference to high quality corporate bond yields. To the extent that the return on plan assets
is lower than the discount rate, the pension surplus may reduce and a deficit may emerge.
A fall in bond yields would increase the value of the liabilities. This would be only partially
offset by an increase in the value of bond investments held.
An increase in inflation would increase the value of pension liabilities.
The present value of the defined benefit liabilities is calculated having regards to a best
estimate of the mortality of plan members. If members are expected to live longer, this will
increase the liabilities.
The buy–in contracts represent approximately 22% of the total pension liabilities and provide a partial hedge to
the risks described above.
The components of the net benefit expense recognised in the consolidated income statement are as follows:
New 2013
Plan
£m
7.2
19.0
(22.5)
1.1
4.8
2015
Original
Plan
£m
–
6.3
(6.3)
0.4
0.4
Unfunded
£m
0.4
0.4
–
–
0.8
Total
£m
7.6
25.7
(28.8)
1.5
6.0
New 2013
Plan
£m
2.0
5.3
(6.6)
0.2
0.9
2014
Original
Plan
£m
4.7
19.2
(21.8)
1.2
3.3
Unfunded
£m
0.3
0.4
–
–
0.7
Total
£m
7.0
24.9
(28.4)
1.4
4.9
Current service cost
Interest on benefit obligation
Interest on plan assets
Administration costs
Net benefit expense
Actual return on plan assets
89.3
26.2
–
115.5
23.7
26.1
–
49.8
The expected average duration of the original Plan is 13 years and the new 2013 Plan is 26 years.
Changes in the present value of defined benefit pension obligations are analysed as follows:
New 2013
Plan
£m
431.5
7.2
19.0
0.1
(5.8)
–
2015
Original
Plan
£m
155.9
–
6.3
–
(8.0)
–
Unfunded
£m
9.9
0.4
0.4
–
(0.9)
–
Total
£m
597.3
7.6
25.7
0.1
(14.7)
–
New 2013
Plan
£m
–
2.0
5.3
–
(0.8)
391.3
2014
Original
Plan
£m
534.7
4.7
19.2
0.1
(11.1)
(391.3)
Unfunded
£m
8.5
0.3
0.4
–
–
–
96.5
0.8
–
549.3
22.1
(0.4)
–
175.9
2.4
–
–
12.2
121.0
0.4
–
737.4
25.9
4.3
3.5
431.5
0.4
(1.8)
1.0
155.9
0.7
–
–
9.9
Total
£m
543.2
7.0
24.9
0.1
(11.9)
–
27.0
2.5
4.5
597.3
Opening obligation
Current service cost
Interest cost
Employee contributions
Benefits paid
Transferred to new 2013 Plan
Actuarial losses
– financial assumptions
– experience
– demographic assumptions
Closing obligation
104
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 21. Pension benefits (continued)
Changes in the fair value of defined benefit pension assets were as follows:
New 2013
Plan
£m
512.6
7.4
0.1
(5.8)
–
22.5
2015
Original
Plan
£m
155.0
–
–
(8.0)
–
6.3
Unfunded
£m
–
–
–
–
–
–
66.8
(1.1)
602.5
19.9
(0.4)
172.8
–
–
–
Opening assets
Employer contributions
Employee contributions
Benefits paid
Transferred to new 2013 Plan
Interest income on assets
Return on plan assets greater
than discount rate
Administrative costs
Closing assets
2014
Total
£m
667.6
7.4
0.1
(13.8)
–
28.8
86.7
(1.5)
775.3
New 2013
Plan
£m
–
7.4
–
(0.8)
482.5
6.6
Original
Plan
£m
608.8
14.8
0.1
(11.1)
(482.5)
21.8
17.1
(0.2)
512.6
4.3
(1.2)
155.0
Unfunded
£m
–
–
–
–
–
–
–
–
–
The fair value of plan assets was as follows:
Equities
Bonds
Gilts
Property
Insurance contracts
Other (cash deposits)
2015
2014
New 2013
Plan
£m
384.8
135.1
47.5
25.5
–
9.6
602.5
Original
Plan
£m
10.2
–
1.9
–
159.0
1.7
172.8
Total
£m
395.0
135.1
49.4
25.5
159.0
11.3
775.3
New 2013
Plan
£m
340.3
106.9
35.0
23.4
–
7.0
512.6
%
50.9
17.4
6.4
3.3
20.5
1.5
100.0
Original
Plan
£m
–
–
–
–
142.9
12.1
155.0
Total
£m
340.3
106.9
35.0
23.4
142.9
19.1
667.6
Total
£m
608.8
22.2
0.1
(11.9)
–
28.4
21.4
(1.4)
667.6
%
51.0
16.0
5.2
3.5
21.4
2.9
100.0
The fair values of the above equity and debt instruments are determined based on quoted prices in active markets.
The net defined benefit pension asset/(liability) is analysed as follows:
2015
New 2013
Plan
£m
602.5
(549.3)
53.2
Original
Plan
£m
172.8
(175.9)
(3.1)
Unfunded
£m
–
(12.2)
(12.2)
Total
£m
775.3
(737.4)
37.9
New 2013
Plan
£m
512.6
(431.5)
81.1
Original
Plan
£m
155.0
(155.9)
(0.9)
2014
Unfunded
£m
–
(9.9)
(9.9)
Total
£m
667.6
(597.3)
70.3
Total assets
Benefit obligation
Net pension asset/(liability)
The most recent full actuarial valuation of the original Plan was undertaken at March 2013. The IAS 19 valuation of
the defined benefit obligation was undertaken by an independent qualified actuary as at January 2015 using the
projected unit credit method. The principal actuarial assumptions used in the valuation were as follows:
Discount rate
Inflation – RPI
Inflation – CPI
2015
2014
Original
Plan
3.00%
2.95%
1.95%
New 2013
Plan
3.35%
3.00%
2.00%
Original
Plan
4.15%
3.40%
2.40%
New 2013
Plan
4.40%
3.35%
2.35%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Pension benefits (continued)
Life expectancy at age 65 (years)
Male
Female
2015
2014
Pensioner
aged 65
Non–
pensioner
aged 45
Pensioner
aged 65
Non–
pensioner
aged 45
22.7
25.1
24.9
27.4
22.6
25.0
24.8
27.3
The key sensitivities in the calculation are the discount rate and the inflation assumption. A decrease of 0.25% in
the discount rates used would increase the gross liabilities by approximately £37m, which would be partly mitigated
by an increase of approximately £5m on the insurance assets. An increase of 0.25% in the inflation assumption
would increase the gross liabilities by £24m, offset by an increase of approximately £3m on the insurance assets.
Members of the defined benefit section contribute 3% or 5% of pensionable earnings whilst the employer contribution
rate is 17.5%. Members of the defined contribution section contribute 3% or 5% of pensionable earnings which is
matched by the employing company. Contribution rates are expected to remain the same for the year ahead.
Total employer contributions of £18.4m (2014: £32.5m) were made during the year, including £9.6m (2014: £9.1m)
in respect of the defined contribution section, £7.4m (2014: £22.2m) in respect of the defined benefit section and
£1.4m (2014: £1.2m) in respect of automatic enrolment contributions.
22. Provisions
At January 2014
Provisions made in the year
Utilisation of provisions
Release of provisions
Unwind of discount
At January 2015
Vacant
property
costs
£m
8.5
3.6
(2.4)
(0.6)
0.3
9.4
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 five years (2014: three years).
23. Share capital
Allotted, called up and fully paid
Ordinary shares of 10p each
At the start of the year
Purchased for cancellation
At the end of the year
2015
Shares ‘000
2014
Shares ‘000
2015
£m
2014
£m
155,032
(2,158)
152,874
161,234
(6,202)
155,032
15.5
(0.2)
15.3
16.1
(0.6)
15.5
106
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23. Share capital (continued)
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
2015
2014
Shares
‘000
2,158
(1,000)
1,500
Shares
‘000
6,202
(1,050)
1,000
£m
137.9
(58.4)
101.1
180.6
£m
295.8
(42.3)
58.4
311.9
All £58.4m of the commitment outstanding at January 2014 expired unfulfilled.
At 18 March 2015, all £101.1m of the January 2015 commitment was also unfulfilled and had expired, and will
therefore be credited back to equity in 2015/16.
24. Other reserves
Other reserves in the consolidated balance sheet comprise the reserve created on reduction of share capital
through a Scheme of Arrangement under Section 425 of the Companies Act 1985 (£1,460.7m) less share premium
account (£3.8m) and capital redemption reserve (£8.7m) at the time of a 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.
25. Share-based payments
The Group operates a number of share-based payment schemes as follows:
Management share options
The NEXT Management Share Option Plan provides for options over shares, exercisable between three and ten
years following their grant, to be allocated to Group employees at the discretion of the Remuneration Committee.
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 NEXT’s LTIP or the SMP in the same year.
The total number of options which can be granted is subject to shareholder approved limits. There are no cash
settlement alternatives and they are therefore accounted for under IFRS 2 as equity-settled awards. Options are set
at the prevailing market price at the time of grant. 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, excluding bonuses and benefits in kind. 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. Grants are generally made annually.
Sharesave options
The Company’s Save As You Earn (Sharesave) scheme is open to all employees. Invitations to participate are
generally issued annually and the scheme is subject to HMRC rules. The current maximum monthly savings limit
for the schemes detailed below is £250. Options are granted at the prevailing market rate less a discount of 20%
and are exercisable three or five years from the date of grant. Sharesave options are also accounted for as equity–
settled awards under IFRS 2.
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25. Share-based payments (continued)
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
2015
2014
No.
of options
7,013,642
1,196,298
(2,245,410)
(229,400)
5,735,130
1,208,356
Weighted
average
exercise
price
£26.75
£62.24
£20.25
£43.40
£36.22
£18.75
No.
of options
7,951,797
1,611,943
(2,265,840)
(284,258)
7,013,642
1,188,164
Weighted
average
exercise
price
£21.52
£41.52
£18.84
£27.49
£26.75
£17.60
Options were exercised on a regular basis throughout the year and the weighted average share price during this
period was £65.98 (2014: £48.29). Options outstanding at January 2015 are exercisable at prices ranging between
£9.17 and £66.95 (2014: £9.17 and £41.70) and have a weighted average remaining contractual life of 5.8 years
(2014: 6.1 years), as analysed below:
Exercise price range
£9.17 – £20.70
£20.84 – £27.56
£29.67
£41.12 – £41.70
£54.92 – £66.95
2015
2014
Weighted
average
remaining
contractual
life (years)
Weighted
average
remaining
contractual
life (years)
No. of
options
4.2
2.6
7.2
6.6
7.0
5.8
2,561,670
1,562,360
1,348,688
1,540,924
–
7,013,642
5.9
3.2
8.2
7.5
–
6.1
No. of
options
933,508
938,631
1,273,231
1,432,874
1,156,886
5,735,130
Share Matching Plan (SMP) and Long Term Incentive Plan (LTIP)
As explained in the Remuneration Report, the Group operates LTIP and SMP schemes for executive directors and
other senior executives. The SMP is an equity-settled scheme. Prior to January 2014, all LTIP awards were accounted
for as cash–settled share based payments. From January 2014 onwards, new LTIP grants to executive directors will
be settled in shares with no cash settlement alternative. Those awards are therefore accounted for under IFRS 2
as equity-settled. Awards to other senior executives and legacy awards to executive directors will continue to be
treated as cash-settled. From January 2014, executive directors are no longer granted SMP awards. Performance
conditions for SMP and LTIP awards are detailed in the Remuneration Report.
Share Matching Plan
The following table summarises the movements in nil cost SMP options during the year:
2015
No.
of options
354,904
26,104
(243,426)
(19,301)
118,281
2014
No.
of options
675,046
53,490
(290,650)
(82,982)
354,904
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
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25. Share-based payments (continued)
The weighted average remaining contractual life of these options is 8.1 years (2014: 7.7 years). SMP options were
exercised at different times in the year and the weighted average share price during this period was £65.73 (2014:
£48.12). No options were exercisable at the end of the period (2014: 12,338).
Cash-settled LTIP awards
The following table summarises the movements in cash-settled LTIP awards during the year:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
2015
No.
of awards
863,306
94,151
(333,950)
(116,343)
507,164
2014
No.
of awards
1,084,471
217,087
(385,956)
(52,296)
863,306
A charge of £15.4m for the year (2014: £26.8m) has been made in the accounts in respect of cash-settled
LTIP grants, of which £3.5m (2014: £11.0m) related to the executive directors. The weighted average remaining
contractual life of these awards is 1.8 years (2014: 1.6 years).
Equity-settled LTIP awards
The following table summarises the movements in nil cost equity-settled LTIP awards during the year:
Outstanding at beginning of year
Granted
Forfeited
Outstanding at end of year
2015
No.
of awards
–
73,752
(9,570)
64,182
2014
No.
of awards
–
–
–
–
The weighted average remaining contractual life of these awards is 2.4 years.
Fair value calculations
The fair value of Management, Sharesave and SMP 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 24 January 2015 and 25
January 2014 based on information at the date of grant:
Management share options (granted in April)
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
2015
£66.95
£66.95
21.7%
4 years
1.60%
1.64%
£10.73
2014
£41.70
£41.70
24.7%
4 years
0.45%
2.24%
£6.38
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. Share-based payments (continued)
Sharesave plans (granted in October)
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
Share Matching Plan (granted in April)
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
2015
£68.65
£54.92
19.5%
3.3 years
1.1%
1.88%
£15.33
2015
£66.50
Nil
20.0%
3 years
1.09%
1.94%
£62.74
2014
£51.40
£41.12
21.8%
3.4 years
0.87%
2.04%
£11.82
2014
£43.81
Nil
22.4%
3 years
0.34%
2.40%
£40.77
The fair value of equity-settled LTIP awards granted is calculated at the date of grant using a Monte Carlo option
pricing model. Expected volatility was determined by calculating the historical volatility of the Company’s share
price over a period equivalent to the life of the award. The following table lists the inputs to the model used for
awards granted in the year ended 24 January 2015 based on information at the date of grant:
Equity-settled LTIP awards (granted in March)
Share price at date of grant
Exercise price
Volatility
Life of award
Risk free rate
Dividend yield
Fair value per award
Equity-settled LTIP awards (granted in September)
Share price at date of grant
Exercise price
Volatility
Life of award
Risk free rate
Dividend yield
Fair value per award
2015
£67.00
Nil
19.78%
3 years
1.1%
1.64%
£28.04
£69.45
Nil
18.81%
3 years
1.1%
1.86%
£29.79
2014
–
–
–
–
–
–
–
–
–
–
–
–
–
–
110
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc 26. Shares held by ESOT
The NEXT 2003 Employee Share Ownership Trust (“ESOT”) has an independent 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 24 January 2015 the ESOT held 5,010,614 (2014: 6,190,747) ordinary shares of 10p each in the Company, the
market value of which amounted to £358.3m (2014: £388.8m). 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 24 January 2015
and 25 January 2014 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.
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
Shares issued on employee option exercises
2015
2014
Shares
‘000
1,226
–
–
2,406
£m
79.8
–
–
79.8
42.9
Shares
‘000
2,136
(1,062)
–
2,477
£m
96.0
(41.0)
–
55.0
38.4
Proceeds of £45.0m (2014: £42.9m) were received on the exercise of Management and Sharesave options. The
amount shown in the Statement of Changes in Equity of £42.9m (2014: £38.4m) is after the issue of nil-cost LTIP, SMP
and Deferred Bonus shares. The weighted average cost of shares issued by the ESOT was £84.4m (2014: £74.0m).
At 18 March 2015, employee share options over 191,411 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.
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27. Financial instruments: risk management and hedging activities (continued)
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including
interest) of the Group’s financial liabilities:
2015
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
2014
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
2.8
480.5
0.1
40.9
101.1
625.4
(12.3)
(1,258.0)
1,210.6
565.7
Less than 1
year
£m
2.6
380.9
0.1
40.9
58.4
482.9
(7.7)
1 to 2 years
£m
–
5.2
–
253.5
–
258.7
(11.4)
2 to 5 years
£m
–
–
–
85.2
–
85.2
(14.3)
Over 5
years
£m
–
–
–
686.5
–
686.5
(20.8)
Total
£m
2.8
485.7
0.1
1,066.1
101.1
1,655.8
(58.8)
–
–
247.3
–
–
70.9
–
–
665.7
(1,258.0)
1,210.6
1,549.6
1 to 2 years
£m
–
1.0
0.1
40.9
–
42.0
(2.6)
2 to 5 years
£m
–
–
0.1
310.3
–
310.4
(1.8)
(819.7)
845.8
501.3
(6.1)
6.1
39.4
–
–
308.6
Over
5 years
£m
–
–
–
714.9
–
714.9
(3.0)
–
–
711.9
Total
£m
2.6
381.9
0.3
1,107.0
58.4
1,550.2
(15.1)
(825.8)
851.9
1,561.2
At 24 January 2015 the Group had borrowing facilities of £300m (2014: £300m) in respect of which all conditions
precedent have been met and which are committed to May 2019 (2014: December 2016). None of this facility
was drawn down at January 2015 (2014: £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
2015
£m
53.9
2014
£m
16.8
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.
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27. Financial instruments: risk management and hedging activities (continued)
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.
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 hedges
The fair values of foreign exchange derivatives are as follows:
Derivatives in designated hedging relationships
Other foreign exchange derivatives
Total foreign exchange derivatives
2015
£m
53.7
4.7
58.4
2014
£m
(20.0)
(4.2)
(24.2)
The total notional amount of outstanding foreign exchange contracts at the balance sheet date is as follows:
US Dollar
Euro
Other
2015
£m
1,066.1
163.6
28.3
1,258.0
2014
£m
752.8
64.8
8.2
825.8
Prior to its disposal, the Group had entered agreements to supply its associated company, Cotton Traders, with US
Dollars. The notional value of contracts outstanding at January 2015 was £13.2m (2014: £22.8m).
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 (including special dividends).
Share buybacks are transacted through both on-market purchases and contingent contracts for off-market share
purchases.
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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
2015
£m
7.7
124.7
753.5
275.5
1.0
(3.0)
(17.0)
(838.2)
(589.7)
(0.1)
2014
£m
0.8
18.1
712.4
273.3
1.0
(5.0)
(21.3)
(800.8)
(442.9)
(0.3)
All derivatives are categorised as Level 2 under the requirements of IFRS 13, 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
2015
2014
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
525.6
312.6
838.2
557.9
359.3
917.2
488.2
312.6
800.8
513.5
353.0
866.5
The fair values of corporate bonds are their market values at the balance sheet date (IFRS 13 Level 1). Market
values include accrued interest and changes in credit risk and interest rate risk, and are therefore different to the
reported carrying amounts.
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.
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30. Financial instruments: sensitivity analysis (continued)
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
2014
2015
£m
£m
(9.1)
(2.9)
1.5
0.9
(3.8)
0.3
(0.8)
(1.2)
Equity
2015
£m
(55.3)
(9.3)
62.1
9.2
2014
£m
(43.4)
(3.6)
44.7
3.5
Year end exchange rates applied in the above analysis are US Dollar 1.50 (2014: 1.65) and Euro 1.33 (2014: 1.21).
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%
31. Analysis of net debt
Cash and short term deposits
Overdrafts and short term borrowings
Cash and cash equivalents
Corporate bonds
Fair value hedges of corporate bonds
Finance leases
Total net debt
Income statement
2014
2015
£m
£m
(1.1)
(1.1)
1.1
1.1
Equity
2015
£m
(1.1)
1.1
2014
£m
(1.1)
1.1
January
2014
£m
273.3
(2.6)
270.7
(800.8)
13.0
(0.3)
(517.4)
Other
non-cash
changes
£m
Cash flow
£m
1.1
–
–
0.2
1.3
0.9
(37.4)
37.3
–
0.8
January
2015
£m
275.5
(2.8)
272.7
(838.2)
50.3
(0.1)
(515.3)
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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
2015
£m
231.3
796.2
885.2
1,912.7
2014
£m
227.0
784.9
786.3
1,798.2
At January 2015, future rentals receivable under non-cancellable sub-leases where the Group is the lessor were
£14.2m (2014: £15.7m).
The Group has entered into operating leases primarily in respect of retail stores and lesser amounts for warehouses,
vehicles and equipment. These non-cancellable leases have remaining terms of between one month and
approximately 25 years. Contingent rentals are payable on certain retail store leases based on store revenues.
The majority of the Group’s property 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 24 January 2015 is detailed in the table below:
Year to January 2014 (Actual)
Year to January 2015 (Actual)
Year to January 2016
Year to January 2017
Year to January 2018
Year to January 2019
Year to January 2020
Sub-total 5 years to January 2020
5 years from February 2020 to January 2025
10 years from February 2025 to January 2035
2035 and beyond
Total future obligations
Minimum
lease
payments
£m
218.5
227.1
Less
sub-lease
income
£m
(4.8)
(5.6)
231.3
218.7
208.4
192.4
176.7
1,027.5
532.3
309.4
43.5
1,912.7
(5.4)
(3.8)
(2.2)
(1.6)
(1.2)
(14.2)
–
–
–
(14.2)
Net
total
£m
213.7
221.5
225.9
214.9
206.2
190.8
175.5
1,013.3
532.3
309.4
43.5
1,898.5
116
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PARENT COMPANY BALANCE SHEET
As at 24 January
Fixed assets
Investments
Other financial assets
Current assets
Debtors
Cash at bank and in hand
Total assets
Notes
C2
C3
2015
£m
2014
£m
2,475.7
65.7
2,541.4
12.7
155.0
167.7
2,709.1
2,475.7
17.7
2,493.4
12.3
203.3
215.6
2,709.0
Creditors: amounts falling due within one year
C4
(413.5)
(396.7)
Net current liabilities
Total assets less current liabilities
(245.8)
(181.1)
2,295.6
2,312.3
Creditors: amounts falling due after more than one year
C4
(850.0)
(801.7)
Total liabilities
NET ASSETS
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
ESOT reserve
Other reserves
Profit and loss account
TOTAL EQUITY
Approved by the Board on 19 March 2015
(1,263.5)
(1,198.4)
1,445.6
1,510.6
C5
C5
C5
15.3
0.9
14.6
(192.0)
985.2
621.6
15.5
0.9
14.4
(196.6)
985.2
691.2
1,445.6
1,510.6
Lord Wolfson of Aspley Guise
Chief Executive
David Keens
Group Finance Director
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PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the financial year ended 24 January
At January 2013
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 awards settled in cash
Tax recognised directly in equity
Equity dividends
At January 2014
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 awards settled in cash
Tax recognised directly in equity
Equity dividends
Share
capital
£m
16.1
Share
premium
account
£m
0.9
Capital
redemption
reserve
£m
13.8
ESOT
reserve
£m
(215.6)
Other
reserves
£m
985.2
–
–
–
(0.6)
–
–
–
–
–
–
15.5
–
–
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
14.4
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(55.0)
74.0
–
–
–
–
(196.6)
–
–
–
–
–
–
985.2
–
–
–
–
(79.8)
84.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Profit and
loss
account
£m
784.8
Total
equity
£m
1,585.2
478.8
478.8
–
–
478.8
478.8
(311.9)
(311.9)
–
(35.6)
15.8
(2.4)
0.6
(238.9)
691.2
(55.0)
38.4
15.8
(2.4)
0.6
(238.9)
1,510.6
576.1
576.1
–
–
576.1
576.1
(180.6)
(180.6)
–
(41.5)
13.4
(3.8)
0.7
(433.9)
(79.8)
42.9
13.4
(3.8)
0.7
(433.9)
At January 2015
15.3
0.9
14.6
(192.0)
985.2
621.6
1,445.6
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NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
C1. Accounting policies
The parent company financial statements of NEXT plc have been prepared in accordance with the Companies Act
2006 and Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”), which was first applied last
year. FRS 101 enables the financial statements of the parent company to be prepared in accordance with EU-adopted
IFRS but with certain disclosure exemptions. The main areas of reduced disclosure are in respect of equity-settled share
based payments, financial instruments, the cash flow statement, and related party transactions with Group companies.
The Company’s reported profits and net assets were unaffected by the transition to FRS 101 and remain consistent with
EU-adopted IFRS which was applied previously. The accounting policies adopted for the parent company, NEXT plc, are
otherwise consistent with those used for the Group which are set out on pages 85 to 88. 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 £576.1m (2014: profit of £478.8m).
C2. Investments
The Company has taken advantage of section 410(2) of the Companies Act 2006 to list only its subsidiary and
associated undertakings which principally affect the figures shown in the financial statements. 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 Limited¹
NEXT Directory²
NEXT Distribution Limited¹
Lipsy Limited¹
NEXT Sourcing Limited¹
NEXT Manufacturing (Pvt) Limited¹
Associated undertakings
Choice Discount Stores Limited¹
Intermediate holding company
Retailing of fashion and home products
Home shopping, including international online
Warehousing and distribution
Fashion retailing
Overseas sourcing services (Hong Kong)
Garment manufacture (Sri Lanka)
Retailing (40%)
1
2
Shareholdings held by subsidiary undertakings
The trade of the NEXT Directory is carried out by 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 creditors
Corporate bonds
Amounts due to subsidiary undertaking
Dividends payable
Other financial liabilities
Accruals and other creditors
2015
2014
Current
£m
–
226.9
73.9
101.1
11.6
413.5
Non–current
£m
838.2
–
–
11.8
–
850.0
Current
£m
–
252.3
74.4
58.4
11.6
396.7
Non–current
£m
800.8
–
–
0.9
–
801.7
Further information on the Company’s corporate bonds is given in Note 20. For dividends payable see Note 8.
Other financial liabilities include interest rate swaps carried at fair value (Note 19) and amounts payable under the
Company’s closed season buyback arrangements for the Company’s own shares (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 (2014: £985.2m) represent the difference
between the market price and the nominal value of shares issued as part of the capital reconstruction in 2002 on
acquisition of NEXT Group plc which was subject to section 131 Companies Act 1985 merger relief.
119
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Total Sales*
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Other activities
Total
Profit before tax
NEXT Retail
NEXT Directory
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Other activities
Operating profit
Exceptional items
Net finance costs
Total
First
half
£m
Second
half
£m
Year to
Jan 2015
£m
1,080.9
709.2
40.2
3.3
17.5
2.6
2.8
1,856.5
1,267.3
831.4
46.0
4.2
19.3
3.0
0.1
2,171.3
2,348.2
1,540.6
86.2
7.5
36.8
5.6
2.9
4,027.8
152.3
172.1
5.1
15.9
1.9
2.0
(10.2)
339.1
–
(14.9)
324.2
231.5
204.7
6.6
25.5
3.2
4.9
(3.4)
473.0
12.6
(15.0)
470.6
383.8
376.8
11.7
41.4
5.1
6.9
(13.6)
812.1
12.6
(29.9)
794.8
First
half
£m
1,006.2
611.4
40.4
5.2
15.8
2.3
3.7
1,685.0
124.3
156.1
5.1
13.6
0.8
1.1
(16.1)
284.9
–
(13.1)
271.8
Second
half
£m
1,234.3
762.5
45.2
5.8
19.5
2.5
3.4
2,073.2
Year to
Jan 2014
£m
2,240.5
1,373.9
85.6
11.0
35.3
4.8
7.1
3,758.2
223.4
202.4
7.0
20.5
1.9
0.7
(18.0)
437.9
–
(14.5)
423.4
347.7
358.5
12.1
34.1
2.7
1.8
(34.1)
722.8
–
(27.6)
695.2
FIVE YEAR HISTORY
Year to January
Underlying continuing business
Total Sales *
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
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
4,027.8
3,999.8
3,758.2
3,740.0
3,562.5
3,547.8
3,456.2
3,441.1
3,312.0
3,297.7
812.1
(29.9)
782.2
12.6
–
(159.9)
634.9
722.8
(27.6)
695.2
–
–
(142.0)
553.2
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
Total equity
321.9
286.2
285.6
222.7
232.4
Shares purchased for cancellation
2.2m
6.2m
7.5m
12.5m
10.0m
Dividends per share
– ordinary
– special
Basic earnings per share
Underlying
Total
* As defined in Note 1.
120
150.0p
150.0p
129.0p
50.0p
105.0p
–
90.0p
–
78.0p
–
419.8p
428.3p
366.1p
366.1p
297.7p
320.1p
255.4p
282.0p
221.9p
221.9p
23849.04 8 April 2015 7:29 AM Proof 2
ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc
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 (the “Company”) will be held at the Leicester Marriott
Hotel, Smith Way, Grove Park, Leicester LE19 1SW on Thursday 14 May 2015 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 on pages 31 to 35 and in the
appendices to this Notice. Biographies of directors seeking election and re-election are shown on page 38 of
the Annual Report.
1. To receive and adopt the accounts and reports of the directors and auditor for the year ended 24 January
2015.
2. To approve the Remuneration Report (excluding the directors’ remuneration policy set out on pages 66 to 73)
for the year ended 24 January 2015.
3. To declare a final dividend of 100p per share in respect of the year ended 24 January 2015.
4. To re-elect John Barton as a director.
5. To re-elect Steve Barber as a director.
6. To re-elect Caroline Goodall as a director.
7. To elect Amanda James as a director.
8. To re-elect Michael Law as a director.
9. To re-elect Francis Salway as a director.
10. To re-elect Jane Shields as a director.
11. To elect Dame Dianne Thompson as a director.
12. To re-elect Lord Wolfson as a director.
13. To re-appoint Ernst & Young LLP as auditor and authorise the directors to set their remuneration.
14. NEXT Long Term Incentive Plan (“LTIP”)
That the directors be authorised:
a) to continue to operate the LTIP, the principal terms of which are summarised in Appendix 1 to this notice, for
a period of ten years from the date of this meeting; and
b) to establish further plans based on the LTIP but modified to take account of local tax, exchange control or
securities laws in overseas territories, provided that any shares made available under such further plans are
treated as counting against the limits on individual and overall participation in the LTIP.
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NOTICE OF MEETING
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
(the “2006 Act”)) 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 £5,000,000; and
(ii) up to a maximum nominal amount of £10,000,000 (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 2016; and
c) all previous unutilised authorities under section 551 of the 2006 Act shall cease to have effect (save to the
extent that the same are exercisable pursuant to section 551(7) of the 2006 Act 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;
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 £764,000;
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 2016; and
d) all previous unutilised authorities under sections 570 and 573 of the 2006 Act shall cease to have effect
(save to the extent that they are exercisable by reason of any offer or agreement made prior to the date of
this new resolution which would or might require shares to be allotted on or after that date).
17. On–market purchase of own shares
That in accordance with the 2006 Act, the Company be granted general and unconditional authority
to make market purchases (as defined in section 693 of the 2006 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 22,915,000 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;
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NOTICE OF MEETING
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 2016 and 1 August 2016;
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 2006 Act, 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 2 on pages 127 to 128 (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 2016 and 1 August 2016, 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
Seonna Anderson
Secretary
Registered Office: Desford Road, Enderby, Leicester, LE19 4AT
14 April 2015
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APPENDIX 1
FURTHER INFORMATION ON RESOLUTION 14: SUMMARY OF THE PRINCIPAL TERMS OF
THE NEXT LONG TERM INCENTIVE PLAN (“LTIP”)
Operation
The Remuneration Committee of the Board of directors of the Company (the “Committee”) will supervise the
operation of the LTIP.
Eligibility
Any employee (including an executive director) of the Company and any of its subsidiaries will be eligible to
participate in the LTIP at the discretion of the Committee.
Grant of awards
The Committee may grant an award in one of two forms:
(i) a conditional award, where a participant will receive free ordinary shares in the Company (“Shares”) on the
vesting of his/her award; or
(ii) nil or nominal cost options, where a participant can decide when to exercise his/her award over Shares during
a limited period of time after it has vested.
The Committee may also allow the grant of cash-based awards of an equivalent value to share–based awards
or may allow share-based awards to be settled in cash (in whole or part) where the Committee considers it
appropriate to do so.
The Committee may normally grant awards within six weeks following the Company’s announcement of its results
for any period. The Committee may also grant awards when there are exceptional circumstances which the
Committee considers justifies the granting of awards.
Awards may only be granted within 10 years of the 2015 AGM. No payment will be required for the grant of an
award. Awards are not transferable (other than to the participant’s personal representatives in the event of death).
Awards are not pensionable.
Individual limit
The maximum number of Shares that may be awarded to a participant in any financial year will be limited so that
the market value of such Shares when awarded and in the aggregate will not exceed 200% of the individual’s
base salary. However, if the Committee decides that exceptional circumstances exist in relation to the recruitment
or retention of an individual, then the individual may be granted awards over Shares with a market value of up to
300% of the individual’s base salary in a financial year. In calculating these limits, the average closing share price
over the 3 months preceding the start of the period over which performance conditions are measured (or such
later date as specified by the Committee) will be used.
Overall LTIP limits
The LTIP may operate over new issue Shares, treasury Shares or Shares purchased in the market. The current intention
is that all awards will be satisfied using shares purchased in the market.
In any period of ten years the Company may not issue (or have the possibility to issue) more than:
a) 10% of the issued ordinary share capital of the Company under the LTIP and any other employees’ share plan
adopted by the Company; and
b) 5% of the issued ordinary share capital of the Company under the LTIP and any other executive share plan
adopted by the Company.
Treasury Shares will count as new issue Shares for the purposes of this limit but they will also cease to count towards
this limit if institutional investor bodies decide that they need not count.
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Vesting of awards
Awards will normally vest on the later of: (a) the expiry of the vesting period; (b) the third anniversary of the grant
date; (c) the date that the Committee determines the extent to which the applicable performance conditions
(see below) have been satisfied; and (d) such later date (within three months of the third anniversary of the grant
date) as specified by the Committee; and provided the participant is still a director or employee in the Company’s
group.
Performance conditions
The performance conditions for awards will be set each year in line with the Company’s approved directors’
remuneration policy. The Committee will also have the power to vary the terms of existing performance conditions
if an event occurs that causes the Committee to consider that the performance condition would not, if left
unamended, achieve its original purpose. However, the amended performance condition will have to be, in the
Committee’s view, no less difficult to satisfy as a result of the change.
Reduction of vesting of awards
If at any time before an award vests a participant has been either suspended for a disciplinary matter or the
subject of an investigation in relation to a disciplinary matter, or if the participant has performed in a manner
considered by the Committee to be unsatisfactory (as evidenced by notifying the participant in writing) then
the Committee may reduce the vesting of that award in such manner as it considers appropriate or withhold the
vesting of that award pending further investigation.
Leaving employment
As a general rule, an award will lapse upon a participant leaving the employment of the Company’s group.
However, if before the vesting of an award a participant ceases to be a director or employee within the Company’s
group by reason of death or in other circumstances which the Committee in its absolute discretion determines are
exceptional circumstances, then the award will be retained and may vest on the normal vesting date to the extent
determined by the performance conditions measured over the full performance period. The Committee may, at
its discretion, allow awards to vest in such circumstances at the time of cessation of employment, in which case
awards would normally be subject to the performance conditions as measured over the shorter period.
In either case, there will also be a pro-rata reduction in the size of the award for the time that has elapsed up to
the date of cessation compared to a three-year vesting period unless the Committee determines that it would be
inappropriate to apply a pro-rata reduction in the particular circumstances. The Committee may also apply further
restrictions on the vesting of awards held by individuals who cease employment.
Corporate events
In the event of a takeover, scheme of arrangement or winding up of the Company (not being an internal corporate
reorganisation), all awards would vest early to the extent that the performance conditions have, in the opinion of
the Committee, been satisfied at that time. The awards would normally be pro–rated to reflect the shorter than
normal period of time between the date of the award and the time of vesting. The Committee can decide not to
pro-rate awards if it regards it as inappropriate to do so in the particular circumstances.
In the event of an internal corporate reorganisation, awards will be replaced by equivalent new awards over
shares in a new holding company, unless the Committee decides that awards should vest on the same basis as
described above.
Awards may also vest on the same basis if a demerger, special dividend or other similar event is proposed which,
in the opinion of the Committee, would affect the market price of the Shares to a material extent.
Participants’ rights
Awards structured as conditional awards and options will not confer any shareholder rights on participants until
the awards have vested and the participants have received their Shares. The LTIP does not credit participants with
additional value in respect of dividends paid over any vesting period (except that the Committee has discretion
to award such credit for special dividends).
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Rights attaching to Shares
Any Shares allotted when an award vests (or for an award structured as an option, when it is exercised) will rank
equally with all other Shares then in issue (except for rights arising by reference to a record date prior to their
allotment).
Variation of capital
In the event of any variation of the Company’s share capital, or in the event of a demerger, payment of a special
dividend or other similar event which materially affects the market price of the Shares, the Committee may make
such adjustments as it considers appropriate to the number of Shares subject to an award and/or the exercise
price payable (if any).
Alterations to the LTIP
The Committee may, at any time, amend the provisions of the LTIP in any respect, provided that the prior approval
of shareholders must be obtained for any amendments that are to the advantage of participants in respect of the
rules governing eligibility, limits on individual participation, the overall limits on the issue of Shares or the transfer of
Shares held in treasury, the basis for determining a participant’s entitlement to, and the terms of, the Shares or cash
to be provided under the LTIP and the adjustment of awards or options.
The requirement to obtain the prior approval of shareholders will not, however, apply to any minor alteration made to
benefit the administration of the LTIP, to take account of a change in legislation or to obtain or maintain favourable
tax, exchange control or regulatory treatment for participants or for any company in the Company’s group.
Overseas plans
The Board may at any time without further shareholder approval establish further plans in overseas territories, any
such plan to be similar to the LTIP, but modified to take account of local tax, exchange control or securities laws.
Any Shares made available under such further plans will count against the LTIP’s limits on individual and overall
participation.
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APPENDIX 2
FURTHER INFORMATION ON RESOLUTION 18: OFF MARKET PURCHASES OF OWN
SHARES
As noted on page 34 in the Directors’ Report, 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 18 passed at the Company’s 2014 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 23.239 million shares and expires on the earlier of the date of the AGM held in 2015 or
1 August 2015. 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 4 million shares and expires on the earlier of the date of the AGM to be held in 2015 or 1 August
2015. Pursuant to those authorities and up to 18 March 2015, the Company has bought back 2,158,761 shares for
cancellation, representing 1.4% of its issued share capital as at the date of the 2014 AGM, at a total cost of £137.9
million. No shares were bought back under contingent purchase contracts.
Under sections 693 and 694 of the Companies Act 2006 (the “2006 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 from the January year end up to the announcement of the 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 and reducing the cost, is for the Company to enter into contingent forward purchase contracts outside
of Close Periods. As in previous years, the Company intends to enter into new agreements (the “Programme
Agreements”), with each of the Banks, under which 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 a CFT will be agreed between the Company and the Bank before it is entered into. The Company
is committed to purchase shares under a CFT on the day it is executed subject to the terms of the Programme
Agreement. 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 30,000 shares per week.
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 either not rising to, or above, a level (the “Upper Suspension Level”) or, if applicable,
falling to or below a level (the “Lower Suspension Level”). The Suspension Levels and duration are determined by
the Company and are set at the time the CFT is entered into. The Upper Suspension Level must be set between
104% and 110% of the Company’s share price at the start of the CFT. If the Company chooses to incorporate a
Lower Suspension Level, it must be set between 80% and 95% of the price at the start of the CFT. The inclusion of a
Lower Suspension Level would help mitigate the Company’s financial commitment under a CFT if its share price
was to fall below this level after the CFT had been executed. If the Lower Suspension Level is not included, the level
of discount to the market share price would be higher.
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 will be determined by the Bank with reference to the volume
weighted average price for shares traded in NEXT on the day the CFT is entered into. 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). The minimum and maximum amount of time between entering a CFT and shares being
purchased is 5 days and 30 weeks respectively. The Company will announce the details of each CFT on the
day it is entered into and any subsequent termination via the UK Listing Authority’s Regulatory News Service. This
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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 Levels are not reached, without breaching the Listing Rules. If any
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 2006 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 2016 or 1 August 2016
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.
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 3 million, representing circa 2.0% of its issued share capital at 18 March 2015;
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.
Shares purchased under the Programme Agreements will reduce the number of shares that the Company may
purchase under any authority granted at the AGM on 14 May 2015 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 2016 or on 1 August 2016,
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 14 May 2015. 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 awards and share options to subscribe for shares outstanding at 18 March
2015 was 6,223,008. This represents 4.1% 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 2014 AGM (which will expire at the 2015 AGM) and the authority sought by this special resolution,
then the total number of options to subscribe for shares outstanding at 18 March 2015 would represent 4.3% of
the reduced issued share capital.
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MEETING FORMALITIES AND VOTING
Attending the Annual General Meeting (“AGM”)
To be entitled to attend and vote at the AGM (and in accordance with the Company’s Articles of Association and
pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001) and for the purposes of determining
the number of votes shareholders may cast, shareholders must be registered in the register of members of the
Company as at 6pm on 12 May 2015 or, if the meeting is adjourned, shareholders must be entered on the
Company’s register of members at 6pm on the day two days before the adjourned meeting.
The total number of the Company’s issued share capital on 18 March 2015, which is the latest practicable date
before the publication of this Notice, is 152,873,556 ordinary shares. All of the ordinary shares carry one vote each
and there are no shares held in treasury. On a vote by a show of hands every member who is present has one vote
and every proxy present who has been duly appointed by a member entitled to vote has one vote. On a poll vote
every member who is present in person or by proxy has one vote for every ordinary share they hold.
In line with best practice, 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 2006 Act 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 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 3.0 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.
The results of the AGM will be posted on the Company’s website (www.nextplc.co.uk) after the meeting and
notified to the UK Listing Authority.
Voting and proxies
Whether or not you intend to attend the AGM in person, you are requested to complete and return the form of
proxy to Equiniti, to arrive as soon as possible but in any event not later than 9.30am on 12 May 2015 (or 48
hours before any adjourned meeting). The completion and return of the form of proxy will not prevent you from
attending and voting at the meeting if you so wish.
A shareholder who is entitled to attend and vote at the AGM may appoint one or more proxies to attend, speak
and vote instead of him/her, provided that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not also be a shareholder of the Company and may vote
on any other business which may properly come before the meeting.
The statements of the rights of members in relation to the appointment of proxies in the above paragraph and
in the paragraphs headed “Electronic Voting” and “CREST voting facility” 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.
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 discretion on whether and how to vote.
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A person to whom this notice is sent who is a person nominated under section 146 of the 2006 Act 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.
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.
Electronic voting
As an alternative to completing and returning a form of proxy, you may submit your proxy electronically by accessing
our Registrar’s website www.sharevote.co.uk. You will require your unique Voting ID, Task ID and Shareholder
Reference Number as printed on the proxy card. 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
AGM.
CREST voting facility
Those shareholders who hold shares through CREST may choose to appoint a proxy or proxies using CREST for the
AGM to be held on 14 May 2015 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.
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.
Corporate representatives
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.
Right to ask questions
Any shareholder attending the meeting has the right to ask questions. The Company must answer any such
question relating to the business being dealt with at the meeting 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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Documents available for inspection
Copies of the following documents will be available for inspection at the Company’s registered office during usual
business hours and will be available for 15 minutes prior to and for the duration of the AGM:
Terms of appointment of the non–executive directors
❚
❚ Rules of the NEXT Long Term Incentive Plan (“LTIP”) pursuant to resolution 14
❚
The Programme Agreements pursuant to resolution 18
Rules of the NEXT Long Term Incentive Plan (“LTIP”) pursuant to resolution 14 and copies of each of the Programme
Agreements pursuant to resolution 18 will also be available for inspection at the offices of Pinsent Masons, 30
Crown Place, Earl Street, London EC2A 4ES during usual business hours until the close of the Annual General
Meeting.
Company website
A full copy of the Annual Report (which includes the Notice of Meeting), together with those for prior years,
and other information required by section 311A of the 2006 Act can be found on the NEXT plc website at
www.nextplc.co.uk.
Under section 527 of the 2006 Act 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 of the 2006 Act. The Company may not require the members requesting such website publication to
pay its expenses in complying with sections 527 or 528 of the 2006 Act, 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 of the 2006 Act to publish on its website.
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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Registered Office
Desford Road, Enderby, Leicester, LE19 4AT
Registered in England, no. 4412362
Payment of dividend
The recommended final dividend, if approved, will be paid on 3 August 2015 to holders of ordinary shares registered
at close of business on 10 July 2015. The ordinary shares will trade ex–dividend from 9 July 2015.
Annual General Meeting
The Annual General Meeting will be held at 9.30am on Thursday 14 May 2015 at the Leicester Marriott Hotel,
Smith Way, Grove Park, Leicester LE19 1SW. The notice of the meeting on pages 121 to 131 sets out business to be
transacted. Full access is available to the venue for those with special requirements.
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
2015
£71.50
2014
£62.80
£10,930m
£9,736m
£72.15
£61.35
£63.65
£40.58
Discount voucher
The Company offers a discount voucher to any first named, registered shareholder holding a minimum number
of ordinary shares as at 1 April each year. Following a shareholder question at last year’s AGM, the minimum
holding has been reduced from 500 to 100 shares. The shareholder discount voucher entitles the recipient or their
immediate family to a 25% discount against most purchases at any one time of full price NEXT merchandise in
NEXT Retail stores. There is no limit on the value of goods that can be purchased at that time. The voucher expires
on 31 October of the year in which it was issued. 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 purchases from NEXT Directory (unless ordered through one of our retail stores). Shareholders holding
shares in nominee or ISA accounts are also eligible, but must request the voucher through their nominee or ISA
account manager who should email alyson_wenlock@next.co.uk.
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.
Shareholder enquiries
The Company’s share register is maintained by Equiniti. Please contact them (see above) if you have any enquiries
about your NEXT plc shareholding including the following matters:
❚ change of name and address.
❚
❚
loss of share certificate, dividend warrant or tax voucher.
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.
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ANNUAL REPORT AND ACCOUNTS JANUARY 2015plc The Shareview Portfolio service from 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.
For shareholders with disabilities Equiniti provides the following:
if requested future communications produced by them will be sent in the appropriate format.
❚
❚
❚ 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 24 to 26; 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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