ANNUAL REPORT
AND ACCOUNTS
JANUARY 2018
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NEXT is a UK based retailer which offers exciting,
beautifully designed, wonderful quality clothing
and homeware.
NEXT distributes through three main channels:
• NEXT Retail, a chain of around 530 stores in the UK and Eire
• NEXT Online, our home shopping division with over 4.9 million active
customers in the UK and overseas
• NEXT International Retail, with around 200 mainly franchised stores
To view our range of exciting, beautifully designed,
wonderful quality clothing and homeware, go to
www.next.co.uk
Investor website
We maintain a corporate website
at www.nextplc.co.uk containing a
wide range of information of interest
to investors
Contents
Strategic Report
Group Financial Statements
102 Consolidated
Income Statement
103 Consolidated Statement
of Comprehensive Income
104 Consolidated Balance Sheet
105 Consolidated Statement
of Changes in Equity
106 Consolidated Cash
Flow Statement
107 Group Accounting Policies
113 Notes to the Consolidated
Financial Statements
Company Financial Statements
145 Parent Company Balance
Sheet
146 Parent Company Statement
of Changes in Equity
147 Notes to the Parent
Company Financial
Statements
3 Chairman’s Statement
4 Chief Executive’s Review
38 Business Model
40 Key Performance Indicators
42 Risks and Uncertainties
47 Viability Assessment
48 Employees
49
Social, Community
and Human Rights
50 Environmental Matters
Governance
54
Directors’ Report Including
Annual General Meeting
& Other Matters
61
Directors’ Responsibilities
Statement
62
Corporate Governance
66
Nomination Committee
Report
67
Audit Committee Report
71
Remuneration Report
94
Independent Auditor’s
Report
Shareholder Information
150 Half Year and
Segment Analysis
151 Five Year History
152 Glossary
154 Notice of Meeting
160 Other Shareholder
Information
Please note: you can register to receive
electronic shareholder communications
at www.nextplc.co.uk
This symbol signposts the reader to other
sections within this report
This document contains Forward Looking Statements –
see page 161.
FINANCIAL
HIGHLIGHTS
TOTAL SALES*
-0.5%
Underlying continuing business
Jan 14
Jan 15
Jan 16†
Jan 17
Jan 18
n
b
8
3
£
.
n
b
0
4
£
.
n
b
1
4
£
.
n
b
1
4
£
.
n
b
1
4
£
.
PROFIT
BEFORE TAX
Underlying continuing business
-8.1%
Jan 15◊
Jan 16†
Jan 17
Jan 18
Jan 14
m
5
9
6
£
m
2
8
7
£
m
1
2
8
£
m
0
9
7
£
m
6
2
7
£
EARNINGS
PER SHARE
Underlying
-5.6%
Jan 15◊
Jan 16†
Jan 17
Jan 18
Jan 14
p
1
.
6
6
3
p
8
.
9
1
4
p
5
.
2
4
4
p
3
.
1
4
4
p
7
.
6
1
4
DIVIDENDS
PER SHARE
Excluding special dividends
no change
Jan 15
Jan 16
Jan 17
Jan 18
Jan 14
p
9
2
1
p
0
5
1
p
8
5
1
p
8
5
1
p
8
5
1
* Total sales are VAT exclusive sales and
include the full value of commission based
sales and interest income (refer to Note 1 of
the financial statements).
† Sales, profit and EPS figures for Jan 16
are shown on a comparable 52 week basis.
◊ Underlying results for 2015 are shown pre-
exceptional items.
Read more in the Chief Executive’s Review on
pages 4 to 37
See our Group financial statements on
pages 102 to 143
HIGHLIGHTS• Total sales marginally down -0.5% to £4.1bn.• Profit before tax down -8.1% to £726m.• Earnings Per Share down -5.6% to 416.7p.• £480m paid to shareholders in dividends through a combination of ordinary dividends £224m and special dividends £256m. A further £106m was returned through share buybacks.• Final ordinary dividend of 105p, making 158p for the year, flat on last year. Covered 2.6 times by Earnings Per Share.• Strategy continues to be focused on products, profitability and returning cash to shareholders through dividends and share buybacks.Strategic ReportGovernanceFinancial StatementsShareholder Information
STRATEGIC REPORT 3 Chairman’s Statement 4 Chief Executive’s Review38 Business Model 40 Key Performance Indicators 42 Risks and Uncertainties 47 Viability Assessment48 Employees 49 Social, Community and Human Rights 50 Environmental Matters Strategic Report
Chairman’s Statement
I joined the Board of NEXT just over a year ago and became Chairman in August 2017. I am enjoying working with the Board and have
been impressed by the passion and commitment shown by the Executive Board and all the employees of NEXT.
As anticipated, the year to January 2018 was challenging for NEXT and, in line with our January 2018 guidance, Earnings Per Share
declined by -5.6% to 416.7p. We are proposing a final ordinary dividend of 105p taking the total ordinary dividend to 158p, flat on
last year.
NEXT Retail full price1 sales declined by -7.0% and Online2 full price sales increased by +11.2%. Total3 Group sales of £4.1bn were
marginally down on last year by -0.5%.
Despite difficult trading conditions, cash flow remained strong and we returned £586m to shareholders through a combination of
ordinary dividends (£224m), special dividends (£256m) and share buybacks (£106m). During the year we purchased 2.2m shares at an
average price of £48.81 and reduced our shares in issue by 1.5%.
We have continued to invest in the business, spending £104m on new stores, warehousing and systems. Net debt increased to
£1,002m from £861m driven mainly by the sales growth in nextpay, our online credit business. Net debt remains well within our bond
and bank facilities of £1.4bn.
Michael Law, our Group Operations Director who has been with NEXT for 23 years, retires from the Board at the AGM in May.
Michael has made a huge contribution to the Group, in particular leading the transformation of our Warehousing, Logistics and Systems
operations. On behalf of the Board, I would like to thank Michael for his outstanding service. I am delighted to announce Richard
Papp, our Group Merchandise Director with 25 years’ service at NEXT, will succeed Michael on the Board as Group Merchandise and
Operations Director.
The continued strength of the Group is built on the hard work and dedication of all the people who work for NEXT. I would like to
thank them all for their contribution, especially for the determination and commitment they have shown during this demanding year.
Even though the wider economy, clothing market and High Street look set to remain challenging, at our central guidance for the year
ahead, Earnings Per Share will modestly move forward. The Board continues to be focused on building shareholder value through the
delivery of long term sustainable growth in Earnings Per Share. Our core strategy remains unchanged, focused on our products, our
profitability and returning surplus cash to our shareholders.
Michael Roney
Chairman
1. Full price sales are total sales, excluding items sold in our mid-season or end-of-season Sale events and our Clearance operations. They include interest income
relating to those sales.
2. Formerly known as NEXT Directory.
3. Total sales are VAT exclusive sales including the full value of commission based sales and interest income (refer to Note 1 of the financial statements).
Read more in the Chief Executive’s Review on pages 4 to 37
Read about our Governance on pages 62 to 65
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Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report
Chief Executive’s Review
Introduction
In many ways 2017 was the most challenging year we have faced for twenty-five years. A difficult clothing market coincided with self-
inflicted product ranging errors and omissions. At the same time, the business has had to manage the costs, systems requirements
and opportunities of an accelerating structural shift in spending from retail stores to online. In the end our profits were in line with the
forecast we issued in January 2017 and the Company goes into the coming year in good financial health.
Whilst it has been an uncomfortable year it has also prompted us to take a fresh look at almost everything we do: from the structure of
our store portfolio, the in-store experience and the generation of alternative retail revenue streams, the management of our cost base,
our sourcing and buying methods, stock management and, most importantly, our online systems, marketing and fulfilment platform.
As a result of these endeavours, many challenges and opportunities have emerged.
Structure of this review
We have structured this review to give readers: (1) a clear and detailed picture of the financial performance of the Company,
(2) an analysis of the cyclical and structural changes affecting the business and our plans to respond to these challenges and (3) our
guidance for the year ahead. An overview of each of these sections is set out in the table below.
Section
Part 1
Review of Financial Performance
Part 2
Strategic Response to a Changing Market
Description
page 5 This section gives a detailed description of the Group’s
financial performance by business division (Retail, Online
and other activities). It also gives the structure of the Group’s
Balance Sheet, financing and cash flows.
page 20 This section describes the structural and cyclical changes
affecting our industry and our thoughts as to how these
trends will develop in the year ahead.
This section also gives a flavour of some of our plans to
address the challenges and harness the opportunities of the
current environment.
Part 3
Sales and Profit Guidance for the
Year Ahead
page 37 This section gives our guidance for full price sales, profits
and Earnings Per Share for the year ahead.
4
Part 1 – Review of Financial Performance
Financial performance – key numbers
NEXT Brand full price sales for the year were up +0.7% and total sales (including markdown) were down -0.6% on last year. In line
with the guidance we gave in our Christmas trading statement, Group profit before tax was down -8.1% and Earnings Per Share (EPS)
were down -5.6%.
During the year we have changed the cost allocation between our Retail and Online businesses. The aim is to reflect more accurately
the costs of fulfilling Online orders through our shops. Prior year operating profit for Retail and Online has been restated throughout
this report for comparison; there is no change to total Group operating profit, refer to page 6.
We are proposing an ordinary dividend of 105p per share, making 158p in total for the year, which is in line with last year and covered
2.6 times by EPS.
Total sales excluding VAT
NEXT Retail
NEXT Online
NEXT Brand
Other
Total NEXT Group sales
Statutory revenue
Profit and EPS
NEXT Retail
NEXT Online
NEXT Brand
Other
Operating profit
Net interest
Profit before tax
Taxation
Profit after tax
Jan
2018
£m
2,123.0
1,887.4
4,010.4
107.1
4,117.5
4,055.5
Jan
2018
£m
268.7
461.2
729.9
30.0
759.9
(33.8)
726.1
(134.3)
591.8
Jan
2017
£m
2,304.6
1,728.5
4,033.1
103.7
4,136.8
4,097.3
Jan
2017
Restated
£m
353.3
429.5
782.8
44.9
827.7
(37.5)
790.2
(154.9)
635.3
-7.9%
+9.2%
-0.6%
-0.5%
-24.0%
+7.4%
-6.8%
-8.2%
-8.1%
EPS
Ordinary dividends per share
416.7p
158.0p
441.3p
158.0p
-5.6%
0.0%
5
Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report
Note on cost allocation
With Retail profitability increasingly under the microscope it has become more important to correctly allocate costs between Retail
and Online. Our analysis of cost recharges between the two businesses identified that there was a significant shortfall in the amount
that Retail was recharging for the cost of fulfilling Online orders in store. The under charge was £14.6m.
Prior year operating profit for Retail and Online has been restated throughout this report for comparison; there is no change to total
Group operating profit. The table below sets out the change made between the two businesses and the corresponding effect on
their 2016/17 net operating margins.
Activity
Handling Online orders and returns in
Retail stores.
Explanation
Cost per parcel increased from 57p to
89p to reflect total staffing requirements
including management costs.
Effect on
Retail
margin
Effect on
Online
margin
Value £m
14.6
+0.6%
-0.9%
NEXT, Gateshead Metrocentre
6
NEXT Retail
Retail sales and profit analysis
Total Retail sales reduced by -7.9% and full price sales were down -7.0%. Net new space contributed +2.0% to total sales growth.
As expected, our Retail business has had a particularly difficult year and profits fell -24.0%, as shown in the table below.
£m
Retail total sales
Retail operating profit
Retail net margin
Jan
2018
2,123.0
268.7
12.7%
Jan
20174
2,304.6
353.3
15.3%
The table below sets out significant Retail margin movements by major heads of costs.
Net operating margin on total sales last year – restated
Bought-in gross margin
Improved underlying bought-in gross margin has added +0.1% to margin.
Markdown
Stock loss
Stock for Sale was down -9% with markdown sales down -15.5%. Reduced clearance
rates lowered margin by -0.3%.
The Sterling value of branch stock loss was in line with last year, but as a result of
falling sales, was a larger percentage of turnover.
Store payroll
Productivity initiatives more than offset increases in rates of pay.
Store occupancy
Falling sales increased fixed costs as a percentage of sales. Underlying rental
inflation was negligible at +0.4%.
Warehouse & distribution
Falling sales increased fixed costs as a percentage of sales; this has been partially
offset by cost saving initiatives in our distribution network.
Central overheads
Central overheads increased as a percentage of sales.
Net operating margin on total sales this year
-7.9%
-24.0%
15.3%
+0.1%
-0.3%
-0.1%
+0.2%
-1.7%
-0.2%
-0.6%
12.7%
Based on our central guidance for the year ahead we expect Retail margins in 2018/19 to reduce from 12.7% to around 10%, mainly
as a result of lower like-for-like5 sales.
4. 2016/17 net operating profit and margin has been restated, refer to page 6.
5. Change in sales from stores which have been open for at least one year.
7
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Strategic Report
Retail space expansion
Net trading space increased by 51,000 square feet this year, taking our portfolio to 8.0m square feet. In September 2017 we forecast
our trading space to increase by 85,000 square feet. However, this estimate included two large stores that were planned to open in
2017 which are now expected to open in 2018.
The table below sets out the change in store numbers and space for the full year.
January 2017
New stores
Extensions (4), re-sites (11)
Closed (14), re-sites (3)
January 2018
Store
numbers
538
+7
–
-17
528
Sq. ft.
(‘000)
7,978
+70
+143
-162
8,029
+0.6%
The profitability6 of the portfolio of stores opened or extended in the last 12 months is forecast to be 21% of VAT inclusive sales and
payback on the net capital invested is expected to be 24.8 months. The forecast performance of the portfolio of stores opened during
the year is set out in the table below.
Performance of new store portfolio
Sales versus target
Profitability of new store portfolio
Payback on net capital invested
-1.5%
21%
24.8 months
The new store portfolio marginally missed its sales target, largely because many of the targets were set some time ago at the point
we negotiated terms for these properties; a time when prospects for retail stores were more benign. Payback is forecast to be slightly
higher than our 24 month goal.
Of the 17 store closures, three were as a result of consolidating two stores into one location. As set out in the table below, the
remaining 14 stores made an average 12% profit (before central overheads). Excluding the one store which was subject to a compulsory
purchase, the average profitability of the stores was 9%. We would not necessarily actively seek to close stores making a 9% margin
however we would rarely agree to a new lease at these levels of profit.
Reason for closure
Compulsory purchase
Lease end
Sublet
Total
No. of
stores
1
11
2
14
Profit
£m
0.8
1.7
0.2
2.7
Profit
%
24%
10%
8%
12%
During 2018, we expect to increase net trading space by around 100,000 square feet; this estimate is based on planned closures and
on lease terms currently contracted or under offer.
6. Store profit refers to net branch contribution. Net branch contribution is defined as profit before central overheads and is expressed as a percentage of VAT
inclusive sales.
8
Next Online
Online sales performance
Total Online sales grew by +9.2%, with full price sales growth of +11.2%. The table below shows the growth in full price sales for each
element of the Online business. Full price sales in the UK grew by +8.6% and our Overseas business grew by +25.5%. The two columns
on the right show Online performance split between the first and second half of the year, highlighting the significant improvement in
UK NEXT Brand sales in the second half. Overseas sales, on a constant currency basis, grew by +13% in the first half and +8% in the
second half.
Full price sales growth
NEXT Brand UK
LABEL UK
Total UK
Overseas
Total
£m
+16
+92
+108
+59
+167
% var
+1.6%
+42.7%
+8.6%
+25.5%
+11.2%
H1
-4.1%
+40.6%
+3.1%
+30.7%
+7.4%
H2
+6.9%
+44.8%
+13.6%
+20.8%
+14.7%
Online customer base
Average active customers7 increased by +4% to 4.9 million, driven by the growth in overseas and UK “cash” customers (those who do
not use our credit account, nextpay, when ordering). The table below sets out the growth in the respective parts of our customer base.
Average active customers (m)
UK credit account
UK cash
Total UK
Overseas
Total
Jan
2018
2.49
1.50
3.99
0.94
4.93
Jan
2017
2.50
1.38
3.88
0.85
4.73
+0%
+8%
+3%
+10%
+4%
7.
Active customers are defined as those who have placed an Online order or received a standard account statement in the last 20 weeks.
9
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Increasing stability of our credit customer base
The chart below shows that, two years ago, our credit customer base was in decline. We closed the year ending January 2016 with
credit customers down -5.6%. Since then, we have re-launched our credit account as nextpay and actively promoted it to our ”cash”
customers. As at January 2018, credit customers were up +0.6% on the prior year.
We are pleased with progress made to date and feel more confident about maintaining stability in our credit customer base
going forward.
Annual Change in UK Active Credit Customers
Jan 2017
-0.8%
Jan 2018
+0.6%
+1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Jan 2016*
-5.6%
* Prior year active customers have been restated as reflected last year
The table below shows the relationship between the number of active credit customers and credit sales. As can be seen, the increase
in credit sales has been entirely driven by an increase in sales per customer. We believe this has been driven by a combination of the
re-launch of nextpay, the introduction of NEXT Unlimited and investment in the functionality of our website.
Average active credit customers
Online credit sales (VAT ex.) per active customer
Average balance per customer
Jan
2018
2.49m
£454
£441
Jan
2017
2.50m
£419
£414
-0%
+8%
+7%
10
Online profit analysis
Total Online sales grew by +9.2% and profit grew by +7.4%, as shown in the table below.
£m
Online total sales
Online operating profit
Online net margin
Jan
2018
1,887.4
461.2
24.4%
Jan
20178
1,728.5
429.5
24.8%
The table below sets out significant Online margin movements by major heads of costs.
Net operating margin on total sales last year – restated
Bought-in gross margin
Improved underlying NEXT bought-in gross margin added +0.2%. Overseas
margin has benefited from favourable exchange rates, adding +0.2% to margin.
This has been offset by an increase in third-party branded sales, which reduced
profitability by -1.0%.
Markdown
Stock for Sale was up +5.2% with markdown sales down -0.7%. Reduced
clearance rates lowered margin by -0.2%.
Interest income
Credit sales have not grown as fast as total sales, reducing margin by -0.2%. In
addition, interest free promotions have further reduced margin by -0.1%.
Warehouse & distribution Under normal circumstances we would expect to gain some leverage over
warehouse fixed costs. However growth in Overseas sales increased our
distribution costs and capacity pressures in the run up to Christmas increased
operational costs.
Catalogues and mailshots
Production of fewer catalogues and printed mailshots has increased margin by
+0.8%. Photography savings have increased margin by +0.2%.
Online marketing
Investment in digital marketing means costs have grown faster than sales.
Systems
Investment in online systems software and development has reduced margin.
Central overheads
Central overheads have not grown as fast as sales, increasing margin by +0.2%.
Net operating margin on total sales this year
+9.2%
+7.4%
24.8%
-0.6%
-0.2%
-0.3%
+0.0%
+1.0%
-0.3%
-0.2%
+0.2%
24.4%
Based on our central guidance for the year ahead, we expect Online margins in 2018/19 to increase from 24.4% to around 25%, mainly
as a result of our fixed cost base not growing in line with sales.
8. 2016/17 net operating profit and margin has been restated, refer to page 6.
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Online Overseas
Online Overseas continues to trade well. Full price sales for the year were up +26% and up +10% on a constant currency basis.
Margin also improved to 22%, mainly as a result of efficiencies achieved through our overseas distribution hubs. Our German hub now
services 14 countries in Continental Europe.
Overseas sales are achieved through our own website nextdirect.com and via third-party websites. Growth by each channel is set out
in the table below.
Total sales £m
Nextdirect.com
Third-party sites
Total Overseas sales
Jan
2018
265
30
295
Jan
2017
211
23
234
+25%
+35%
+26%
The functionality of our overseas website has not yet benefited from many of the improvements we have made to the UK site.
We intend to roll out many of the successful changes that have been deployed in the UK. These improvements include: better mobile
functionality, retaining and promoting abandoned baskets, improved registration/checkout and intelligent recommendations.
In the year ahead, we expect full price sales on a constant currency basis to be up +8%, and in Pounds Sterling up +10%.
Sales and profit
The table below sets out the last four years’ sales, profits and net margins in Pounds Sterling for Online Overseas, along with an
estimate for the year ahead.
£m
Total sales
Operating profit9
Net margin
Jan
2015
163
30
18%
Jan
2016
197
31
16%
Jan
2017
234
46
20%
Jan
2018
295
65
22%
Jan
2019 (e)
325
71
22%
9. Operating profit for 2017/18 and 2018/19 now includes an allocation of central overheads and markdown costs. This cost allocation reduces overseas profitability
by 3%.
12
LABEL
LABEL has had a strong year with full price sales up +43% and total sales (including markdown sales) up +40%. Growth has been
driven predominantly through existing partner brands where we have successfully increased our breadth of offer and improved
stock availability.
LABEL sales are achieved on both a wholesale and commission basis; sales by these channels are set out in the table below.
Total sales £m
Wholesale
Commission
Total LABEL sales
Jan
2018
151
139
290
Jan
2017
125
81
206
+21%
+72%
+40%
Nearly half of our third-party branded business is now sold on a commission basis (for the purposes of this section we include
Lipsy sales as a third-party branded business). Although we make lower net margins on the commission model, we encourage
brand partners to adopt it because we believe that, in the long run, it will generate higher sales growth, a belief reinforced by our
sales performance.
During the year and looking ahead, we have been working closely with our brand partners to simplify the process of working with
LABEL. We are developing our stock systems to enable brand partners to directly manage their stock into our warehouse and onto
our website.
Our aim is for LABEL to be the most profitable route to market for our commission brand partners and for the relationship between
our businesses to be based on mutual trust and transparency.
Sales and profit
The table below sets out the last four years’ sales, profits10 and net margins for LABEL, along with our estimate for the year ahead.
£m
Total sales
Operating profit
Net margin
Jan
2015
145
20
14%
Jan
2016
180
22
12%
Jan
2017
206
34
16%
Jan
2018
290
50
17%
Jan
2019 (e)
375
64
17%
In the year ahead, we expect full price sales to be up +30% and net margin to remain in line with the previous year at 17%. This forecast
is flattered by the fact that it includes c.£10m of Lipsy & Co. full price sales, previously taken via the lipsy.co.uk website. Following the
closure of the lipsy.co.uk website in February 2018, these orders and sales will be routed through next.co.uk and reported within LABEL.
10. Sales and profit referred to in this section exclude interest income on LABEL items purchased on a nextpay account.
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Strategic Report
Other business activity
NEXT Sourcing
NEXT Sourcing (NS) is our internal sourcing agent, which procures around 40% of NEXT branded product. In common with the wider
manufacturing sector, NS experienced pressure on its margins during the year. NS sales were down -10% in US Dollars, mainly as a
result of the reductions in the Dollar cost prices NEXT has negotiated across its supply base.
Falling sales and increased investment in product design meant net margin fell by -1.4% to 6.0%.
The profit impact in Pounds Sterling was partially mitigated by the stronger Dollar. The table below sets out the performance of the
business in Sterling and in Dollars.
Sales (mainly inter-company)
Operating profit
Net margin
Exchange rate
Jan
2018
£m
554.4
33.0
6.0%
1.31
Jan
2017
£m
605.2
44.7
7.4%
1.34
Jan
2018
USD m
726.3
43.2
6.0%
Jan
2017
USD m
811.0
59.9
7.4%
-8%
-26%
-10%
-28%
We are anticipating that NS will have another challenging year in 2018/19. We expect NS to make around $40m profit, a decline of
-7% on the year to January 2018. At our 2018/19 costing rate11 this would equate to a profit of around £31m in Pounds Sterling, down
-£2m on 2017/18.
Lipsy
Lipsy is a wholly owned subsidiary managed from its headquarters in London by an independent management team. Lipsy sells
product through a number of different channels, including the NEXT website and NEXT Retail stores. Sales through NEXT are sold
on a 50:50 profit share basis and reported through Online and Retail respectively. The working relationship between NEXT Online
and Lipsy is very similar to the way LABEL works with commission brands. The table below sets out Lipsy’s total sales performance by
distribution channel.
Sales £m
Wholesale
Franchise
Lipsy stand-alone retail stores
Lipsy.co.uk
Total Lipsy sales
Lipsy sales through NEXT Retail (reported in NEXT Retail)
Lipsy sales through NEXT Online (reported in NEXT Online)
Total sales
Jan
2018
8.5
4.2
1.1
10.4
24.2
14.6
76.1
114.9
Jan
2017
11.9
4.1
2.2
8.9
27.1
16.5
47.0
90.6
-11%
-12%
+62%
+27%
Lipsy has continued to reduce its UK wholesale business which is less profitable than (and competes with) its other sales channels.
This has been more than offset by increased sales through NEXT Online.
Operating profit excluding acquisition costs was £12.3m which was up +39% on last year. Net operating profit including acquisition
costs was £6.0m, up +9% on last year.
In the year ahead, we are forecasting net operating profit of around £11m; an increase of £5m. This estimated increase is due to a
combination of sales growth (+24%) and cost savings associated with the closure of the lipsy.co.uk website.
11. Details of costing rates can be found on page 21.
14
International Retail and franchise stores
Our franchise partners currently operate 194 stores in 32 countries. During the year our partners opened eight new stores and sales
have increased by +7.8%. Revenue and profit are set out below.
£m
Franchise income12
Own store sales
Total revenue
Operating profit
Jan
2018
55.7
11.5
67.2
7.7
Jan
2017
51.6
12.1
63.7
9.3
+5%
-17%
Profit has reduced due to franchise partners lowering their local selling prices (which reduced the royalty we received) and the
impairment of assets in six of our overseas stores.
Non-trading activities
The table below summarises central costs and the profit on other non-trading activities.
£m
Central costs and employee share schemes
Property management
Unrealised foreign exchange
Associate
Total
Jan
2018
(20.2)
3.6
(1.1)
1.0
(16.7)
Jan
2017
(22.5)
6.8
0.1
1.0
(14.6)
The reduction in central costs reflects the release of a provision against a legal claim in the current year. The reduction in profit in
property management is driven by an increase in our onerous lease provisions of £4m, mainly driven by two London stores.
Pension scheme
On the IFRS accounting basis, our defined benefit schemes have moved from £63m surplus at January 2017 to £106m surplus at
January 2018. This is primarily due to the impact of returns on investments within the schemes.
A full actuarial valuation of our defined benefit pension scheme was undertaken as at 30 September 2016. The technical funding
position was a surplus of £37m when rolled forward to 31 December 2017.
12. Franchise income is a combination of royalties or commission added to the cost of goods sold to franchise partners.
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Strategic Report
Cost inflation and cost control
In the year to January 2018, cost increases of £44m have been largely offset with cost savings of £38m. 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.
The net increase in our costs was £8m higher than we anticipated at the half year. This is mainly due to the additional costs we incurred
in our warehouses in the run up to Christmas as we began to run into capacity constraints. Operationally we were able to serve our
customers, however the cost of providing our normal service was high.
Costs and savings for the year ending January 2018
Cost increases
General wage inflation
Investment in online systems and marketing
Warehousing & distribution
Taxes (rates, Apprenticeship Levy, energy taxes)
National Living Wage
Onerous leases
Other increases
Total cost increases
Clearance costs
Lower clearance rates of Sale stock
Cost savings
Reduction in depreciation due to fully depreciated assets
Retail productivity and cost improvements
Brand marketing and catalogue creation
Interest payable on bonds and bank debt
Other savings
Total cost savings
£m
12
11
8
4
4
4
1
44
£m
22
£m
11
10
8
4
5
38
16
Net debt and financing
Our year end net debt was £1,002m, which was £141m higher than last year. The entire value of the Company’s net debt is more than
matched by the value of our nextpay debtor book, a financial asset worth £1,117m.
In the year ahead we are forecasting continued sales growth from customers using our credit facility, nextpay. As a result we are
forecasting nextpay debtors to increase by £110m. We will finance this increase through net debt which we expect to increase to
around £1.1bn by January 2019.
Net debt, which is forecast to peak in the year ahead at around £1.2bn, is securely financed through a combination of bonds and
committed bank facilities. At January 2018 our financing consists of £875m of bonds and £525m of committed bank facilities as set
out in the chart below.
Financing (£m)
Peak
1.2bn(e)
Jan 2019
1.1bn(e)
Jan 2019
1.2bn(e)
Bank facility
525
Bonds
875
1,400
1,200
1,000
800
600
400
200
£m
1.4bn
2020
2022
2021
2026
2028
Funding
Net debt
nextpay debtors
The Group maintains its objective of retaining investment grade status. The Group’s current and estimated peak net debt is within the
limit of investment grade status which we estimate to be around £1.5bn.
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Cash flow
Cash generated in the year before interest, tax, depreciation and amortisation was £882m. Cash flow after non-discretionary outflows
of taxation, interest and working capital was £663m. After investing in capital expenditure and paying ordinary dividends, the Group
generated surplus cash of £335m.
In total, we returned £361m to shareholders through a combination of special dividends (£256m) and share buybacks (£105m13). Of the
£105m of share buybacks, £79m related to surplus cash generated in 2017/18. A further £26m of buybacks were brought forward from
surplus cash generation expected in 2018/19. During the year we purchased 2.2m shares at an average price of £48.81 and reduced
our shares in issue at the start of the year by 1.5%.
The table below summarises our main cash flows in the year ended January 2018 and our forecast for the year ahead, based upon our
central profit guidance. We expect to generate £300m of surplus cash (after interest, tax, capital expenditure and ordinary dividends).
As outlined in our January 2018 trading statement, we intend to return £275m of remaining surplus cash (£300m surplus less £26m
purchased in 2017/18) to shareholders through share buybacks, subject to market conditions.
£m
Profit before Interest, Tax, Depreciation & Amortisation
Interest
Tax
Working capital and other
Discretionary cash flow
Capital expenditure
Ordinary dividends
Surplus cash
Financing additional Online debt
Special dividends
Share buybacks from cash generated Jan 2018
Share buybacks from cash generated Jan 2019
Movement in net debt
Central
guidance
Jan
2019 (e)
866
(39)
(144)
(38)
645
(130)
(215)
300
(110)
–
–
(275)
(85)
Jan
2018
882
(32)
(106)
(81)
663
(104)
(224)
335
(115)
(256)
(79)
(26)
(141)
During February 2018, before the start of the closed period, we purchased 1.4m shares for cancellation at an average price of £49.23
and total cost of £69.1m. Based on our central guidance, this would leave a balance remaining of £206m to return to shareholders
during 2018/19.
Interest and taxation
Interest paid in the year was £32m. However, as a result of timing differences the interest charged in the year ending January 2018 was
£34m, a reduction of £3.7m on the prior year. This was primarily due to the prior year cost of double running bonds ahead of maturity.
We are budgeting for the interest charge next year to increase to £39m, due to higher net debt and interest rates.
Our full year tax rate of 18.5% is slightly lower than the headline UK corporation tax rate of 19.2% (for the corresponding time period)
due mainly to closing previous years’ open tax filings with HMRC and overseas tax differentials. The tax payment of £106m in the year
included a tax refund from HMRC of £31m relating to overpaid corporation tax attributable to prior years. We expect our effective tax
rate for the year ending January 2019 to be around 18.5%.
13. £106m of share buybacks were completed in the year; however £1m purchased had not been paid for at the year end.
18
Capital expenditure
As set out in the table below, capital expenditure this year was £104m, which is £57m lower than the prior year. This reduction was due
to lower spend on retail space, including four large store projects (c.£12m) that were delayed until 2018. In addition, there was less
spent on warehousing because last year we made a large investment in a new automated furniture warehouse.
£m
Retail space expansion
Retail cosmetic capex
Total capex on stores
Warehouse
Head Office infrastructure
Systems
Total capital expenditure
Jan
2018
56
22
78
11
6
9
104
Jan
2017
108
11
119
28
10
4
161
New retail space remains our biggest investment at £56m. Cosmetic capex of £22m is much higher than normal because it includes
£12m for the refit of our store in the Arndale Centre, Manchester which includes a number of important concession trials.
The £5m increase in systems capital expenditure mainly relates to the investment in new RFID scanners for our stores. Expenditure on
Head Office infrastructure reduced to £6m as we completed the three year programme to upgrade our central facilities.
In the year ahead we expect capital expenditure to be around £130m, an increase of £26m on the current year. Next year’s capex
includes additional investment in our Online warehouses in order to increase capacity to manage future Online sales growth.
Ordinary dividends
The Board has proposed a final ordinary dividend of 105p, to be paid on 1 August 2018 and taking the total ordinary dividends for the
year to 158p, flat on last year. This is subject to approval by shareholders at the Annual General Meeting to be held on 17 May 2018.
Shares will trade ex-dividend from 5 July 2018 and the record date will be 6 July 2018.
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Strategic Report
Part 2 – Strategic Response to a Changing Market
The challenges of 2017 & outlook for 2018
Overview
2017 was challenging in several different ways. A weak clothing market coincided with self-inflicted product ranging errors and
omissions, at the same time, the business has had to manage the costs, systems requirements and opportunities of an accelerating
structural shift in spending from retail stores to online.
The next three sections deal with each of the above issues in turn: (1) the clothing market, (2) product ranging issues and (3) the
structural shift online. Under each heading we set out what we feel the issues have been in 2017, how they have affected our business
and a prognosis for the year ahead.
The clothing market
During 2017 the clothing and homeware markets were adversely affected by the following economic factors:
• Unusually high cost price inflation meant we had to increase selling prices to maintain margins.
• A squeeze on real incomes as general inflation rose faster than average earnings put pressure on discretionary spending.
• A sectorial shift away from our core markets of clothing and homeware into leisure, entertainment and other experiential spending
acted as a further drain on our revenues.
We believe that all of these factors are essentially cyclical and are likely, at some point, to reverse. The following three sections expand
on each of the above.
Cost price inflation
2017 experience
The following chart shows the trade weighted value of the Pound over the last two years. Since the sharp post-referendum correction
in June 2016 the Pound has found a new level and appears to have stabilised around 11% lower than its level in January 2016.
GBP Effective Exchange Rate Index
90
85
80
75
70
20
January 2005 = 100
Jan 16
Jan 17
Jan 18
Source: BoE, Effective Exchange Rate Index: XUDLBK67 (20 March 2018)
We were able to mitigate much of the Pound’s devaluation through negotiating better prices with existing suppliers and developing
new sources of supply. NEXT’s price increase of +4% was close to the inflation experienced in the UK clothing and homeware
market as a whole (see graph below) and we have no evidence that our overall pricing has become less competitive as a result of last
year’s increases.
UK Total Market Clothing and Footwear Inflation
5%
4%
3%
2%
1%
0%
-1%
Jan 17
Mar 17
May 17
Jul 17
Sep 17
Nov 17
Jan 18
Source: ONS, Clothing and Footwear Actual (20 March 2018)
Outlook for cost price inflation 2018 and beyond
Looking ahead to 2018/19 the pricing environment is much more benign. The devaluation of the Pound has now worked its way
through the system and we now have comparable year-on-year costing rates. The table below sets out the exchange rates we secured
in Dollars (our most important trading currency) by buying season, the change versus the prior year and the corresponding price
increases on like-for-like product.
Buying season
Spring & Summer 17
Autumn & Winter 17
Spring & Summer 18
Autumn & Winter 18 (e)
Spring & Summer 19 (provisional)
£/USD
costing rate
$1.39
$1.26
$1.26
$1.32
$1.39
vs Previous
year
-10%
-14%
-9%
+5%
+10%
Average
selling price
variance
+4%
+4%
+2%
0%
TBC
We have secured 98% of currency required for 2018/19 so our costing rates for the current year are fixed. Our provisional costing rate
for Spring 2019 is 10% better than the current year, so we may see a return to modest price deflation as we move into 2019. If we do
experience any improvement in cost prices it is our intention to pass on any benefit to our customers by way of lower prices.
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Declining real incomes
Real incomes in 2017
Real incomes in the UK declined as inflation in the wider economy overtook real earnings. Inevitably this placed pressure on our
customers’ discretionary spending as the price of essential goods rose faster than our customers’ income.
The graph below shows the growth in average earnings and CPI inflation; the blue line shows the difference between the two
numbers and is a measure of real income. Real incomes were in decline for almost all of 2017, albeit the decline moderated as we
approached the end of the year.
Average Earnings, CPI and Real Earnings Growth
+3.0%
+2.5%
+2.0%
+1.5%
+1.0%
+0.5%
0.0%
-0.5%
-1.0%
Average earnings
CPI
Real earnings
Jan 16
Jul 16
Jan 17
Jul 17
Jan 18
Source: ONS, CPI Actual (20 March 2018)/Average Weekly Earnings (21 March 2018)
Outlook for real income in the year ahead
It appears that the easing of inflation in our own sector is being reflected in the wider economy, as other sectors benefit from
stabilising currency rates. If that is the case and average nominal income growth remains at current levels, then we should expect to
see little or no decline in real incomes during 2018.
22
Sectorial shift
Since October 2016 we have seen a shift away from consumer spending on clothing and homeware into other more experiential
spending sectors. The illustration below contrasts the spending on entertainment, pubs and restaurants with women’s and
men’s clothing.
We believe that this shift has been driven partly by innovation, investment and change in experiential sectors. This is evidenced by the
surge in choice and quality of streaming services, TV shows, restaurants, pubs, bars and other leisure destinations. At some point this
cyclical effect will change, but consumer cycles are very hard to predict and can take a long time to reverse, so we are not anticipating
any easing of this headwind in the year ahead.
Sector Growth 2017 vs 2016
16%
12%
8%
4%
0%
-4%
Entertainment
spend grew by
10.3%
Pub
spend grew by
11.7%
Restaurant
spend grew by
12.0%
Women’s
clothing
spend fell by
-2.9%
Men’s
clothing
grew by
4.1%
Source: Average of monthly Barclaycard UK spend data from February 2017 to January 2018
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Product ranging
Issue and timescale for improvement
At our results presentation in March last year we talked about the mistakes we had made in our product ranges. In short, we had
allowed our ranges to become too focused on more fashionable lines and omitted some of our easier-to-wear heartland product.
At that time we set out timescales for range improvement using the simplified graphic shown below. We believe that the improvements
to our ranges were delivered in line with our forecast. Our quarterly full price sales performance clearly reflects the progressive
improvements to our ranges.
Full Price Sales by Quarter 2017/2018
To Christmas Eve
+1.5%
+1.3%
+0.7%
-3.0%
Brand full price sales performance as per NEXT plc quarterly trading statements
+2%
+1%
0%
-1%
-2%
-3%
Comparative numbers and effect on sales in the year ahead
We are much happier with our ranges as we go into 2018 and expect sales performance in the first half to be flattered by the
comparison with the mistakes of last year. This will be important to remember as we issue our trading statements throughout the year.
Comparative numbers will harden as the year progresses so shareholders should not expect the performance of later quarters to be
in line with the first quarter.
24
Structural change – the move online
We believe that the continuing transfer of sales from stores to online represents a permanent and profound change in the structure
of our industry. Last year we saw an acceleration in the rate at which sales have transferred to Online. This change is partly as a result
of the improvements we have made in our Online systems and marketing but it is mainly down to changing consumer preferences.
Full Price Sales Growth
2016/17
vs previous year
2017/18
vs previous year
Retail
Online
-5%
+4%
+12%
+8%
+4%
0%
-4%
-8%
+11%
-7%
In the long run this shift offers the NEXT Group a valuable opportunity to leverage its distribution, marketing and credit infrastructure
in the UK and its brand overseas. However, the immediate effect of this change has been that although Group sales have been
maintained, profit has not.
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The changing shape of NEXT
The table below clarifies the current total sales, profit and the contribution made by each business division. The Online business is,
in effect, two businesses: a trading business and a finance business. For completeness, an approximate division between the trading
and finance business is shown below.
Business
NEXT Online
NEXT Finance
Total Online (inc. Finance)
NEXT Retail
NEXT Group
Total
Sales
£m
1,665
223
1,888
2,123
107
4,118
Profit
£m
307
119
42614
269
31
726
Sales
participation
40%
5%
Profit
participation
43%
16%
45%
52%
3%
100%
59%
37%
4%
100%
The impact of structural shift on profits in 2017
Looking at last year’s numbers it appears that every Pound of full price sales lost in Retail cost us 60p whilst every Pound gained Online
delivered only 19p of profit.
Full Price Sales and Profit 2017/18 (£m)
Retail
Online
Sales
+167m
Profit
+32m
Profit
-85m
Sales
-141m
m
£
e
g
n
a
h
C
200
150
100
50
0
-50
-100
-150
-200
This margin erosion is partly a result of the shift in sales from Retail to Online. Retail carries large fixed costs (such as rent, rates and
energy) which, in the short term, are unable to contract with reducing sales. On the other hand, the Online business has significant
variable costs which increase with sales (delivery, warehouse picking, returns processing, call centre activity etc.).
In addition to this transfer cost, last year, there were also other factors which eroded profitability in both businesses. It is important
to separate these more temporary profitability issues from the margin erosion caused by sales transferring from one business to the
other, as the latter is likely to remain an issue for some time whilst the others can be managed out of our profit and loss account.
14. Group interest of £35m has been charged to the Finance profit and loss account.
26
The table below is a simplified model which walks forward the decline in Retail sales and growth in Online sales.
Profit walk forward 2017/18 £m
A Change in full price sales
B Gain/(loss) on gross margin on NEXT branded stock
C Less (increase)/decrease in variable costs and new space
D Change in margin from sales growth
E Margin erosion from lower margin third-party brands
F
Total gain/(loss) in margin
G Loss from lower clearance rates
H Cost increases
I
Cost savings
Total gain/(loss) in margin
J Change in Group costs
Total gain/(loss) in margin after Group costs
Retail
-141
-92
6
-86
–
-86
-15
-12
28
-85
Online
167
109
-29
80
-30
50
-7
-12
1
32
Total
26
17
-23
-6
-30
-36
-22
-24
29
-53
-11
-64
The walk forward uses approximate margins and requires a bit of explanation which is given for the relevant lines referencing the
letters in the left column.
Line B shows the lost gross margin on sales assuming that all items are sold at the gross margin of NEXT branded stock. In reality,
much of the sales growth was delivered by third-party brands that are sold at lower margins.
Line C accounts for the normal variable costs that would be incurred or saved as business levels change.
Line D shows the net effect of the change in sales and variable costs; in effect this is the cost of the structural shift in sales from Retail
to Online. It is mitigated by the fact that sales grew faster Online than they did in store. If Online sales growth had exactly matched
the Retail sales decline the loss would have been £18m, 13p for every Pound transferred.
Line E shows the margin erosion from growth in lower margin third-party branded business.
Line G shows the margin erosion caused by poorer clearance rates.
Lines H and I show the impact of cost increases and savings in our fixed cost base.
Line J shows the change in Group costs.
The analysis shows that although some of the margin erosion was caused by the switch from Retail to Online, the lion’s share of the
erosion came from other factors. The most important were: the cost of poorer clearance rates (-£22m), the margin erosion from
third-party brands (-£30m) and the step change in Online systems and marketing costs (-£11m) meant that cost increases outweighed
cost savings.
Profit attrition in the year ahead
Our central guidance for the year ahead is for Brand full price sales to be up +1.0%, a very similar increase to the year just ended.
However, we are not expecting anything like the same level of profit attrition in the year ahead. The walk forward in the following table
mirrors the format of the table explained in the previous section.
We estimate that lower margin erosion will be delivered by a combination of slightly higher sales growth, lower rental increases from
new space, less erosion from third-party brands and (most significantly) less erosion from Sale clearance rates.
Profit walk forward 2018/19 (e) £m
A Change in full price sales
B Gain/(loss) on gross margin on NEXT branded stock
C Less (increase)/decrease in variable costs and new space
D Change in margin from sales growth
E Margin erosion from lower margin third-party brands
Total gain/(loss) in margin
F
G Loss from lower clearance rates
H Cost increases
I
Cost savings
Total gain/(loss) in margin
J Change in Group costs
Total gain/(loss) in margin after Group costs
Retail
-137
-89
13
-76
–
-76
-2
-14
18
-74
Online
172
112
-29
83
-23
60
-1
-10
12
61
Total
35
23
-16
7
-23
-16
-3
-24
30
-13
-8
-21
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Summary table of challenges
The table below summarises the challenges facing the business, distinguishing between those we believe are cyclical and therefore
temporary and those that are structural and permanent.
Cyclical
Rising cost prices
Internal/external Outlook
External
Improvement 2018.
Comments
Short term issue with price inflation likely to be eliminated
by second half.
Possible improvement
end 2018.
Some possible relief towards the end of the year as general
inflation likely to fall back to below wage growth.
Consumer squeeze External
Sectorial shift
External
No foreseeable
improvement yet.
Range omissions
Internal
Improvement 2018.
Structural
Shift of sales online External
Internal/external Outlook
No change to
underlying trend.
Difficult to predict when this will correct and no sign of
improvement yet. Ultimately cyclical so likely to reverse at
some point in the next three years.
Exceptional level of errors and omissions corrected as we
head into 2018.
Comments
Permanent change to retail environment with further to
go. Continuing implications for cost management and
investment across the business.
Online systems
Internal
Improvements
ongoing.
Much improved and delivering material benefits, much
more to do going forward.
Action plan for the year ahead
In many ways the challenges of the current environment along with the consequent economic changes to our business sets the
agenda for the year ahead. We are very clear about our priorities:
• Continue to improve and develop our product ranges.
• Defend Retail sales and profitability.
• Attack costs across the Group (through innovation and negotiation and never at the expense of service or quality).
• Maximise the potential for profitable growth Online.
Improving product ranges
The quality and design of our product ranges remain all important and improving them is at the heart of what we do. The improvements
we have made to our buying and design processes are the sum of many small changes, which we will not detail here. The improvement
we saw in our quarterly performance last year (see page 24) gives us the confidence that we are moving in the right direction.
We believe that we have further to go. In general terms we are looking to achieve the following:
• Ensure that our ranges have well-designed, great quality heartland product at every level of our price architecture.
• Do more to harness and react to the design expertise within the business and its supply base.
• Extend choice online where relatively low stock investment allows us to experiment and extend the breadth of our offer.
• Develop new sources of supply.
Defend Retail sales and profitability
We are reconciled to the fact that Retail sales are likely to decline in the medium term and have set our budgets accordingly (see Store
portfolio stress test on page 31).
However, that does not mean that we can do nothing to mitigate the effects of declining like-for-like sales. We can introduce
restaurants, cafés and other concessions which generate additional revenue and increase footfall to our shops. We can manage both
our operational and occupancy costs down to a level that suits the current retail environment. Most importantly, we can develop the
positive role our stores already play as an integral part of our Online platform bearing in mind around 50% of our orders are delivered
through stores. The average value of store orders is lower than home deliveries but they still account for 43% of all Online sales.
There is much more that can be done to make our stores and their stock holding an active part of our Online business.
28
These ideas are developed in the following sections.
Maximise online value of retail stores
One of the great advantages any online business has over retail stores is that all its stock is held in one central location. This means
choice is not limited by physical display space or stock investment. In addition, stores have the disadvantage that once they have
received their allocation, some sell more than planned whilst others sell less. So some stores end up in surplus whilst others are out
of stock.
Over the past year we have given much thought as to how we can exploit the one big advantage shops have over Online warehouses
– the fact that the stock is already close to our customers. We also looked at how we can mitigate some of the disadvantages caused
by the fragmentation of Retail’s distributed stock holding.
Find-in-store and same day click-and-collect
Ten per cent of the stock our customers attempt to order online is sold out. A further 20% is not available for immediate delivery either
because we are waiting for returns or a supplier shipment. Of the items that are sold out online, 10% are likely to be available in a store
within 10 miles from our customers’ homes. 40% of the delayed items are also available in local stores.
To address this issue we launched a find-in-store function just before Christmas which enables customers to locate stock that is out
of stock online. In September we aim to launch a full click-and-collect service that will allow customers to purchase these scarce items
online and collect them in a store within one hour.
Store-to-store ordering and transfers
In June we will also enable store-to-store transfers to fulfil customer orders and introduce an element of stock rebalancing between
stores – transferring surplus stock in one store to fill a deficit in another.
The find-in-store, click-and-collect and stock rebalancing projects are part of a wider project to make better use of our store network
in its role as a distributed stock holding. Our long term aim is to further integrate our shops ever more closely into our Online trading
platform. These projects are greatly assisted by the fact that we currently deliver to most of our stores every day to fulfil Online orders
to store. The leveraging of this internal delivery network means that we are able to transfer stock between our stores, depots and
warehouses at relatively low cost.
Improving the retail experience
Manchester Arndale experiment
Last year we set out our plans for the refit of our Manchester Arndale store. Arndale has a florist, prosecco bar, restaurant, children’s
activity centre, café, card & stationery shop, barber and shortly a car showroom. We are also in negotiation to add a spa operator and
bridalwear concession. We estimate that the concessions in Manchester will deliver c.£800k of income to the store, accounting for
around 40% of our rent, and 22% of total occupancy cost (rent, rates and service charge).
The restaurant is a 50/50 joint venture with Gino D’Acampo and Individual Restaurants Group and we take 50% of the profit rather
than a rent. We have one other Gino’s restaurant open in Hull. We have very much appreciated the professionalism, acumen and
energy of our restaurant partners. The combined appraisal for the two stores is set out below. The economics of the restaurants are
healthy but not as compelling as the appraisal hurdles we set for our investment in retail space. So the key for us will be the positive
effect they have on the sales of the stores in which they operate. We plan to invest in four more Gino restaurants in the year ahead.
Combined appraisal for Hull & Arndale Gino restaurants
Turnover
Profit
Profit %
Capex
IRR
£4m
£490k
12%
£2.7m
28%
Concession expansion and projected income in the year ahead
In addition to the concessions opened in Arndale we are also in discussions with a travel operator, branded footwear concession and
cosmetics concession. In the year ahead we currently plan to open 98 concessions across our store portfolio and expect to generate
annualised income of around £5m from these concessions.
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Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report
Retail credit
It is often assumed that all of our £1.6bn credit sales are made Online. In fact, many of our Online customers use their nextpay home
shopping account instore and c.£240m of Retail sales are charged to Online accounts using their account card.
We are adapting nextpay to allow us to market it directly to Retail customers. Initially we will offer this through online marketing and
emails to known Retail customers. Going forward we will trial offering it in stores, though this needs to be done with extreme care to
ensure that customers are correctly informed of everything they need to know before opening a credit account and we comply with
all credit regulations.
Retail credit is likely to be higher risk than home shopping credit and we will have much to learn about this product. However the
introduction of a retail credit offer puts stores on an equal footing with Online by enabling customers to spread the cost of their
purchases. All the evidence we have from the nextpay account cards is that customers who are able to spread the cost of their retail
purchases are likely to increase their retail spend.
Managing occupancy costs
One of the reasons Retail profitability is so highly geared is that our occupancy costs are a high and fixed cost as a percentage of
sales. Managing these costs in the short term is very difficult but in the longer term there is scope for some of our occupancy costs
to reduce.
The vast majority of our leases are on upward only rent reviews so rents do not come down during the lifetime of a lease. However our
store portfolio has an average lease term of just under seven years and 240 of our leases, representing 32% of our rental liabilities, will
be up for renewal within the next three years.
Options at lease end
When a lease comes up for renewal we have three options:
• Remain: renegotiate rent, lease term, and a capital contribution to the refit of the shop.
• Close the store.
• Hold over: remain in occupation paying the historic rent on a very short term lease with a mutual break.
Lease renewals 2017
Our experience over the last year is that when we renew leases we get significantly better terms. Where we are unable to secure better
terms we generally are not renewing the lease.
During the year ending January 2018 we renewed the leases on 19 stores. The table below sets out the rent before and after the
renewal and gives the capital contribution paid to us. These capital contributions were used to refit the renewed stores and get them
to a standard that will see them through to the end of the new lease. In many cases we have taken the opportunity of the renewal to
add new concessions. The concession income is also shown in the table.
As can be seen from the table the net rent fell by -28%. The capital contribution of £5m would pay for a significant part (though not all)
of the cost of refitting these stores. The average lease term was seven years and the portfolio profitability before central overheads is
now 21%. This level of profitability is such that the store should remain profitable for the life of the lease, even in adverse like-for-like
trading conditions. Before we approve any new store we now test the year ten profitability assuming -10% annual compound like-for-
like sales decline.
19 stores renewals 2017/18
Gross rent (before concession income)
Concession income
Net rent
Net rent/sales (VAT inc.)
Capital contribution
Average lease term
Average net branch contribution
30
Before
renewal
£6,500k
£80k
£6,420k
10.3%
After
renewal
£4,900k
£250k
£4,650k
7.5%
£5,000k
7 years
21%
-25%
-28%
Prospective lease renewals 2018
Looking forward to the year ahead we believe we are likely to renegotiate 29 leases; the remaining stores that are due for renewal will
either be held over at the passing rent, pending future negotiation, or will be closed. We currently plan to close 10 small stores next
year of which most are at the end of their lease.
The table below shows what we expect to achieve in the 29 stores we plan to renew in the year ahead. It is a similar pattern to last year,
though importantly the average lease term is expected to come down to five years.
29 stores renewals 2018/19 (e)
Gross rent (before concession income)
Concession income
Net rent
Net rent/sales (VAT inc.)
Capital contribution
Average lease term
Average net branch contribution
Before
renewal
£9,300k
£90k
£9,210k
9.0%
After
renewal
£7,300k
£560k
£6,740k
6.5%
£7,000k
5 years
21%
-22%
-27%
Store portfolio stress test
A more pessimistic longer term scenario
Whilst there is much we can do to make our stores more profitable and relevant in an online world, we also need to model a worst
case scenario for our stores. In our last report we projected what would happen to the economics of our store portfolio in the event
of ten years of -6% negative like-for-like sales. With last year’s like-for-like sales of -9.1%, we have tested what would happen to our
stores at -10% over a longer period of time.
It is important to emphasise that the scenario we set out below is only a scenario. It is not what we actually think will happen. I have
little doubt that shareholders may read that this worst case scenario is what NEXT is planning and that the projected store closures
required in these circumstances are what the Company will actively seek to achieve. That is not the case, although it does make for a
better news story! The purpose of this scenario is not to plan the future; rather it is to test whether our store portfolio is an asset or a
liability in extreme circumstances.
Our verdict is that it remains an asset, albeit one that is declining in value, and not a liability.
A very profitable portfolio
Before discussing the stress test, it is important to point out that our current store portfolio is extremely profitable. Currently the vast
majority of our stores make a healthy profit, with 94% of turnover delivering a net branch profit of more than 10%.
The left hand table below sets out the percentage of our turnover within stores of different levels of profitability as at January 2018.
The second table shows the same information projected forward one year, based on the assumption that like-for-like sales are down
-8.5%, which is in line with our central guidance.
January 2018
January 2019 (e)
Store profitability
>20%
>15%
>10%
>5%
>0%
% of turnover
59%
85%
94%
97%
98.7%
Store profitability
>20%
>15%
>10%
>5%
>0%
% of turnover
46%
74%
90%
95%
96.8%
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Stress test assumptions
The following stress test is based on the following assumptions:
• We shut unprofitable stores at their lease expiry.
• When profitable stores reach the end of their lease we are able to continue trading, paying the same rent on a short term lease
(“holding over”).
• We take on no new space, are unable to reduce any rents and take on no concession income.
• Fixed costs that are shared between the Retail and Online businesses are absorbed as the Online business grows. For the purpose
of this model, it is assumed that Online sales growth matches the Retail sales decline.
Base scenario: like-for-like sales at -10% for fifteen years
In this scenario the cumulative cash generated by our stores over fifteen years is £86m and in year 15 there is a £19m cash loss from
the remaining portfolio.
£800m
£700m
£600m
£500m
£400m
£300m
£200m
£100m
£0m
-£100m
-£200m
Cumulative net cash
Net cash per annum
Years
15
LFL
-10%
Net cash
£86m
Mainline stores excluding Clearance stores
2017 2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030 2031
-£19m
Scenario accounting for rent reductions, interest income and sales transfer
The scenario above does not account for three factors that would improve the portfolio profitability. These factors are set out in the
table below:
Factor
Retail interest
income
Rent reductions
Sales transfer
Description
Retail stores generate a profit from the use of our Online credit account in
stores. This profit is a genuine Retail profit but is not accounted for in the
Retail profit and loss account.
In the scenario of -10% like-for-like sales it is very likely that retail rents
would fall at lease renewal. Our experience last year was that rents fell
by -25% on average at lease renewal. This scenario assumes that rent
reductions are -15% at renewal.
When we open new shops that are close to existing stores we would
normally experience some cannibalisation, whereby some of the sales
gained in the new store come at the expense of a nearby shop. When we
close stores we would expect to see this effect in reverse. Currently we
generally experience cannibalisation of 15% to 25%. In this scenario we
have assumed a 15% transfer of sales from closing stores to nearby shops.
Cum cash
effect
Year 15
cash effect
+£167m
+£1m
+£23m
+£0m
+£155m
+£10m
32
£800m
£700m
£600m
£500m
£400m
£300m
£200m
£100m
£0m
-£100m
-£200m
Cumulative net cash
Net cash per annum
Years
15
LFL
-10%
Net cash
£431m
+ TRANSFER SALES (15%)
+ RENT REDUCTION (15%)
+ INTEREST INCOME
-£8m
Mainline stores excluding Clearance stores
2017 2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030 2031
In this, more complete scenario, the store portfolio generates £431m of cash and only loses -£8m in year 15. Whilst the outlook for
Retail in a -10% like-for-like scenario severely undermines the value of our Retail business, it does not create a liability. Nor does it
in any way detract from the value of our Online business which is very likely to grow in the event Retail sales move back at this rate.
Maximise growth online
We continue to develop our product offer online: expanding the breadth of our own product offers alongside those of our partner
brands through LABEL and Lipsy & Co. (whose progress is described on pages 13 and 14). This section focuses on our systems and
logistics infrastructure.
Online investment paying dividends
In March 2016 we acknowledged that we had fallen behind best in class in terms of our website functionality, online marketing and
data management. During the last twenty-four months we have significantly increased our investment in the systems and the people
required to improve our performance. We spent an additional £11m in the year on software and IT and marketing professionals.
This investment included a new Data Management Platform, Content Management System, Customer Segmentation System, and
Optimisation and Testing Platform. None of this software has been capitalised and is fully expensed in the year of purchase.
These systems all served to improve our online capability and resulted in a large number of small improvements to the online shopping
experience. Initiatives include intelligent recommendations, a new mobile site, new flowers site, faster checkout and registration, the
introduction of NEXT Unlimited (unlimited deliveries to home for £20 a year) and a whole host of other small improvements.
The graph below shows that both the Retail and Online businesses improved as our ranges recovered. However, the acceleration
online was much more pronounced, and we believe that this was largely as a result of the improvements we made to our website,
marketing and online services.
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Strategic Report
Interestingly, no single development made a significant difference on its own. Each improvement made shopping with NEXT just a
little bit easier and delivered a small increase in sales. It appears that sales have benefitted more than might have been expected from
the sum of the parts, as the cumulative effect of developments collectively made for a much better shopping experience.
2017/18 Full Price Sales Growth (Cumulative)
-0.5%
-2.5%
-4.5%
-6.5%
-8.5%
-10.5%
-12.5%
Online
Retail
12.5%
10.5%
8.5%
6.5%
4.5%
2.5%
0.5%
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
2017
2018
Online systems and marketing development in the year ahead
There is still a great deal more that we can do to improve our Online business systems and we intend to maintain the levels of
increased investment reached last year, although we are not planning for another step change in our Online cost base. The graphic
below shows the timetable for some of our more important projects in the upcoming year. This is by no means a definitive list and
we have many other smaller projects that we will deliver during the year. The table beneath the graphic summarises the nature and
benefits of each project.
Q1
Q2
Q3
Q4
Targeted marketing
New search engine
3 step credit
Personalised promotions
Home page personalisation
Product personalisation – Phase 2
34
Description
Project
Targeted marketing roll out To date we have only really experimented with our Data Management Platform. In the coming
year we will deploy it in anger. This technology enables us to more accurately target our spend on
third-party websites, tailoring the products we offer and the amount we pay for an advert to the
expected productivity and preferences of each potential customer.
New search engine
3 Step credit offer
Personalised promotions
Early signs are encouraging. Trials indicate that we can deliver an improvement of at least 12%
return on advertising spend (i.e. 12% more sales for the same investment in advertising).
However this application is not just about improving returns on marketing spend, it also allows us
to target customer groups we could not identify in the past.
We aim to launch a new Artificial Intelligence based search engine in the second quarter of the
year. The main advantage it will have over our current search engine is that it will be able to learn
from customer behaviour. So it is much less reliant on the attributes we manually allocate to our
products.
This is a new credit product for NEXT, aimed at customers who do not have (or do not want)
a nextpay account. It will enable customers to split the cost of any purchase into three equal
monthly amounts without incurring interest, as long as each monthly 3 Step payment is made in
full and on time. Customers will have the flexibility to pay less than the monthly 3 Step payment
provided they pay at least the monthly minimum, but if they do, they will incur interest on the
balance they have not yet paid.
We anticipate that this product will generate some interest income from those who choose not to
pay the full 3 Step payments; but the main aim of the product is to drive sales growth by allowing
customers to spread the cost of their purchases.
We will deliver a personalised promotions engine that will allow us to target specific promotions on
specific products to specific customers. We believe that there may be particular merit in selectively
promoting new product categories to existing customers (e.g. women’s jeans to female customers
who currently only buy our children’s clothing).
True personalised home
pages
Currently our level of home page personalisation is crude. This application will allow us to
serve 12,000 home page variations driven by the product and service preferences of individual
customers.
Product personalisation
This will allow us to embellish and personalise our own NEXT product, for example embroidering
names on NEXT babygrows or jeans.
Developing our delivery network
We have already discussed the ways in which we can further integrate our store network into our online trading platform (see section
entitled “Maximise online value of Retail stores” on page 29). We are also planning to integrate some of our newest suppliers into our
online platform.
Last year we started to sell personalised products on our website. Orders are passed to a network of independent suppliers who
personalise their products and send them directly to our customers. The new business started well and looks as though it will take at
least £7m this year.
This service has two operational problems. Firstly, we are unable to deliver these products through our stores. Secondly, delivery
tracking and problem resolution is convoluted if items do not arrive as expected. In addition, we lose the opportunity to consolidate
items into a single delivery which would be more cost effective.
In October we intend to integrate key personalised gift suppliers into our delivery network. We will use our next-day to store delivery
fleet to collect items from suppliers and inject them into our network when our vans return from their rounds. Most of these suppliers
are not more than a few miles from one of our existing delivery routes so the cost of collection will be low. We believe that by bringing
these deliveries into our network we have the opportunity to increase the quality of the delivery service, reduce costs and potentially
increase speed of delivery.
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Attack costs
Saving money in the right way
In light of the costs inherent in the structural shift online the need to make cost savings is greater than ever. However, we need to be careful.
It would be easy to cut costs by reducing the quality of goods and services or underinvest at a time investment is central to online growth.
We are acutely aware of these risks and are clear that cost savings must not come at the expense of our customers or the business.
Cost savings need to come through working smarter, using new technology, right sizing our Retail fixed costs and ensuring that we are
cutting the marketing expenditure which is losing relevance in the online world. Three case studies illustrate these points.
RFID stock counting – technology driving efficiency
Every week our stores scan all stock on their shop floors to ensure that we accurately replenish from stock rooms to the shop floor.
Using a traditional Hand Held Terminal (HHT) staff can scan 1,275 items per hour.
We have recently introduced new Radio Frequency Identification (RFID) tags in our stores allowing us to scan using new RFID enabled
HHTs. This is forecast to increase hourly scanning rates to 5,100, saving £2m per annum in wage costs.
New delivery schedule – right sizing our delivery fleet
Over the last three years our Retail sales have fallen by 10% but the number of deliveries we make has remained broadly in line
with 2014. We are in the process of changing our delivery schedule to bring it in line with the volume of units moving through the
business. We anticipate that this will eliminate £4m of unnecessary cost at a time our Retail business desperately needs to save money.
The graph below shows our sales and deliveries indexed to 2014.
2014
Indexed from 2014
2015
2016
2017
No. of
deliveries
Retail sales
110%
105%
100%
95%
90%
Reduction in the costs of catalogue production
Our catalogues and other brochures remain an important part of our business. We distribute our major publications nine times in the
year, to coincide with the launches of nine seasonal ranges. These brochures remain popular with large numbers of customers and are
proven to drive sales if sent to the right people.
However as digital technology advances catalogues have become less relevant to an increasing number of new customers. We are
constantly analysing the effect of catalogues on different customer segments and are careful to prevent distribution of free brochures
when they no longer generate a return. This exercise, along with efficiency savings in photography and reduced page numbers, is
expected to save £7m in the coming year.
Costs and savings in the year ahead
In our central forecast we are budgeting for cost increases of around £35m, as set out in the table below.
Cost increase forecast for 2018/19
General wage inflation
Interest payable on bonds and bank debt
Investment in online systems
National Living Wage
Occupancy (rates, energy taxes)
Lower clearance rates of Sale stock
£m (e)
17
5
4
3
3
3
35
Total cost increases
To date, we have identified around £30m of cost savings which mitigate some of the cost increases detailed above. This includes a
non-cash £12m saving in depreciation.
36
Part 3 – Sales and Profit Guidance
Outlook for sales
The table below sets out the central guidance for full price sales growth in Retail and Online for the year ahead. For comparison we
give the actual figure for last year in the second column. The divisional guidance comes with a health warning: it is very early in the
year to be giving sales guidance by division but we have more confidence in guidance for the Group as a whole than we do for the
individual parts.
% Variance on previous year
Retail full price like-for-like sales
Total Retail full price sales (inc. contribution from new space)
Online full price sales
Total full price sales
Central guidance
for 2018/19
-8.5%
-7.4%
+10.3%
Performance
in 2017/18
-9.1%
-7.0%
+11.2%
+1.0%
+0.7%
We are budgeting for a slightly better full price sales performance in the year ahead than last year. This is because in the first half last
year we were adversely affected by ranging errors, which we believe we have now corrected. As a result we expect growth in the first
half to be stronger than the second when comparative sales improve (for quarterly sales history and guidance see page 24).
Outlook for profits
We are maintaining the guidance range we issued for the full year in our January 2018 trading statement. At our central guidance of
full price sales growth of +1.0%, we estimate that Group profit would be around £705m. This profit is marginally down on the current
year as we expect operational costs to continue to grow faster than sales. We expect EPS to be enhanced by +4.3% as a result of
the continuing distribution of surplus cash generation in the form of share buybacks. So, at our central guidance EPS would grow by
+1.4%. Our central guidance for sales, profits and EPS is set out in the table below.
Full year estimate to January 2019
Total full price sales versus 2017/18
Group profit before tax
Group profit before tax versus 2017/18
Earnings Per Share growth versus 2017/1815
Central
guidance
+1.0%
£705m
-2.9%
+1.4%
First quarter trading update
Our first quarter trading statement will cover the fourteen weeks to 5 May 2018 and is scheduled for Thursday 10 May 2018. This is
one week later than originally planned in order to give a more meaningful comparison with last year due to the timing of the May Day
Bank Holiday.
Lord Wolfson of Aspley Guise
Chief Executive
23 March 2018
15. EPS growth is based on our latest forecast of the timing of share buybacks.
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Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report
Business Model
NEXT is a UK based retailer which offers exciting, beautifully designed, wonderful quality clothing and homeware which meets
and exceeds the aspirations of our customers, at prices that are within the reach of most people. Our customers can be confident
in our design, our quality and that they are getting value for money. NEXT is one of the largest clothing and Home products
retailers in the UK by sales, and a member of the FTSE 100 index.
In 1981, J Hepworth & Son, Gentleman’s Tailors, bought a chain of shops with the aim of developing a womenswear brand called
NEXT. The first NEXT womenswear store opened in 1982 and over the following years menswear, home and childrenswear were
added to the product ranges. In 1991 the move to larger stores commenced, bringing together all four product groups and
ranges across both retail and home shopping formats. The NEXT Online website was launched in 1999 to enhance the traditional
catalogue offer and has become a significant driver of the growth of the Group’s sales and profitability. The strategy of larger
stores and multi-channel retailing has been continuously developed over the past two decades.
2017/18 profit
by segment
The Group is primarily comprised of:
• NEXT Retail, a chain of around 530 stores in the UK and Eire.
The majority of our stores sell clothing, footwear, accessories and/or home products; and we now operate 35 large
combined fashion and home stores.
• NEXT Online (formerly NEXT Directory), an online and catalogue shopping business with over
4.9 million active customers and international websites serving approximately 70 countries.
By embracing the internet, providing exceptional customer service and developing overseas opportunities, NEXT Online’s
sales have grown by more than 130% over the last ten years. The NEXT Online business provides customers with the option
of a credit facility for purchases called nextpay. Through LABEL, NEXT Online offers premium brands to customers.
• NEXT International Retail, with around 200 mainly franchised stores across the world.
NEXT’s franchise partners operate over 190 stores in 32 countries; there are also a small number of overseas
stores which NEXT operates directly.
• Lipsy, which designs and sells Lipsy and other branded fashion products.
Lipsy trades from 46 stores, through NEXT Online, and through wholesale and franchise channels.
• NEXT Sourcing, which designs and sources NEXT branded products.
NEXT Sourcing (NS) is our Hong Kong based internal sourcing agent which competes for business against other
suppliers to NEXT Retail and Online.
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Other
35%
59%
1%
4%
1%
What we do
Great products
1
Returning
value to
shareholders
5
2
Global
sourcing
3
Efficient
supply chain
Outstanding
customer
experience
4
1 Great products
NEXT products are developed by our in-house design team to offer great style,
quality and value for money with a contemporary fashion edge.
2 Global sourcing
Over 140 million products are sourced globally from around 40 countries.
During the year, NEXT Sourcing provided around 40% of the NEXT branded
products from our global supplier base including 4 owned factory sites.
Over 100 brands are sold through LABEL online.
3 Efficient supply chain
Our network of warehouses and international hubs deliver product cost effectively
and efficiently.
9 warehouses, 6 depots and 4 international hubs.
Next-day delivery is standard for UK NEXT Online orders placed before midnight.
4 Outstanding customer experience
Providing value for money and outstanding customer service is key to NEXT.
We offer customers a credit facility for UK NEXT Online purchases, called nextpay.
Our large number of stores, complemented by an integrated multi-channel
offering, offers convenience to customers.
In store design and concession partners provide an exciting shopping environment.
5 Returning value to shareholders
We are highly cash generative, allowing us to invest in the business and return
value to shareholders through dividends, share buybacks and earnings growth.
38
Our key resources and relationships
People
The customers and employees of NEXT are key to achieving the objectives of the business.
For further details refer to page 48
Customers are at the heart of everything we do.
Knowledge and know how
Over 35 years of retailing experience.
The NEXT Brand offers uniquely designed and high quality products; forging long term relationships with
customers and suppliers.
Suppliers
Sourcing globally to deliver quality and value under ethical trading principles.
For further details refer to page 49
Buildings and Infrastructure
The predominantly leased store portfolio is actively managed, with opening and closure decisions based on store
profitability and payback.
For further details refer to page 8
Our warehouse and logistics operations provide an efficient and agile product distribution network.
Well established, and engaging websites, relevant for all our customers.
Finance
Effective management of financial resources including focus on cost management and maximising returns from space.
Further detail on the performance and development of the Group’s businesses can be found in the Chief Executive’s Review on pages 4 to 37, which forms part
of this Strategic Report along with Key Performance Indicators (pages 40 and 41), Risks and Uncertainties (page 42), Employees (page 48), Social, Community and
Human Rights (page 49) and Environmental Matters (page 50).
Business strategies and objectives
How we create value
The Board regularly reviews the Group’s strategic framework for long term value creation. The primary financial objective of the
Group is to deliver long term, sustainable returns to shareholders through a combination of growth in Earnings Per Share (EPS)
and payment of cash dividends. Over the last ten years, EPS and ordinary dividends per share have both increased by over 140%
and the Company’s share price has increased by over 250%. 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.
• Maximising the profitability of 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 Online cash and credit customers and their spend, both in the UK and internationally,
complemented by our LABEL offering of branded products and the credit facility (nextpay) we offer to our UK NEXT
Online customers.
• Managing gross and net margins through efficient product sourcing, stock management and cost control.
• Focusing on customer experience and satisfaction levels in both Retail stores and Online.
• 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 and/or special dividends.
Read about our action plan for the year ahead on page 28
Read about the outlook for sales and profit on page 37
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Key Performance
Indicators (KPIs)
KPIs are designed to measure the development,
performance and position of the business.
Group cash flows and divisional results are
detailed in the Chief Executive’s Review and
elsewhere in this Annual Report. Refer to the
Glossary on page 152 for further details.
Sales (%)
NEXT Brand full
price sales growth
NEXT Brand
total sales growth
+0.7%
-1.3%
-0.6%
+0.0%
2018 2017
2018 2017
Full price sales are VAT
exclusive sales of stock
items excluding
items
sold in our mid-season
and end-of-season Sale
events
our
Clearance operations,
and
interest
includes
income on those sales.
and
Total sales are VAT
exclusive full price and
markdown
sales
including the full value of
commission based sales
and interest income (as
described in Note 1 of
the financial statements).
NEXT profitability
NEXT Retail selling space
NEXT Retail
operating margin
NEXT Online
operating margin
Group profit
before tax (£m)
Store numbers
Square feet (000’s)
+12.7%
+15.3%
+24.4%
+24.8%
726.1
790.2
528
538
8,029
7,978
2018
2017
Selling space is defined as the trading floor area
of a store which excludes stockroom and administration
areas and is shown as at the financial year end.
2018 2017
restated
2018 2017
restated
2018 2017
2018 2017
Divisional operating margin is profit after deducting markdowns and all direct and indirect
trading costs expressed as a percentage of achieved total sales (refer to Note 1 of the
financial statements).
The 2017 operating margin has been restated to reflect the change in recharges (refer to
page 6 of the Chief Executive’s Review).
NEXT Retail sales performance
Full price sales
growth
Total sales
growth
Underlying total
like-for-like sales
Underlying full price
like-for-like sales
Underlying like-for-like sales represents the growth in
sales from stores which have been open for at least one
full year, excluding stores impacted by new openings.
-7.0%
-4.6%
-7.9%
-2.9%
-9.8%
-5.4%
-9.1%
-6.9%
2018 2017
2018 2017
2018 2017
2018 2017
40
2018
2017
Earnings Per Share
2018
2017
Refer to Note 8 of the financial statements.
416.7p
441.3p
Returns to shareholders (£m)
Ordinary dividends
Special dividends
224.1
225.8
255.6
88.3
Based on dividends paid in
the Cash Flow Statement.
Refer to Note 7 of the
financial statements.
NEXT Online
Sales performance
Full price sales growth
+11.2%
Total sales growth
+9.2%
+3.6%
+4.2%
Average active customers (000’s)
Credit
2,494
2,496
Cash
Total
2,436
2,235
2018 2017
2018 2017
4,930
4,731
Share buybacks
Total
106.1
187.6
585.8
501.7
2,174,357
shares were
purchased in the financial
year (2017: 3,613,121) at
an average cost per share
of £48.81 (2017: £51.91)
including
stamp duty
and associated costs. The
average price before costs
was £48.51 (2017: £51.59).
represented
Buybacks
1.5%
(2017: 2.4%) of
opening share capital.
Average active customers are defined as those who have placed
an Online order or received a standard account statement in the
last 20 weeks.
Credit customers are those who order using an Online credit
those who pay
account, whereas cash customers are
when ordering.
2018 2017
2018 2017
41
Strategic ReportGovernanceFinancial StatementsShareholder Information
Brexit
Following the outcome of the UK referendum to leave the
EU, there are a number of uncertainties that continue to exist
regarding how the exit will be engineered. Therefore, the extent
to which our operations and financial performance are likely to
be affected in the longer term will only become clear as more
details emerge. We have considered the possible consequences
that Brexit could have upon our business and during the year we
established a Brexit Steering Committee, comprised of relevant
senior managers. The Brexit Steering Committee formally reports
to the Group Finance Director.
We have also performed a detailed risk assessment across all
business areas to ensure that we have a clear view of where the
Brexit related risks and impact could occur. Brexit does not raise
a new principal risk for us, however it does have the potential to
impact a number of our existing risks at an individual risk level,
e.g. exchange rates, changes in tariffs and duties, regulatory
changes and economic uncertainty.
We will monitor the risks and uncertainties arising from Brexit
within the risk management and control process described
above. This provides a more effective and operationally focused
mitigation of these risks on an ongoing and timely basis.
Assessment of principal risks and
uncertainties
The directors confirm that they have carried out a robust
assessment of the principal risks and uncertainties facing the
Group, including those that would threaten its business model,
future performance, solvency or liquidity. Those principal risks
are described below along with explanations of how they are
managed or mitigated. The principal risks areas remain the same
as reported last year. Reputational risk is not in itself one of the
principal risks detailed below, however, it does have the potential
to impact a number of our existing risks and is an important
consideration when we assess our risks and potential impacts.
The Board is committed to ensuring that the key risks are
managed on an ongoing basis and operate within an acceptable
level. Whilst these risks all have the potential to affect future
performance, work is undertaken to mitigate and manage these
risks such that they should not threaten the overall viability of
the business over the three year assessment period (refer to the
viability assessment on page 47).
Strategic Report
Risks and Uncertainties
Risk management and internal
control framework
The Board has a policy of continuous identification and review
of principal business risks, and oversees risk management.
This includes identifying key risks, determining control strategies
and considering how those risks may affect the achievement of
business objectives, taking into account risk appetite.
Executive directors and operational management are
delegated the task of implementing processes to ensure that
risks are managed appropriately. On a day-to-day basis, the risk
management process is managed and co-ordinated by the
corporate compliance team. Each business area is responsible
for preparing and maintaining operational risk registers which
involves identifying, evaluating, managing, measuring and
monitoring the risks in their respective areas. Risk registers are
prepared using consistent risk factors and incorporate business
impact and likelihood ratings, both before and after the effect
of any mitigating factors or controls. Progress and issues are
reported to the corporate compliance team on a regular basis,
and more formal annual reviews are also carried out to ensure
robustness and consistency across the business. In addition,
internal audit plans are agreed with the Audit Committee
based on the risks and controls identified through this risk
management process.
During the year the Board carried out a detailed evaluation of
the effectiveness of the risk management and internal controls
systems for all parts of the business. This covered all material
controls including financial, operational and compliance controls,
and the Board is satisfied that they are operating effectively
for the financial year to January 2018 and up to and including
the date of this report. The evaluation incorporated a review of
reports, discussion, challenge and assessment of the principal
business risks with relevant senior management. During the year,
the directors also received presentations from management on
specific higher risk areas and agreed key action plans including
further enhancement of mitigating controls.
The work and findings of the corporate compliance team are also
reviewed, discussed and agreed by the Audit Committee on a
regular basis; any significant matters are communicated to the
Board. No significant failings of internal control were identified
during these reviews. Operational risk registers detail limited,
though not significant, control weaknesses and clear action plans
are in place to address these.
Following last year’s independent review undertaken by Ernst
and Young (EY) in relation to the assessment of NEXT’s cyber
risk, EY completed a further progress review this year. The output
from this review was discussed in detail with relevant senior
management and presented to the Audit Committee and the
Board. Cyber risk has been on the agenda for discussion at
every Audit Committee meeting this year. Good progress has
been made during the year, such as the further development
of security monitoring and alerting, and working to achieve the
key requirements of the General Data Protection Regulation
(GDPR) which takes effect from May 2018. GDPR will have limited
operational impact on our business. The agreed cyber risk action
plan continues to be prioritised and tracked and we support
this important area with significant resources devoted to the
development, maintenance and security of IT systems.
42
Link to Strategy
Improving and developing our product ranges
Focusing on customer experience and satisfaction
Maximising the profitability of retail selling space
Maintaining the Group’s financial strength
Increasing the number of profitable NEXT
Online customers
Managing margins
Generating and returning surplus cash to shareholders
Description of principal risk or uncertainty
Business strategy development and implementation
How the risk or uncertainty is managed or mitigated
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,
taking into account specific retail sector risk, in order
to deliver long term growth for the benefit of NEXT’s
stakeholders.
The Board reviews business strategy on a regular basis to determine
how sales and profit budgets can be achieved or bettered, and
business operations made more efficient. Seasonal and annual
budgets together with longer term financial objectives and cash
flow forecasts are produced.
The Board and senior management consider strategic risk factors,
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 common with other retailers we continue to experience a significant
shift by customers from shopping in retail stores to shopping online.
Longer term financial forecasts for our Retail business have therefore
been prepared and stress tested during the year (see page 31).
These forecasts provide a mechanism for ensuring that business
profitability is reviewed and managed and agreed actions are in
place to take into account changing behaviours and trends.
The Audit Committee monitors strategic and operational risk
regularly and any significant matters are reported to the Board.
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.
The Remuneration and Nomination Committees identify senior
personnel, review remuneration at least annually and formulate
packages to retain and motivate these employees, including long
term incentive schemes.
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.
43
Strategic ReportGovernanceFinancial StatementsShareholder Information
Strategic Report
Description of principal risk or uncertainty
Product design and selection
NEXT’s success depends on designing and selecting
products that customers want to buy, at appropriate
price points and in the right quantities. 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.
Key suppliers and 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.
Changes in global manufacturing capacity and costs
may impact on profit margins.
Non-compliance by suppliers with the NEXT Code of
Practice may increase reputational risk.
Warehousing and distribution
reviews
regularly
NEXT
the warehousing and
distribution operations that support the business.
Risks include business interruption due to physical
damage, access restrictions, breakdowns, capacity
shortages, IT systems failure (see next page), inefficient
processes and third-party failures.
How the risk or uncertainty is managed or mitigated
Executive directors and senior management continually review the
design, selection and performance of NEXT’s own product ranges
and those of other brands sold by NEXT. To some extent, product
risk is also mitigated by the diversity of NEXT’s ranges.
In addition, executive directors and senior management regularly
review product range trends to assess and correct any key selection
or product issues. Corrections to significant missed trends or poorer
performing ranges are targeted for amendment, with alternative
products being sourced within six months where deemed necessary.
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 offer.
The Group’s risk assessment procedures for key suppliers identify
alternatives and develop contingency plans in the event of key
supplier failure.
Existing and new sources of product supply are developed in
conjunction with NEXT Sourcing, external agents and/or direct
suppliers.
NEXT carries out regular inspections of its suppliers’ operations to
ensure compliance with the standards set out in this Code; covering
production methods, employee working conditions, quality control
and inspection processes. Further details can be found on page 49.
NEXT 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.
NEXT also monitors and reviews stock availability on an ongoing
basis to ensure that issues are identified and appropriate action is
taken where any issues are impacting service delivery to customers.
Planning processes are in place to ensure there is sufficient
warehouse handling capacity for expected future business volumes
over the short and longer terms.
Service levels, warehouse handling, inbound logistics and delivery
costs are monitored continuously to ensure goods are delivered to
our warehouses, Retail stores and Online customers in a timely and
cost efficient manner.
During the year we reviewed our warehousing and logistics
operations to ensure that we proactively manage changes in our
customer demand between Retail stores and Online customers.
Business continuity plans and insurance are in place to mitigate the
impact of business interruption.
44
Description of principal risk or uncertainty
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,
effective call centres, operating successful marketing
strategies, and providing both Retail and Online
customers with service levels that meet or exceed
their expectations.
How the risk or uncertainty is managed or mitigated
Market research and customer feedback is used to assess customer
opinions and satisfaction levels to help to ensure that staff remain
focused on delivering excellent customer service.
The Group continuously monitors website and call centre operations
that support the business to ensure that there is sufficient capacity
to handle volumes.
Call centre employees receive comprehensive and relevant training
on an ongoing basis, targeting our service to be at its highest
possible levels.
The Company is continuing to invest in the development of our UK
and overseas websites. These developments are formally appraised
and are designed to further improve the online customer experience.
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.
The predominantly leased store portfolio is actively managed by
senior management, with openings, refits and closures based on
store profitability and cash payback criteria.
Regular reviews of lease expiry and break clauses are undertaken
to identify opportunities for exit or renegotiation of commitments.
Profiling of the Group’s lease commitments is also regularly reviewed
by the Board.
NEXT will continue to invest in new space where its financial criteria
are met, and will renew and refurbish its existing portfolio when
appropriate.
Information security, business continuity and 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 investment to prevent obsolescence and maintain
responsiveness. The threat of unauthorised or malicious
attack is an ongoing risk, the nature of which is constantly
evolving and becoming increasingly sophisticated.
Systems’ vulnerability and penetration testing is carried out regularly
to ensure that data is protected from corruption or unauthorised
access or use.
Critical systems are reviewed and tested periodically to ensure they
have backup facilities and business continuity plans in place; these
are updated on an ongoing basis to reflect business risk.
Major incident simulations and business continuity tests are carried
out periodically.
IT risks are also managed through the application of internal policies
and change management procedures, contractual service level
agreements with third-party suppliers, and IT capacity management.
The Audit Committee and Board received updates and agreed
appropriate actions relating to cyber risk and business continuity
during the year (see page 42).
As the nature of cyber attack risk is constantly changing and
becoming ever more sophisticated, NEXT continually works towards
improving mitigating controls and supports significant resource and
investment in this area, including employee data security awareness
training (see page 42 regarding the independent cyber risk follow
up review undertaken during the year).
45
Strategic ReportGovernanceFinancial StatementsShareholder Information
Strategic Report
Description of principal risk or uncertainty
Financial, treasury, liquidity and 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
facilities are
level of debt. Adequate
therefore required to support the operational needs of
the business.
financing
How the risk or uncertainty is managed or mitigated
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 counterparty 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 24 of
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 Online customer receivables, which
at £1.1bn represents the largest item on the Group
Balance Sheet.
Rigorous procedures are in place with regard to the Group’s credit
account customers, including the use of external credit reference
agencies and applying set risk criteria before acceptance. These
procedures are regularly reviewed and updated.
The Audit Committee received a formal update regarding the
customer credit business during the year.
46
Viability Assessment
The directors have assessed the prospects of the Group by reference to its current financial position, its recent and historical financial
performance and forecasts, and the principal risks and mitigating factors described above. In addition, the Board regularly reviews
the financing position of the Group and its projected funding position and requirements. The Group is operationally and financially
strong and has a track record of consistently generating profits and cash, which is expected to continue. The directors review cash
flow projections on a regular basis. This included a recent review by the Audit Committee of three year cash projections which
were stress tested to determine the extent to which trading cash flows would need to deteriorate before breaching the Group’s
facilities, both before and after anticipated shareholder distributions. In addition, the likelihood and impact of severe but plausible
scenarios in relation to the principal risks were assessed, as described on pages 42 to 46, both individually and collectively, taking into
consideration mitigating actions that might be undertaken in particular situations.
Whilst the principal risks all have the potential to affect future performance, none of them are considered likely either individually or
collectively to threaten the viability of the business over the three year assessment period.
The retail sector is inherently fast paced, competitive and dynamic, particularly in respect of the fashion product cycle. However, as
illustrated in the diagram below, a wide variety of other time horizons are also relevant in the management of the business:
1 year
2 years
3 years
5 years
7 years
10 years+
Detailed
budgets
and forecasts
Target payback
period for
new stores
Cash flow
forecasts
Medium term
financing
considerations
Weighted
average
remaining
lease life
Logistics capacity planning
Retail space planning
Share-based incentives
Long term
investment and
financing
considerations
New lease
commitments
Pensions
Fashion lifecycle
Currency hedging
Management succession planning
IT systems development
The directors have assessed the viability of the Group over a three year period, as they believe this strikes an appropriate balance
between the different time horizons which are used in the business and is a reasonable period for a shareholder to expect a fashion
retail business to be assessed upon. Based on this review, the directors confirm that they have a reasonable expectation that the
Group will continue in operation and meet its liabilities as they fall due over this period.
47
Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report
Further information regarding our employees, social, community
and human rights, and environmental matters is provided in our
latest Corporate Responsibility Report available on our corporate
website at www.nextplc.co.uk.
Gender pay
NEXT published its first Gender Pay Report in March 2018.
The report can be found at www.nextplc.co.uk.
Employees
NEXT’s employees are integral to achieving its business
objectives and the Company actively takes steps to attract and
retain the right people to work at every level throughout the
business. NEXT has established policies for recruitment, training
and development of personnel and is committed to achieving
excellence in health, safety, welfare and the protection of
employees and their working environment.
Equal opportunities and diversity
NEXT is an equal opportunities employer and will continue to
ensure that 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 and in accordance with relevant legislation. The Group
continues the employment wherever possible of any person
who becomes disabled during their employment, providing
assistance and modifications where possible. Opportunities for
training, career development and promotion do not operate
to the detriment of disabled employees. Further details of our
diversity policy are included in the Nomination Committee
Report on page 66.
The following charts show 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
4
4
6
5
13
12
26
29
Total employees
2018
2017
Male
Female
Male
Female
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 10,000 employees held options or awards in
respect of 6.1m shares in NEXT at the end of January 2018,
being 4.2% of the total shares then in issue. Its employee share
ownership trust (ESOT) purchases shares for issue to employees
when their options are exercised or awards vest. At the year end
the ESOT held 4.8m shares; the Trustee generally does not vote
on this holding on any resolution at General Meetings.
Pension provision
NEXT provides pension benefits to participating employees,
details of which are set out in the Remuneration Report and in
Note 18 of the financial statements. At January 2018, there were
878 (2017: 943) active members in the defined benefit section of
the 2013 NEXT Group Pension Plan and 2,977 (2017: 2,949) UK
active members of the defined contribution section. In addition,
15,413 employees (2017: 15,033) participate in the Group’s auto
enrolment defined contribution scheme.
Taxation
NEXT manages its tax affairs responsibly and proactively
to comply with tax legislation. We seek to build solid and
constructive working relationships with all tax authorities. NEXT’s
UK tax policy can be found at www.nextplc.co.uk.
13,973
14,860
31,037
28,923
48
Social, Community and
Human Rights
NEXT is committed to the principles of responsible business by
addressing key business related social, ethical and environmental
matters. Senior directors and managers representing key areas of
the business take responsibility for corporate responsibility and
sustainability. NEXT strives continually to make improvements by:
• acting in an ethical manner;
• recognising, respecting and protecting human rights;
• developing positive relationships with our suppliers and
business partners;
• recruiting and retaining responsible employees;
• taking responsibility for our impact on the environment; and
• delivering support through donations to charities and
community organisations.
A third-party provides independent assurance on the Group’s
Corporate Responsibility Report which is published on our
corporate website (www.nextplc.co.uk). NEXT is also a member
of the FTSE4Good Index Series.
Human rights
NEXT recognises its responsibility to respect human rights
throughout its operations. We are committed to ensuring that
people are treated with dignity and respect by upholding
internationally recognised human rights principles encompassed
in the Universal Declaration of Human Rights and the International
Labour Organisation’s Declaration on Fundamental Principles
and Rights at Work.
Our approach is to implement the United Nations Guiding
Principles on Business and Human Rights (UN Guiding Principles).
As a business we seek to avoid infringing the human rights of
others and work to address any adverse human rights impacts
we identify. Our corporate responsibility reporting aligns with the
United Nations Guiding Principles Reporting Framework.
NEXT takes seriously any allegation of human rights abuse in
all its forms and will not tolerate human rights abuse anywhere
in its operations. We have developed training and awareness
initiatives for our employees, suppliers, business partners and
service providers which were first implemented in 2017.
For further information, refer to the NEXT Human Rights and
Modern Slavery Policy and the latest Corporate Responsibility
Report at www.nextplc.co.uk. In line with the requirements
of the Modern Slavery Act 2015, our second annual modern
slavery statement will be published on our corporate website
during 2018.
Suppliers
NEXT continues to focus on its supply chain as it recognises that
there is potential for human rights issues to arise in this area.
In common with other retailers, NEXT’s product supply chain is
both diverse and dynamic. During the year, NEXT products were
sourced from over 1,500 direct and indirect (i.e. sourced via agents)
suppliers, with products manufactured in around 40 countries.
The challenge of trading ethically and acting responsibly towards
the workers in our own and our suppliers’ factories is a key priority
which is managed by the NEXT Code of Practice (COP) Team,
made up of 47 employees based in key sourcing locations.
NEXT’s COP programme is based on the Ethical Trading
Initiative base code and international labour conventions and
has nine key principles that stipulate the minimum standards
with which suppliers are required to comply. The COP team
continue to deliver training to our product teams, other relevant
employees and to third parties providing NEXT product,
ensuring they understand the vital role they play in our ethical
trading programme.
The COP team carried out over 1,900 factory audits in 2017/18 and
work directly with suppliers to identify and address causes of non-
compliance. NEXT also recognises the importance of partnership
and collaboration, both with our suppliers and with other brands
and organisations, to work to resolve some of the more complex
problems which we are unable to solve alone. Traceability and
transparency of our suppliers’ factories is an important part of
NEXT’s overall approach to corporate responsibility. We have
published a list of our suppliers’ manufacturing sites producing
NEXT branded products at www.nextplc.co.uk.
Customers
NEXT is committed to offering stylish, quality products to its
customers which are well made, functional, safe and are sourced
in a responsible manner. NEXT technologists work closely with
buyers, designers and suppliers to ensure its 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 our stores or
online. NEXT Customer Services interacts with Retail and Online
customers to resolve enquiries and issues. Findings are reviewed
and the information is used by other areas of the business to
review how products or services can be improved.
Health and safety
NEXT recognises the
importance of health and safety.
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. Policies and procedures are reviewed
and audited regularly.
49
Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report
Supporting charity and 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
Political donations
No donations were made for political purposes (2017: £nil).
Environmental Matters
2018
£000
1,065
13
92
2018
£000
221
1,836
372
52
2017
£000
1,020
46
103
2017
£000
53
1,730
441
55
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. In 2016/17, we set the
following five year targets which will be measured in relation to the financial years 2016/17 through to 2020/21 inclusive:
Focus
Energy use and emissions from stores,
warehouses, distribution centres and offices.
Waste created in stores, warehouses,
distribution centres and offices.
Five year target: 2016/17 to 2020/21
Electricity consumption: -10% reduction
in kg CO2e/m2 over the five year period.
To divert more than 95% of operational
waste from landfill.
2017/18 progress
-31%* reduction in kg CO2e/m2.
90% of operational waste diverted
from landfill.
* a reduction of 22% is attributable to the improvement in the emission factor provided by DEFRA.
Greenhouse gas emissions
In accordance with the disclosure requirements for listed companies under the Companies Act 2006, 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
2018
Tonnes
of CO2
equivalent
48,157
89,687
137,844
33.48
2017
Tonnes
of CO2
equivalent
52,901
109,584
162,485
39.28
Further information regarding environmental matters will be published in our Corporate Responsibility Report issued later in 2018.
Find out more on our website by visiting www.nextplc.co.uk/corporate-responsibility
50
Methodology
The methodology used to calculate our emissions is based on operational control in accordance with 2017 BEIS/DEFRA using
Guidelines WRI/WBCSD GHG Reporting Protocols (Revised edition) and 2016 Scope 2 Guidelines.
NEXT remains committed to reducing its carbon footprint by reducing energy consumption throughout its operations, minimising
and recycling waste and cutting transport emissions. Further detailed information on NEXT’s global emissions footprint can be found
in our Corporate Responsibility Report on our corporate website at www.nextplc.co.uk.
On behalf of the Board
Amanda James
Director
23 March 2018
51
Strategic ReportGovernanceFinancial StatementsShareholder Information
52
53
GOVERNANCE54 Directors’ Report including Annual General Meeting & Other Matters 61 Directors’ Responsibilities Statement 62 Corporate Governance 66 Nomination Committee Report 67 Audit Committee Report 71 Remuneration Report 94 Independent Auditor’s ReportStrategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Report
Directors and Officers
Michael Roney
CHAIRMAN
Lord Wolfson of Aspley Guise
CHIEF EXECUTIVE
EXECUTIVE DIRECTOR
Amanda James
GROUP FINANCE DIRECTOR
EXECUTIVE DIRECTOR
Michael joined the Board as Deputy
Chairman in February 2017 and became
Chairman in August 2017. He is also
Chairman of Grafton Group plc and
a non-executive director of US firm
Brown-Forman Corporation. Michael has
extensive business experience; he was
previously the Chief Executive of Bunzl plc
from 2005 until his retirement in April 2016,
Chief Executive of Goodyear Dunlop Tires
Europe BV and non-executive director of
Johnson Matthey plc.
Simon joined the Group in 1991 and
was appointed Retail Sales Director in
1993. He became responsible for NEXT
Directory in 1995 and was appointed
to the Board in 1997 with additional
responsibilities for Systems. Simon was
appointed Managing Director of the NEXT
Brand in 1999 and Chief Executive in 2001.
Amanda 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.
APPOINTED TO THE BOARD
February 2017
APPOINTED TO THE BOARD
February 1997
APPOINTED TO THE BOARD
April 2015
COMMITTEE MEMBERSHIP
Remuneration and
Nomination (Chairman)
Michael Law
GROUP OPERATIONS DIRECTOR
EXECUTIVE DIRECTOR (to 17 May 2018)
Jane Shields
GROUP SALES AND
MARKETING DIRECTOR
EXECUTIVE DIRECTOR
Michael joined the Group in 1995 as Call
Centre Manager for the NEXT Directory.
Michael was appointed Call Centre
Director in 2003 and in 2006 became
responsible 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.
Michael will step down from the Board on
17 May, immediately after the 2018 AGM.
Jane 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 was
given additional responsibility for Retail
Marketing and in 2010 was appointed
Group Sales and Marketing Director,
adding Directory and online marketing to
her portfolio.
Richard Papp
GROUP MERCHANDISE AND
OPERATIONS DIRECTOR
EXECUTIVE DIRECTOR (from 14 May 2018)
joined NEXT
in 1991 as a
Richard
Merchandiser. Richard worked
his
way through management, becoming
in 2001.
Menswear Product Director
In 2005 he gained valuable experience
in a similar role at another retailer.
Richard returned to NEXT
in 2006
and has since that time been Group
Merchandise Director, responsible for
NEXT’s Merchandising function, Product
Systems,
International Franchise, and
Clearance operations.
APPOINTED TO THE BOARD
July 2013
APPOINTED TO THE BOARD
July 2013
WILL BE APPOINTED TO THE BOARD
May 2018
54
Francis Salway
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
Jonathan Bewes
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Company Secretary
Seonna Anderson
Francis is also Chairman of Town & Country
Housing Group, Chairman of the Property
Advisory Group for Transport for London, a
non-executive director of Cadogan Group
Limited and a Visiting Professor in Practice
at the London School of Economics.
Formerly Chief Executive of Land
Securities Group plc and past president of
the British Property Federation.
After qualifying as a Chartered Accountant
with KPMG, Jonathan spent 25 years in
investment banking, with Robert Fleming,
UBS and Bank of America Merrill Lynch.
As a senior banker, he has provided advice
to the Boards of many UK and overseas
companies on a wide range of financial
and strategic issues, including financing,
M&A and general corporate matters.
In April 2017 he joined Standard Chartered
Bank as Vice Chairman, Corporate and
Institutional Banking. Jonathan is a Fellow
of the Institute of Chartered Accountants
of England and Wales.
APPOINTED TO THE BOARD
June 2010
APPOINTED TO THE BOARD
October 2016
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
COMMITTEE MEMBERSHIP
Audit (Chairman), Remuneration and
Nomination
Past Directors
John Barton
CHAIRMAN
APPOINTED TO THE BOARD
February 2002
RETIRED FROM THE BOARD
1 August 2017
Steve Barber
INDEPENDENT
NON-EXECUTIVE DIRECTOR
APPOINTED TO THE BOARD
June 2007
RETIRED FROM THE BOARD
18 May 2017
Caroline Goodall
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Dame Dianne Thompson
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Caroline is also a Trustee of the National
Trust and Chair of its Audit Committee.
She was previously an independent non-
executive on the Partnership Board of the
accountancy firm Grant Thornton UK LLP
for seven years until June 2017 and 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.
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 also a Trustee
of the Born Free Foundation.
APPOINTED TO THE BOARD
January 2013
APPOINTED TO THE BOARD
January 2015
COMMITTEE MEMBERSHIP
Audit, Remuneration (Chairman) and
Nomination
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
Board Committees
Audit Committee
Steve Barber (Chairman to 18 May 2017)
Jonathan Bewes (Chairman from
18 May 2017)
Caroline Goodall
Francis Salway
Dame Dianne Thompson
Remuneration Committee
Caroline Goodall (Chairman)
Jonathan Bewes
Michael Roney
Francis Salway
Dame Dianne Thompson
Nomination Committee
Michael Roney (Chairman)
Jonathan Bewes
Caroline Goodall
Francis Salway
Dame Dianne Thompson
55
Strategic ReportGovernanceFinancial StatementsShareholder Information 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 and the use of derivatives is given in Notes
24 to 27 of the financial statements.
and valuable member of the Board. The Board is satisfied that
each non-executive director offering themselves for re-election
is independent in both character and judgement, and that their
experience, knowledge and other business interests enable them
to contribute significantly to the work and balance of the Board.
The interests of the directors who held office at 27 January 2018
and their connected persons are shown in the Remuneration
Report on page 80.
Annual General Meeting
& Other Matters
Notice of the Annual General Meeting (AGM) is on pages
154 to 159 and includes the following business:
Dividends
The directors recommend that a final dividend of 105p per
share be paid on 1 August 2018 to shareholders on the register
of members at close of business on 6 July 2018. This resolution
relates only to the final dividend. The directors may decide to pay
special dividends in line with the Company’s policy of returning
surplus cash generated from operations to shareholders
via special dividends or share buybacks. Any such special
dividends will be paid 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, refer to Note 23 of the financial statements.
Directors
Directors’ biographies are set out on pages 54 and 55.
Michael Law, Group Operations Director, will step down from the
Board at the close of the 2018 AGM, prior to retiring from the
business in July 2018. Michael, accordingly, will not stand for re-
election as a director at the AGM.
In February 2018, the Company announced that Richard Papp
will succeed Michael Law on the Board and will be appointed as
an executive director with effect from 14 May 2018. Richard will
stand for election at the 2018 AGM and, subject to the outcome
of that process, will become Group Merchandise and Operations
Director. Richard has been with NEXT for over 25 years and has
been Group Merchandise Director since 2006, responsible for
NEXT’s Merchandising function, Product Systems, International
Franchise, and Clearance operations. He has worked extremely
closely with our Warehousing, Logistics and Systems teams to
develop our online platform and is perfectly placed to lead the
continued development of the Group’s operations.
The UK Corporate Governance Code (the “Code”) recommends
that all directors of FTSE companies stand for election every year
and all members of the Board, other than Michael Law, will do so
at this year’s AGM. Each of the directors standing for re-election
has undergone performance evaluation and has demonstrated
that they remain committed to their role (including making
sufficient time available for Board and Committee meetings
and other duties as required) and continue to be an effective
Auditor
The Company is required to appoint auditors at each general
meeting at which its report and accounts are presented to
shareholders. PricewaterhouseCoopers LLP, having been first
appointed at the 2017 AGM following a tender process during
2016, has expressed its willingness to continue in office and its re-
appointment will be proposed at the 2018 AGM. This resolution
also proposes that the auditor’s remuneration be determined by
the directors. In practice, the Audit Committee will consider and
approve the audit fees on behalf of the Board in accordance with
the Competition and Markets Authority Audit Order.
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.
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 14 seeks a new authority to allow
the directors to allot ordinary shares up to a maximum nominal
amount of £4,700,000, representing approximately one third of
the Company’s existing issued share capital as at 22 March 2018.
In accordance with institutional guidelines, resolution 14 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 £9,500,000, representing approximately two
thirds of the Company’s existing issued share capital as at that
date. As at 22 March 2018 (being the latest practicable date
prior to publication of this document) the Company’s issued
share capital amounted to £14,347,898 comprising 143,478,977
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
2019 or, if earlier, 17 August 2019.
56
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 21,521,000 ordinary shares
of 10p each (being less than 15% of the issued share capital
at 22 March 2018) 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 is an
amount not more than the higher of: (i) 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 (ii) an amount equal to the higher of
the price of the last independent trade of an ordinary share of
the Company and the highest current independent bid for an
ordinary share of the Company as derived from the London
Stock Exchange Trading system; and
c. the renewed authority will expire at the AGM in 2019 or, if
earlier, 17 August 2019.
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 Company has no warrants in issue in relation to its shares and
no options to subscribe for its shares outstanding. Exercise of
all outstanding employee share options and share awards will
be satisfied by the transfer of market-purchased shares from the
ESOT (refer to Note 23 of the financial statements).
Authority to disapply
pre-emption rights
Special resolution 15 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
£717,000, representing 5% of the issued ordinary share capital
of the Company as at 22 March 2018 (excluding treasury shares).
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.
In March 2015, the Pre-Emption Group issued a revised Statement
of Principles stating that an allotment of up to an additional 5% of
the issued ordinary share capital of the Company may be made
on a non pre-emptive basis if that allotment is in connection with
an acquisition or specified capital investment (within the meaning
given in the Pre-Emption Group’s Statement of Principles) which
is announced at the same time as the allotment, or which has
taken place in the six month period before and is disclosed in the
announcement of the allotment. Special resolution 16 seeks this
separate and additional authority.
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 (excluding treasury
shares) under this or previous authorities in any rolling three year
period without prior consultation with shareholders, except in
connection with an acquisition or specified capital investment.
The directors do not have any present intention of exercising
this authority which will expire at the AGM in 2019 or, if earlier,
17 August 2019.
On-market purchase of own shares
NEXT has been returning capital to its shareholders through
share repurchases as well as special and ordinary dividends
since March 2000 as part of its strategy for delivering sustainable
long term returns to shareholders. Over this period, and up to
22 March 2018, NEXT has returned over £3.8bn to shareholders
by way of share buybacks and over £3.3bn in dividends, of which
£907m 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 £631m in capital expenditure to
support and grow the business.
57
Strategic ReportGovernanceFinancial StatementsShareholder Information 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 £200m.
The principal features of the contracts are set out in the
appendix 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 Slaughter
and May, One Bunhill Row, EC1Y 8YY 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 2017,
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 2019. 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
conducted at the meeting and the interests of the Company and
its shareholders as a whole.
Recommendation
The Board are of the opinion that all resolutions which are to
be proposed at the 2018 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 they vote
in favour of the resolutions.
Directors’ Report
Off-market purchases of
own shares
The directors consider that share buybacks are an important
means of returning value to shareholders and maximising
sustainable
in Earnings Per Share.
Contingent contracts for off-market share purchases offer
a number of additional benefits compared to on-market
share purchases:
term growth
long
• 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 2017 AGM up to 22 March 2018.
• 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 closed
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.
58
Share capital and major shareholders
Details of the Company’s share capital are shown in Note 20 of the financial statements.
The Company was authorised by its shareholders at the 2017 AGM to purchase its own shares. During the year the Company
purchased and cancelled 2,174,357 ordinary shares with a nominal value of 10p each (none of which were purchased off-market), at a
cost of £106.1m and representing 1.5% of its issued share capital at the start of the year.
At the financial year end 27 January 2018, the Company had 144,882,205 shares in issue. Subsequent to the end of the financial year
and before the start of the closed period, the Company purchased for cancellation 1,403,228 of its own shares at a cost of £69.1m.
As at 22 March 2018 the number of shares in issue was 143,478,977.
As at 27 January 2018, the Company had been notified under the Disclosure and Transparency Rules (DTR 5) of the following
notifiable interests in the Company’s issued share capital. The information provided below was correct at the date of notification.
These holdings are likely to have changed since the Company was notified, however notification of any change is not required until
the next notifiable threshold is crossed:
FMR LLC (Fidelity)
BlackRock, Inc.
Invesco Limited
NEXT plc Employee Share Option Trust
Notifications received as at 27 January 2018
No. of voting
rights at date of
notification
17,638,953
15,449,829
14,446,360
4,484,874
% of voting rights
at date of
notification
11.99
9.97
9.89
3.05
Nature of
holding
Indirect interest
Indirect interest
Indirect interest
Direct interest
Date of
notification
29 June 2017
8 January 2014
4 January 2018
8 May 2017
The following notification was received after 27 January 2018 up to 22 March 2018:
Invesco Limited
No. of voting
rights at date of
notification
14,391,788
% of voting rights
at date of
notification
10.03
Nature of
holding
Indirect interest
Date of
notification
12 March 2018
59
Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Report
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 2018 AGM will be
on a poll. The Notice of Meeting on pages 154 to 159 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 closed periods)
and requirements of internal rules and procedures whereby
directors and certain employees of the Company require prior
approval to deal in the Company’s securities.
The Company’s Articles 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, 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 2018 AGM other than
Michael Law (refer to page 66).
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. However, in the event of a change of control,
the Company’s medium term borrowing facilities will be subject
to early repayment in full if a majority of the lending banks give
written notice or in part if a lending bank gives written notice
following a change of control.
In addition, the holders of the Company’s corporate bonds will
be entitled to call for redemption of the bonds by the Company
at their nominal value together with accrued interest in the
following circumstances:
• should a change of control cause a downgrading in the credit
rating of the Company’s corporate bonds to sub-investment
grade and this is not rectified within 120 days after the change
of control; or
• if already sub-investment grade, a further credit rating
downgrade occurs and this is not rectified within 120 days
after the change of control; or
• if the bonds at the time of the change of control have no credit
rating and no investment grade rating is assigned within 90
days after the change in control.
The Company’s share option plans, and its Long Term Incentive
Plan, 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 Guidance 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:
Publication of unaudited financial
information
In January 2018, NEXT published a Profit Before Tax (PBT) forecast for the year to
January 2018 of £718m to £732m. Actual PBT for the period was £726.1m.
Shareholder waivers of dividends
The NEXT Employee Share Ownership Trust waived its rights to receive dividends
during the year.
No further LR 9.8.4 disclosures are required.
By order of the Board
Amanda James
Group Finance Director
23 March 2018
60
Directors’ Responsibilities Statement
Directors’ Responsibilities
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;
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;
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; and
d. the Parent Company financial statements, which have been
prepared in accordance with UK Accounting Standard FRS
101 “Reduced disclosure framework”, give a true and fair
view of the assets, liabilities, financial position and results of
the Company.
On behalf of the Board
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
23 March 2018
The directors are responsible for preparing the Annual Report
and Accounts 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 the 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;
• 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.
61
Strategic ReportGovernanceFinancial StatementsShareholder Information
Corporate Governance
Chairman’s Introduction
Corporate governance, especially directors’ duties, diversity and remuneration, has remained in the spotlight in 2017. The Board is
very mindful of its responsibilities in this area and will continue to develop and refine its approach and practices.
The Board considers the culture at NEXT to be an essential ingredient in meeting our objective of delivering long term, sustainable
returns to shareholders. We have a very hands on executive team who work day-to-day with senior management to drive a clear
focus on product quality and value, and on meeting or exceeding the expectations of our customers regarding their experience and
satisfaction. Our directors and senior management promote NEXT’s culture and standards throughout the business and lead by
example to provide a strong corporate governance framework.
NEXT has a long history of creating shareholder value against the backdrop of challenging and changing external environments.
This is the ultimate measure of our success and is supported by our strong corporate governance structure and an effective
management team. In a challenging trading environment, we remain committed to a robust approach to governance which has
served the business well.
Michael Roney
Chairman
23 March 2018
Compliance with UK
Corporate Governance
Code
The Company complied throughout the year under review with
the provisions set out in the 2016 UK Corporate Governance
Code (the “Code”) which is the version of the Code that applies
to its 2017/18 financial year. The sections below detail how the
Company has complied with the Code, which is available from
the Financial Reporting Council website at www.frc.org.uk.
These disclosures are ordered into the sections as they appear
in the Code.
Disclosures required by the Disclosure Guidance and Transparency
Rules 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 on pages 60 and
61. Disclosures required by DTR 7.2.8 relating to diversity policy
are presented in the Nomination Committee Report on page 66.
Directors’ biographies and membership of Board Committees
are set out on pages 54 and 55.
A. Leadership
A.1 Role of the Board
The Board is collectively responsible for the long term success of
the Company and for setting and executing the business strategy.
The Board is responsible for providing effective leadership whilst
delegating more detailed matters to its Committees and officers
including the Chief Executive. The Board sets strategic priorities
and oversees their delivery in a way that enables sustainable long
term growth. The Board is responsible for setting and monitoring
the Group’s risk appetite and the system of risk management and
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 investments, treasury and dividend policies and
significant items of capital expenditure. 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 programmes. Board papers including reports from
the Chief Executive and other executive directors are circulated
in advance of each Board meeting.
In addition, our executive directors drive forward operational
business strategies by way of attendance at key trading meetings
and working closely with our business areas on a day-to-day
basis. This style of management serves to align with our risk
management framework and facilitates senior management
setting the tone from the top.
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 their 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 and other senior
management 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, weekly and monthly.
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Attendance at Board and Committee meetings
The Board held ten formal meetings during the year, the Audit
Committee held four meetings, the Remuneration Committee
held five meetings and the Nomination Committee held one
meeting. All meetings were fully attended by the relevant Board
or Committee members.
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
were last reviewed and updated in January 2018 and are available
on our corporate website or on request.
Audit Committee
The Committee consists of the four
independent non-
executive directors and at least one member (Jonathan Bewes,
the Committee Chairman) has recent and relevant financial
experience. The Audit Committee Report on pages 67 to 70
describes the role and activities of the Committee.
Remuneration Committee
The Committee consists of the Chairman and all four of the
independent non-executive directors and is chaired by Caroline
Goodall. The Committee determines the remuneration of the
executive directors in accordance with the Remuneration Policy
and reviews the remuneration of senior management. Page 86 of
the Remuneration Report summarises the role and activities of
the Committee.
Nomination Committee
The Committee consists of the Chairman and all four of the
independent non-executive directors. The Committee meets
whenever necessary to consider succession planning for directors
and other senior executives and to ensure that requisite skills and
expertise are available to the Board to address future challenges
and opportunities. The Nomination Committee Report on page
66 summarises the role and activities of the Committee and
describes the Board appointment process and its approach
to diversity.
A.2 Division of responsibilities
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 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.
A.3 The Chairman
The role of Chairman is to lead the Board, ensuring it operates
effectively and contains the right balance of skills and experience.
He is also responsible for promoting a healthy culture of
openness, challenge and scrutiny, and ensuring constructive
relations between executive and non-executive directors.
Michael Roney succeeded John Barton as Chairman when
he retired on 1 August 2017. Michael met the independence
requirements set out in the UK Corporate Code on appointment.
His other significant commitments are noted on page 54, and
the Board considers that these are not a constraint on his agreed
time commitment to the Company.
A.4 Non-executive directors
Francis Salway
Independent Director.
Meetings of the non-executive directors without the executive
directors being present are held at least annually, both with and
without the Chairman.
is our Senior
B. Effectiveness
B.1 Composition of the Board
The Board currently includes four independent non-executive
directors and the Chairman who all bring considerable knowledge,
judgement and experience to the Group. As is best practice, we
continually assess and refresh the Board to ensure we maintain an
appropriate balance of skills and experience and the Board has a
good record of recruiting new non-executive directors at regular
intervals to achieve appropriate rotation and continuity.
There were a number of changes to the Board during the year.
After fifteen years on the Board, John Barton retired as Chairman
on 1 August 2017 and was succeeded at that time by Michael
Roney. Michael had been appointed on 14 February 2017 as a non-
executive director, Deputy Chairman and Chairman Designate.
Steve Barber stepped down from the Board at the end of
the 2017 AGM after serving on the Board for ten years.
At that time, Jonathan Bewes succeeded him as Chairman of the
Audit Committee.
The Board also appointed Richard Papp as an executive director
with effect from 14 May 2018. Richard will succeed Michael Law
when he steps down from the Board at the end of the 2018
AGM. Further details about his appointment are provided in the
Nomination Committee Report on page 66.
Francis Salway is our longest serving non-executive director,
having first been elected at the 2011 AGM. The Code requires
that any term beyond six years for a non-executive director should
be subject to a particularly rigorous review, and should take
into account the need for progressive refreshing of the Board.
After giving thorough consideration to the matter, the Board
consider that Francis Salway’s independence, skills and experience
allow him to continue to make a very effective contribution as a
non-executive director and Senior Independent Director.
The Board also 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.
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B.2 Appointments to the Board
For information on the procedure for appointment of new
directors to the Board, and the role of the Nomination Committee
in this process, refer to the Nomination Committee Report on
page 66.
B.3 Commitment
Following the Board evaluation process, detailed further below,
the Board is satisfied that each of the directors is able to allocate
sufficient time to the Company to discharge their responsibilities
effectively. No executive director holds any non-executive
directorships outside the Group.
Contracts and letters of appointment of directors are made
available at the AGM, and are available for inspection at the
Company’s registered office during normal business hours or
on request.
B.4 Development
On joining the Board, new members receive a personalised
induction, tailored to their experience, background and
understanding of the Group’s operations. Individual training and
development needs are reviewed as part of the annual Board
evaluation process and training is provided where requested or
a need is identified. All directors receive frequent updates on
a variety of issues relevant to the Group’s business, including
legal, regulatory and governance issues, with visits to stores
and warehouse operations organised periodically to assist
with directors’ understanding of the operational aspects of
the business.
B.5 Information and support
There is a regular flow of written and oral information between
all directors irrespective of the timing of Board meetings.
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.
Should directors judge it necessary to seek independent advice
about the performance of their duties with the Company, they
are entitled to do so at the Company’s expense. Details of
professional assistance in relation to Remuneration Policy matters
are shown on page 86.
B.6 Evaluation
This year an internal evaluation of the Board and Committees was
completed with the process being facilitated by the Company
Secretary. The review covered all aspects of the effectiveness of
the Board and its Committees including composition, experience,
dynamics, the Chairman’s leadership, and the Board’s role and
responsibilities with particular regard to strategy, oversight of
risk and succession planning. All directors continue to be of the
opinion that the Board and its Committees were functioning
effectively and that the processes underpinning the Board’s
effectiveness remained appropriate.
An externally facilitated review was carried out
in the
2015/16 financial year by Independent Audit Limited. This
review highlighted that the Board dynamics were positive and
constructive, with a strong focus on shareholder interests and that
the non-executives have a broad range of skills and experience
and a good degree of commitment.
The Board intends to conduct the next externally facilitated
review during 2018/19, in line with the Code’s recommendation
that one is conducted every three years.
The Senior Independent Director leads the appraisal of 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.
B.7 Re-election
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 or election at each AGM in accordance
with the Code, with the exception of Michael Law who will be
stepping down from the Board at the close of the 2018 AGM.
C. Accountability
C.1 Financial and business reporting
Please refer to:
• page 61 for the Board’s statement on the Annual Report and
Accounts being fair, balanced and understandable;
• page 99
for details of
the
Independent Auditor’s
responsibilities; and
• pages 38 and 39 of the Strategic Report for an explanation of
the Company’s business model and strategy for delivering the
objectives of the Company.
Going concern and viability assessment
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, which also describes the
Group’s financial position, cash flows and borrowing facilities.
Further information on these areas 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 24 of the
financial statements.
The directors report that, having reviewed current performance
and forecasts, they have a reasonable expectation that the
Group has adequate resources to continue its operations for the
foreseeable future. For this reason, they have continued to adopt
the going concern basis in preparing the financial statements.
The directors have also assessed the prospects of the Company
over a three year period. Further details of the viability assessment
are provided on page 47.
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C.2 Risk management
and internal control
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 and promoting a risk
aware culture throughout the business.
The Board has carried out a robust assessment of the principal
risks facing the Company and has also conducted an annual
review of the effectiveness of the systems of internal control
during the year. Please refer to page 42 in the Strategic Report
for further information. 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 principal 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 principal risks (described on pages 43 to 46)
and the associated controls and mitigating factors. The Audit
Committee discusses these risks with the relevant directors and
senior management both at Committee meetings and via other
face to face meetings held during the year where required.
The Board considers that the Group’s management structure and
continuous monitoring of key performance indicators provide the
opportunity 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.
C.3 Audit Committee and auditors
For further information on the Company’s compliance with the
Code provision relating to the Audit Committee and auditors,
please refer to the Audit Committee Report on pages 69 and 70.
D. Remuneration
For further information on the Company’s compliance with the
Code provision relating to remuneration, please refer to the
Remuneration Report on pages 71 to 87.
E. Relations with shareholders
E.1 Dialogue with shareholders
The Company actively engages with investors and the Chief
Executive and Group Finance Director are involved in regular one-
to-one meetings, roadshows and conferences with institutional
investors. During the year a large number of formal investor
meetings were held, supplemented by many other calls and
meetings which Lord Wolfson and Amanda James undertook.
There is also regular communication with institutional investors
on key business issues.
The Board communicates with its shareholders in respect of the
Group’s business activities through its Annual Report, yearly and
half yearly announcements and other regular trading statements.
Full year 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 our
corporate website (www.nextplc.co.uk).
The Company’s largest shareholders are invited to the annual
and half year results presentations, at which executive and non-
executive directors are present. Non-executive directors attend
other meetings with shareholders if requested. Our shareholder
views are also communicated to the Board through regular
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.
E.2 Constructive use of the
Annual General Meeting
All shareholders have an opportunity to ask questions or represent
their views formally to the Board at the AGM, or informally with
directors after the meeting.
Other disclosures
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.
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Diversity
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.
NEXT acknowledges the benefits of diversity in terms of business
experience and individual appointments are made irrespective
of personal characteristics such as race, religion or gender.
The Committee will always seek to appoint the candidate with
the most appropriate skills and experience.
Employment positions throughout the Company are filled with
the candidates who possess the most appropriate skills and
competencies relevant for the particular job role. NEXT has a
policy to treat all employees fairly and equally regardless of
gender, sexual orientation, marital status, race, colour, nationality,
religion, ethnic or national origin, age, disability or union
membership status.
Although we do not set specific targets for diversity, women
currently represent 44% of our Board and 47% of our senior
leadership team. NEXT was ranked first in the 2017 Hampton-
Alexander Review “FTSE Women Leaders: Improving gender
balance in FTSE leadership”. Further analysis of employees by
gender is given in the Strategic Report on page 48.
Membership and meetings
The composition of the Nomination Committee is described
on page 55; Lord Wolfson is also invited to attend meetings.
The Committee held one formal meeting during the year as
well as regular informal discussions on succession plans and new
appointments to the Board.
Committee activities
The Committee’s roles and responsibilities are covered in
its Terms of Reference, which were last reviewed in January
2018. A copy of the Terms of Reference is available on our
corporate website (www.nextplc.co.uk). Annual evaluation of
the Nomination Committee’s performance is undertaken as part
of the Board evaluation process; further details are included on
page 64.
Board appointments process
The Committee adopts a formal and transparent procedure for
the appointment of new directors to the Board.
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 Nomination
Committee which then makes its recommendation for final
approval by the Board. The Nomination Committee is led by the
Senior Independent Director when dealing with the appointment
of a successor to the Board chairmanship.
New Board appointments
In February 2018, the Company announced that Michael Law will
step down from the Board at the close of the 2018 AGM, prior to
retiring from the business in July 2018. At the same time, we also
announced that Richard Papp would be appointed as an executive
director with effect from 14 May 2018. NEXT has a good track
record of internal promotions to the Board and has not made an
external appointment of an executive director for over 29 years.
Richard will stand for election at the 2018 AGM and, subject to
the outcome of that process, will become Group Merchandise
and Operations Director with effect from the end of the AGM.
Richard has been with NEXT for 25 years. He joined the Group
in 1991 as a Merchandiser, becoming a Merchandise Manager
in 1996 and was promoted to Menswear Product Director in
2001. In 2005 he gained valuable experience in a similar role at
another retailer, returning to NEXT in 2006 to take up the role
of Group Merchandise Director. In this role he is responsible for
NEXT’s Merchandising function, Product Systems, International
Franchise, and Clearance operations. He has worked extremely
closely with our Warehousing, Logistics and Systems teams to
develop our online platform and is perfectly placed to lead the
continued development of the Group’s operations.
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Audit Committee Report
Chairman’s Introduction
This is my first report as Chairman of the Audit Committee. I joined the Board in October 2016 and became Chairman of the
Committee in May 2017. My priority since then has been to invest time in visiting areas of the business, meeting with NEXT management
teams and understanding the risk management framework and internal controls of the business.
During the year the Audit Committee has continued to assist the Board in discharging its responsibilities with regard to financial
reporting, controls, internal audit and external audit. It has reviewed and challenged management on the robustness and effectiveness
of internal controls and risk management systems, ensuring that it discusses key matters directly with the relevant senior management
where necessary. In particular, this year the Committee has continued to pay attention to data and cyber security; good progress is
being made in identifying and managing these risks.
Following an audit tender during 2016 and the appointment at the 2017 AGM of PriceWaterhouseCoopers LLP (PwC), the Committee
oversaw a smooth transition from the previous auditor Ernst & Young LLP. We are pleased with the professional and effective delivery
of the first year external audit by PwC.
The significant activities of the Committee during the year are set out below.
Finally, I should also like to thank the management team at NEXT and all Audit Committee members for their work and support during
the year.
Jonathan Bewes
Chairman of the Audit Committee
23 March 2018
Membership and meetings
The composition of the Committee is described on page 55.
The Committee’s wide range of financial and commercial skills
and experience serves to provide the necessary expertise and
knowledge required for the efficient and robust working of
the Committee. The Audit Committee Chairman, a Chartered
Accountant, possesses recent and relevant financial experience
and the Committee as a whole continues to have competence
relevant to the Retail sector.
The Committee holds regular, structured meetings and consults
with external auditors and senior management, including
internal audit, where appropriate. Audit Committee members’
attendance is detailed on page 63. In addition, the Group Finance
Director attended all of this year’s meetings. 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.
Committee activities
The Committee’s roles and responsibilities are covered in its
Terms of Reference, which were last reviewed in January 2018.
A copy of the Terms of Reference is available on our corporate
website (www.nextplc.co.uk). The Committee’s main activities
during the financial year are described in the following sections.
Review of financial statements
The Committee reviews the financial statements of the Group
and assesses whether suitable accounting policies have been
adopted and whether management has made appropriate
estimates and judgements. The Committee is satisfied that the
judgements made by management are reasonable, and that
suitable accounting policies have been adopted and appropriate
disclosures have been made in the accounts.
The Committee’s review of the half year and full year financial
statements focused on the following areas of significance, all of
which were discussed and addressed with our external auditor
throughout the full year external audit process. There were no
significant differences between management and external
auditor conclusions.
a. Online customer receivables and related provisions for
doubtful debts. These, at £1.1bn, represent the largest asset
class on the Group’s Balance Sheet.
Based on detailed reports and through discussions with
management and the external auditor, the Committee
reviewed and assessed the basis and level of provisions
(£138.7m as disclosed in Note 11 of the financial statements)
and their sensitivity and is satisfied that the judgements
made were reasonable, consistent with the prior year
and appropriate.
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Audit Committee Report
in accordance with
b. Pension scheme funding, accounting and actuarial reports.
Prepared
International Accounting
Standards, the Group’s Balance Sheet shows a net surplus
of £106.2m, comprised of £936.5m assets and £830.3m
liabilities. This compares with a net surplus of £62.9m in the
previous year.
The Committee reviewed the actuarial assumptions underlying
the calculations and was satisfied that they are reasonable.
They are highly sensitive to small changes, particularly in
respect of discount rates and inflation, and are not intended
to reflect the full cost of a fully funded pension buyout (refer to
Note 18 of the financial statements).
c. Hedge accounting. Forward contracts and options are used
to manage the Sterling cost of future product purchases; this
provides certainty to the cost of purchases and therefore
enables selling prices and gross margins to be set. Interest rate
swap arrangements are used to reduce the Group’s exposure
to changes in interest rates.
The Committee discussed the systems and processes
in relation to the valuation and accounting treatment of
such contracts with management and the external auditor.
In addition, the Board reviewed and renewed the detailed
operating authority framework and limits in place for execution
of such arrangements.
d. Inventory valuation. The Committee reviewed and agreed
the methodology for calculating the net realisable values of
inventories, which has been applied consistently.
e. Other accounting estimates. The Committee reviewed reports
on the reasonableness and consistency of other estimates
in the financial statements such as product return rates and
property provisions. Through discussions with management
and the external auditor, the Committee is satisfied that they
remain appropriate and reasonable.
New accounting standards
During the year the Committee considered the potential
impact on the Group’s financial statements of three new
accounting standards:
a. IFRS 15 “Revenue from contracts with customers” will be
effective for the year ending January 2019 onwards, and will
not impact the Group’s profit. The majority of the Group’s
sales are for standalone products made direct to customers at
standard prices either in-store or online. Estimates are already
made of anticipated returns and sales awaiting delivery to
the customer. Certain income streams totalling around £30m
currently netted off costs will be recognised as statutory
revenue on transition to IFRS 15. The alternative performance
measure “total sales” will not be adjusted for the impact of
IFRS 15.
b. IFRS 9 “Financial instruments” will be effective for the year
ending January 2019 onwards, the main impact being the
impairment assessment methodology used to value our
Online customer receivables. The Group has completed an
assessment of the impact of IFRS 9 and it is expected that
adoption will not have a material impact on the Consolidated
Income Statement or Consolidated Balance Sheet. Process and
modelling amendments will be implemented in line with the
required effective date.
c. IFRS 16 “Leases” will be effective for the year ending January
2020 onwards and the impact on the financial statements will
be significant. On the adoption of IFRS 16, lease agreements
will give rise to both a right-of-use asset and a lease liability for
future lease payables. The right-of-use asset will be depreciated
on a straight-line basis over the life of the lease. Interest will be
recognised on the lease liability, resulting in a higher interest
expense in the earlier years of the lease term. There will be no
impact on cash flows although the presentation of the Cash
Flow Statement will change significantly.
The Audit Committee received regular updates from the
IFRS 16 project team to ensure all necessary steps to comply
with the requirements of this standard were being taken.
Significant work has been completed to date, including
collection of relevant data, changes to IT systems and processes
and the determination of relevant accounting policies.
The Group intends to apply the fully retrospective approach
on transition and will restate prior year comparatives.
Further details are provided in the Group Accounting Policies
section of the financial statements on page 112.
Viability statement
and going concern
The Committee performed a detailed review of the Group’s
projected cash flows, facilities and covenants which covered a
three year period (our viability assessment period). The proposed
approach was discussed and agreed by the Committee in
November 2017 and followed up in March 2018 by reviewing
the Group’s financial position and performance, budgets for
2018/19 and three year cash projections which were stress tested
for different scenarios having regard to the principal risks faced
by the business. The Committee reported to the Board that, in
its view, the going concern assumption remains appropriate.
In addition, as regards the Group’s viability assessment, the
directors confirmed that they have a reasonable expectation that
the Group will continue in operation and meet its liabilities as
they fall due over the three year review period. Further details of
this review are on page 47.
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Risk management
and internal control
The Committee regularly reviews the effectiveness of risk
management, and during the year has reviewed the key risks
together with the associated controls and mitigating factors.
Further details regarding the risk framework and approach,
together with details of NEXT’s principal risks and risk assessment
are on page 42.
Internal audit
The Committee reviewed the level of internal audit resource,
experience and expertise, and believes that it is adequate for
the size, structure and business risks of the Group and
is
resources
where needed.
supplemented with appropriate external
The Committee reviews and approves the scope of the internal
audit work plan and ensures it is aligned to the key risks of the
business. The Committee reviews the results of internal audit
work performed and meets the Head of Internal Audit without
management present to discuss the internal audit charter,
resources and audit plans. The Head of Internal Audit attends
all Audit Committee meetings and provides regular reports
and updates both to the Committee and the Audit Committee
Chairman. The Head of Internal Audit has direct access to all
Committee members and is given the opportunity to meet the
Committee Chairman and Committee members separately.
During the year the Committee Chairman met the Head of
Internal Audit twice to carry out formal reviews of the internal
audit department’s resources, approach, work performed and
results. The Committee is satisfied that the internal audit function
has continued to perform effectively during the year.
IT systems and cyber security
The operations of the Group are highly reliant on its IT systems.
The Committee asked for regular updates 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. Substantial resources are therefore devoted to the
development and security of the Group’s IT systems. Cyber risk
has been on the agenda at each Committee meeting this year.
Following the previous year’s independent cyber security review,
a cyber risk strategic plan and an independent review update
were discussed at Audit Committee meetings during the year.
Please refer to more detail provided on page 42 of the principal
risks section of the Strategic Report.
Other activities
During the year the Committee received reports and
presentations from senior management on other significant
activities of the Group, including regulatory compliance and
developments, tax, modern slavery, corporate responsibility,
suppliers and Code of Practice (ethical and responsible sourcing)
and treasury activities. The Group’s internal controls in areas
such as finance, IT and product are also regularly reviewed by
the Committee. Frequent updates are received on health and
safety, risk management, business continuity, whistleblowing and
corporate governance.
Whistleblowing
The Company’s whistleblowing procedures ensure
that
arrangements are in place to enable employees, suppliers and
other third parties to raise concerns about possible improprieties
on a confidential basis. These were reviewed and updated in
the year. The Committee requested that an update of reported
issues is provided at each Audit Committee meeting and relevant
follow up actions are discussed and agreed.
External auditor
Effectiveness
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. The Committee assessed the effectiveness
of the external audit through the review of audit plans, reports
and conclusions and through discussions with management
(both with and without the external auditor present) and with the
external auditor (both with and without management present).
As 2017/18 was PwC’s first year as the Group’s external auditor,
the Committee also paid particular attention to ensuring that
it was satisfied with the effectiveness and timeliness of audit
planning, scope and deliverables, and that PwC had allowed
sufficient time and resources to understand and assess the
business, its key risks and controls. The Committee was satisfied
that the audit was effective.
In addition, the Chairman of the Audit Committee regularly meets
with the Audit Partner, Andrew Lyon, outside formal meetings.
The Committee is satisfied that PwC possesses the skills and
experience required to fulfil its duties effectively and efficiently.
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External audit tender
The Audit Committee is responsible for recommending to the
Board the appointment, re-appointment and removal of the
external auditor.
As disclosed in last year’s Audit Committee Report, and
following changes to the UK Corporate Governance Code and
EU Regulation requiring auditor tendering and rotation, during
2016 the Committee led a process to select a new external
auditor. Details of the audit tender process were disclosed in the
2016/17 Audit Committee report. A resolution to propose the
appointment of PwC was approved by shareholders at the 2017
AGM. The Committee has assessed and positively concluded
on the effectiveness of the external audit; further details of this
review are provided on page 69.
CMA Order 2014 Statement
of Compliance
NEXT confirms that it was in compliance with the provisions
of The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 during the
financial year ended 27 January 2018.
Independence and objectivity
PwC has reported to the Committee that, in its professional
judgement, it is 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.
Non-audit work carried
out by the external auditor
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 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 the lower of £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, PwC’s audit fee amounted to £0.6m and
PwC’s non-audit fees were £0.1m in total. In line with the
above policy, appropriate advance approval was obtained
from the Committee. Further details are provided in Note 3
of the financial statements.
In line with the new EU audit reform regulations which came into
force for NEXT for the first time for the financial year 2017/18,
the Audit Committee has set in place procedures to ensure only
permitted non-audit services are provided by the auditor and
these are in line with the above policy. These procedures will also
ensure that the new cap on permitted non-audit services of 70%
of the average Group audit fee paid on a rolling three year basis
is not exceeded, even though this will not apply to NEXT until the
financial year 2020/21.
70
Remuneration Report
Contents
Part 1: Annual Statement from the Remuneration Committee Chairman
Part 2: Annual Remuneration Report
Part 3: Directors’ Remuneration Policy Extract
page 71
page 74
page 88
Remuneration compliance
This report is compiled in accordance with Schedule 8 of the Large and Medium-sized Companies and Group (Accounts and Reports)
(Amendment) Regulations 2013. The Remuneration Committee believes that the Company has complied with the provisions regarding
remuneration matters contained within the UK Corporate Governance Code.
Part 1: Annual Statement
As Chairman of the Remuneration Committee and on behalf of the Board, I am pleased to present our report on directors’ remuneration
for 2017/18.
At the 2017 AGM, shareholders endorsed a revised Remuneration Policy for the period to the 2020 AGM with 98.6% of votes cast in
favour. This year, rather than reproduce in full the approved Policy, we have instead provided extracts from it. A copy of the complete
Remuneration Policy can be found in our January 2017 Annual Report and Accounts which is available on our website.
Pay and performance outcome for 2017/18
Total remuneration
As outlined in our Strategic Report, the uncertain economic environment and changing consumer behaviour have meant that 2017/18
has been a year of change and challenge for NEXT. Given the stretching performance targets set by the Committee, total remuneration
earned by the executive through the year was significantly lower versus the previous year.
The Committee’s overarching goal is to ensure that the remuneration paid to senior executives is appropriate in both amount and
structure, is directly linked to the Company’s annual and long term performance and is aligned with the interests of shareholders.
The current Remuneration Policy is designed to support this objective and the incentive pay outcomes for the executive directors for
the year reflect NEXT’s performance accordingly, with no annual bonus awards and no Long Term Incentive Plans vesting. Total annual
remuneration earned for 2017/18 by Lord Wolfson was 37% lower than his total remuneration in 2016/17 (which itself was lower than
that earned in 2015/16), and between 16% and 23% lower for the other executives.
The Committee considers that the current structure of the remuneration arrangements promote the long term success of the
Company within an appropriate risk framework and are suitably aligned to enhancing shareholder value and the Company’s objective
of delivery of long term sustainable growth in total shareholder returns (TSR). Moreover, we believe our rigorous approach to target
setting and linking pay to performance means that the actual remuneration earned by the executive directors continues to be a good
reflection of their and NEXT’s overall performance.
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 the 2014 Remuneration Report we first 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.
The growth in pre-tax EPS in the year, as adjusted for special dividends, was below the target threshold and no bonus was earned for
2017/18, as was also the case in 2016/17. Details of the targets set for 2017/18 are on page 75.
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Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
Long Term Incentive Plan (LTIP)
LTIP awards are granted twice a year (each at 100% of base salary for executive directors) and during the year the Committee
approved two grants. Two LTIP awards reached the end of their three year performance period and for both awards NEXT’s TSR
ranked below median (i.e. threshold) out of 21 companies in the comparator group, so these awards did not/will not pay out. Details of
the comparator group are set out on page 83.
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.
Matters addressed during the year
The Committee has addressed the following matters this year:
Remuneration policy
The Committee gave full consideration to the operation of the Policy prior to proposing it to shareholders at the 2017 AGM and
considers the level of support obtained to be a strong endorsement. During the year the Committee also reviewed the latest best
practice guidance and considered the current remuneration landscape to identify if any potential amendments to the Policy may
be required. The Committee concluded that the current Remuneration Policy continues to be the right one for the Company and
its shareholders as it is aligned with the Company’s annual and long term performance, with shareholder experience and with the
Company’s strategy, objectives and business model.
The Committee will keep under review the Financial Reporting Council consultation on a new UK Corporate Governance Code.
As detailed on page 48 of the Strategic Report, 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 policies and practices.
Annual base salary review for 2018/19
The base salaries for the executive directors were increased in February 2018 by 2%, in line with the wider Company award.
Lord Wolfson’s annual base salary increases have been in line with the wider Company awards since 2009.
The Committee’s typical approach to salary progression for those executive directors who are appointed to the Board from an internal
senior managerial position is to award salary increases which are timed to reflect performance and contribution at Board level, rather
than automatically applied immediately on promotion. Salary progression is therefore usually phased over a period of approximately
1 to 4 years after promotion to the Board, subject to proven performance and development during that period. As noted in my
Statement last year, in light of the lower than expected 2016/17 profit and EPS outcome, the Committee decided to defer the planned
increases in the base salaries of Michael Law and Jane Shields which would have represented the final stage in setting their pay levels
at an appropriate level, reflecting excellent progression in their respective roles since their promotion to the Board in July 2013.
The Committee also decided to moderate a further interim increase in the base salary of Amanda James, notwithstanding her strong
performance in the role of Group Finance Director since her promotion to the Board in April 2015.
With regard to the salary review for 2018/19, given the continuing challenges in the fashion retailing sector, the Committee considered
that it was appropriate to again defer any significant phased salary increases. However, during the year ahead the Committee will
further review the salaries of the executive directors.
In February 2018, the Company announced that Michael Law will step down from the Board at the close of the 2018 AGM, prior to
retiring from the business in July 2018. The Company also announced in the same statement that Richard Papp will be promoted
from within the business and appointed as an executive director with effect from 14 May 2018. Richard will stand for election by
shareholders at the 2018 AGM and, subject to the outcome of that process, will become Group Merchandise and Operations Director
with effect from the end of the AGM. It is intended that Richard’s salary is aligned with those of Jane Shields and Amanda James.
For information, the current executive directors’ and CEO’s salaries continue to be positioned below the median of comparable roles
in other FTSE 100 companies in general and other FTSE 100 retailers more specifically. We believe this demonstrates our overall
conservative approach to pay.
72
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 pre-tax EPS.
The principal reasons for using EPS 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 unrelated businesses and, therefore, a group metric such as EPS is logical and consistent
with strategy;
• the primary financial objective of the Group is to deliver long term, sustainable returns to shareholders through a combination of
growth in EPS and payment of cash dividends; and
• the use of EPS is complemented by the application of TSR and consideration of the general economic underpin condition for
the LTIP.
As set out in previous years, we consider it right that the impact of share buybacks on EPS (or adjustments for special dividends)
should be included in performance measurement as share buybacks, and more recently special dividends, have been one of NEXT’s
primary strategies in returning value to shareholders. Share buybacks or special dividends are regularly considered by the Board.
Share buybacks 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.
Other activity during 2017/18
Further information about the work of the Committee can be found on page 86.
Context to the Committee’s decisions
The Remuneration Committee members are keenly aware of the importance and sensitivity of remuneration issues among investors,
employees and the wider public and the responsibilities which that places on us. The Committee’s objective is to ensure that the
remuneration paid to senior executives is appropriate in both amount and structure, is directly linked to the Company’s annual
and long term performance and is aligned with the interests of shareholders. We believe that stable and transparent remuneration
structures are key elements in a fair system for rewarding personal and collective contribution across the business. There are bonus
structures throughout the Company, including Head Office, stores, call centres and warehouses.
We also 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.
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 LTIP, with its 3 year
performance period and 2 year holding period following vesting.
Pay and employment conditions elsewhere in the Group are considered to ensure that differences for executive directors are justified.
Remuneration Policy does not conflict with the Company’s approach to environmental, social and corporate governance matters and
we believe the current arrangements do not encourage directors to take undue business risks.
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Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
Wider employee considerations
The Remuneration Committee is very mindful about remuneration arrangements across the Group, including performance-related
pay which ensures that all employees have the potential to benefit from the success of NEXT. There are bonus structures throughout
the Company and employee share ownership is strongly encouraged. Market value options over NEXT shares are granted each year
to middle management in Head Office as well as senior store staff and participation in our Sharesave scheme is open to all of our UK
and Eire employees. Around 10,000 employees (circa 25% of our total UK and Eire employees) held options or awards in respect of
6.1 million shares in NEXT at the financial year end.
2018 AGM
The Committee considers 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 in both benign and more
challenging trading environments. I very much hope that shareholders will support the Committee’s overall approach and, on behalf
of the Committee, I commend our 2017/18 Directors’ Annual Remuneration Report to you.
I look forward to receiving your support at the AGM where I will be pleased to respond to any questions shareholders may have on
this report or in relation to any of the Committee’s activities.
Caroline Goodall
Chairman of the Remuneration Committee
23 March 2018
Part 2: Annual Remuneration Report
This Annual Remuneration Report comprises a number of sections:
Implementation of Remuneration Policy
page 75
Payments for loss of office
Single total figure of remuneration
page 76
Performance and CEO remuneration comparison
Total remuneration opportunity
page 78
Change in remuneration of Chief Executive
Executive directors’ external appointments
page 79
Relative importance of spend on pay
Pension entitlements
page 79
Dilution of share capital by employee share plans
Directors’ shareholding and share interests
page 80
Remuneration Committee
Scheme interests awarded during the financial year
page 83
Voting outcomes at General Meetings
Performance targets for outstanding awards
page 83
Service contracts
Payments to past directors
page 84
page 84
page 84
page 85
page 85
page 86
page 86
page 87
page 87
Annual Remuneration Report
The Remuneration Committee presents the Annual Remuneration Report, which, together with the Chairman’s introduction on
pages 71 to 74, will be put to shareholders as an advisory (non-binding) vote at the Annual General Meeting to be held on 17 May
2018. Sections which have been subject to audit are noted accordingly.
74
Implementation of Remuneration Policy
The Committee has implemented the Remuneration Policy in accordance with the policy approved by shareholders at the AGM in
May 2017. The table below sets out the way that the policy was implemented in 2017/18 and any significant changes in the way the
policy will be implemented in 2018/19.
Element of remuneration
Base salary
Policy implemented during 2017/18 and changes in 2018/19
The base salary of the executive directors was increased by 2% in February 2018, in line with the
wider Company award. It is intended that Richard Papp’s salary is aligned with those of Jane Shields
and Amanda James. As the salaries of Jane, Amanda and Richard remain below the planned level
for someone of their experience and the benchmark median, the Company will further review their
salaries during the year ahead (with a view to implementing the planned final instalments of their
increases). The base salaries for the executive directors from February 2018 are:
£000
Lord Wolfson
Amanda James
Michael Law
Jane Shields
2018/19
789
425
425
425
2017/18
773
416
416
416
Annual bonus
No changes to the bonus structure were made.
For the year to January 2018, performance targets were set requiring pre-tax EPS growth of at least
-1.5% on the prior year, adjusted for special dividends and excluding exceptional gains, before any
bonus became payable (being pre-tax EPS of 540.7p). 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 18.5% (being pre-tax EPS of 650.4p).
Pre-tax EPS growth achieved in the year, adjusted for special dividends, was -2.9%. In accordance
with the bonus formula, no bonus 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.
LTIP
No change in 2017/18. See single total figure of remuneration table, Note 5 for details of LTIP vestings
in the year.
In accordance with the Remuneration Policy approved by shareholders at the May 2017 AGM, for any
LTIP grants made after that date participants will be entitled to receive ordinary and special dividend
accruals on any awards vesting under the LTIP.
Grants in 2018/19 will be otherwise made on the same basis to the 2017/18 grants (with any changes
to the TSR comparator group confirmed immediately prior to each grant).
No change. The Committee previously introduced recovery and withholding 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. The Committee reconsidered these requirements during the year and concluded that
these provisions remain appropriate.
The fees of the Chairman and non-executive directors were increased by 2% in February 2018, in line
with the wider Company award. The Chairman, Michael Roney, will be paid an annual fee of £331,500
(2017/18 annual fee as Chairman: £325,000). The basic non-executive director fee for 2018/19 is
£56,834 (2017/18: £55,720), with a further £11,367 (2017/18: £11,144) paid to the Chairman of each
of the Audit and Remuneration Committees respectively, and to the Senior Independent Director.
Recovery and withholding
provisions
Chairman and non-
executive director
fees
Pension
Other benefits
Save As You Earn scheme
(Sharesave)
No change.
No material change.
No change.
75
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77
Strategic ReportGovernanceFinancial StatementsShareholder Information
Remuneration Report
Total remuneration opportunity
The Committee’s objective is to ensure that the remuneration paid to senior executives is appropriate in both amount and
structure, is directly linked to the Company’s annual and longer term performance and is aligned with the interests of shareholders.
Careful consideration is given to ensuring there is an appropriate balance in the remuneration structure between annual and long
term rewards, as well as between cash and share-based payments.
Variable pay is linked to measures which are aligned with the Company’s long term strategy and objectives. The overall level of
executive director pay remains modest compared with that available at other FTSE 100 companies and the chosen maximum
remuneration indicated in the charts below reflects the Committee’s conservative approach to executive pay which it considers
is appropriate.
The charts below show the 2017/18 actual remuneration achieved, as disclosed in the single total figure of remuneration on
page 76, compared with the 2017/18 opportunity at mid-point, maximum and maximum including assumed share price appreciation
and dividend roll-up of 10% per annum combined. As noted on page 72, Michael Law will step down from the Board at the close of
the 2018 AGM and Richard Papp will be promoted from within the business and appointed as an executive director with effect from
14 May 2018. It is intended that Richard’s salary is aligned with those of Jane Shields and Amanda James.
Lord Wolfson (Chief Executive)
Actual
100%
Total £1,153k
Fixed pay
Annual bonus
LTIP (multiple period)
Mid-point/
median
Maximum
Maximum (inc.
10% pa increase in
total return
57%
30%
26%
28%
15%
Total £2,042k
30%
27%
40%
Total £3,858k
[Charts to be added]
47%
Total £4,370k
0
1000
2000
3000
AMOUNT £000
4000
5000
Amanda James (Group Finance Director)
Actual
100%
Total £475k
Mid-point/
median
Maximum
Maximum (inc.
10% pa increase in
total return
56%
28%
24%
24%
20%
Total £849k
24%
21%
0
500
1000
AMOUNT £000
48%
Total £1,723k
55%
1500
Total £1,998k
2000
Jane Shields (Group Sales and Marketing Director)
Actual
100%
Total £563k
Mid-point/
median
Maximum
Maximum (inc.
10% pa increase in
total return
60%
31%
27%
22%
18%
Total £937k
23%
20%
0
500
1000
AMOUNT £000
In the above charts, the following assumptions have been made:
Fixed/minimum
Values as for 2017/18 single figure of remuneration.
46%
Total £1,811k
53%
1500
Total £2,086k
2000
2500
Mid-point/median
Includes the performance-related pay a director would receive in the scenario where:
• 50% of maximum annual bonus is earned (being the mid-point).
• LTIP performance results in a median TSR ranking and therefore 20% of the maximum award would vest.
Maximum
Includes the performance-related pay a director would receive in the scenario where performance equalled or exceeded
maximum targets:
• 100% of the annual bonus.
• LTIP performance results in an upper quintile TSR ranking and therefore 100% of the maximum award would vest.
As for the maximum scenario above, plus an increase in the value of the LTIP of 10% per annum to reflect possible share
price appreciation and dividend accrual combined.
Maximum inc. 10%
per annum increase in
total return
78
Executive directors’ external appointments
No current executive director holds any non-executive directorships outside the Group.
Pension entitlements (audited information)
In 2013 all active members of the NEXT Group Pension Plan (the “Original Plan”), were transferred to the new 2013 NEXT Group
Pension Plan (the “2013 Plan”) so that pensioners of the Original 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 Original Plan.
Executive directors are members of the 2013 Plan which has been approved by HMRC 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 currently
comprises six directors. Four of these are members of the 2013 Plan, and two directors (including the Chairman) are independent
and have no other connection to NEXT. Two of these directors are member nominated directors and cannot be removed by NEXT.
The other four directors, including the two independent directors, 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.
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. Those employees can also 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 as at October 2012, which accrues uniformly throughout their pensionable
service. The deferred pensions for 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. 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 Original 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 makes contributions at the rate of 31.3%. The last full
triennial actuarial valuation of the 2013 Plan was carried out as at 30 September 2016. As calculated in accordance with International
Financial Reporting Standards, the net pension surplus at January 2018 was £106.2m. Further details are provided in Note 18 of 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 supplementary pension arrangement. The relevant members contribute
towards the additional cost of providing these benefits by a payment of 5% on all pensionable earnings to the 2013 Plan. 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).
79
Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
Directors’ shareholding and share interests (audited information)
Directors’ interests
Directors’ interests in shares (including those of their connected persons) at the beginning and end of the financial year were as follows:
Ordinary shares
Deferred Bonus
Shares1
LTIP2
SMP
Sharesave3
Lord Wolfson
Steve Barber4
John Barton5
Jonathan Bewes
Caroline Goodall
Amanda James
Michael Law
Michael Roney6
Francis Salway
Jane Shields
Dame Thompson
2018
1,527,204
7,500
14,000
1,750
450
18,076
29,648
24,079
9,040
58,894
nil
2017
1,518,184
7,500
14,000
1,750
nil
17,107
27,765
n/a
9,040
57,013
nil
2018
–
–
–
–
–
–
–
–
–
–
–
2017
2018
5,180 81,968
–
–
–
–
–
–
–
–
– 39,522
– 44,108
–
–
–
–
– 44,108
–
–
2017
71,127
–
–
–
–
25,553
36,605
–
–
36,605
–
2018
–
–
–
–
–
–
–
–
–
–
–
2017
9,204
–
–
–
–
1,418
2,468
–
–
2,466
–
2018
364
–
–
–
–
372
163
–
–
369
–
2017
364
–
–
–
–
372
163
–
–
369
–
1. Full details of the basis of allocation and terms of the deferred bonus are set out on page 89.
2. The LTIP amounts above are the maximum potential awards that may vest subject to performance conditions described on page 90.
3. Executive directors can participate in the Company’s Sharesave scheme (see details on page 91) and the amounts above are the options which will become
exercisable at maturity.
4. Steve Barber stepped down from the Board in May 2017.
5. John Barton stepped down from the Board in August 2017.
6. Michael Roney joined the Board in February 2017.
There have been no other changes to the current directors’ interests in the shares of the Company from the end of the financial year
to 22 March 2018. 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 at the Company’s registered office.
Minimum shareholding
The minimum shareholding required of executive directors is 200% of base salary and each director has 5 years from the date of their
appointment to the Board to acquire the minimum shareholding. As at the 2017/18 financial year end, the value of shareholdings of all
of the executives exceeded the share ownership guidelines.
Shareholding % of
base salary as at
Jan 2018
10,309%
227%
297%
555%
Shareholding
guidelines achieved
100%
100%
100%
100%
Lord Wolfson
Amanda James
Michael Law
Jane Shields
80
The table below shows share awards held by directors and movements during the year:
Maximum
receivable
at start of
financial
year
Awarded
during the
year
Shares
vested/
exercised
in the year
Options
lapsed
Maximum
receivable
at end of
financial
year
Market
price at
award
date
£
Option
price
£
Date of award
Lord Wolfson
Deferred Bonus
Shares
LTIP
Apr 2015
Mar 2014
Sept 2014
5,180
13,187
11,421
Mar 2015
11,2632
–
–
–
–
–
–
–
10,106
10,360
14,790
–
–
16,552
18,897
71,127
9,204
364
2,342
2,765
4,5452
4,079
4,870
6,952
–
–
–
–
–
–
–
–
–
–
8,907
10,169
25,553
1,418
264
108
372
5,428
6,145
6,0612
5,438
5,575
7,958
–
–
–
–
–
–
–
–
–
–
–
8,907
10,169
5,180
2,637
–
–
–
–
–
–
–
9,204
–
468
–
–
–
–
–
–
–
1,361
–
–
1,085
–
–
–
–
–
–
–
–
10,550
11,4212
–
–
–
–
–
–
–
–
1,874
2,7652
–
–
–
–
–
–
57
–
–
4,343
6,1452
–
–
–
–
–
–
–
–
–
–
–
11,263
10,106
10,360
14,790
16,552
18,897
81,968
–
364
–
–
4,545
4,079
4,870
6,952
8,907
10,169
39,522
–
264
108
372
–
–
6,061
5,438
5,575
7,958
8,907
10,169
44,108
–
163
36,605
2,468
163
–
–
2,468
–
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Apr 2013
Oct 2013
Mar 2014
Sept 2014
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
May 2014
Oct 2013
Oct 2016
Mar 2014
Sept 2014
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Apr 2013
Oct 2014
SMP
Sharesave
Amanda James
LTIP
SMP
Sharesave
Michael Law
LTIP
SMP
Sharesave
Market
price on
date of
vesting/
exercise
£
43.12
42.32
–
–
–
–
–
–
–
Vesting date/
exercisable dates1
Apr 2017
Jan 2017
Jul 2017
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
41.66
Apr 2016 – Apr 2023
71.75
56.37
65.09
66.66
74.29
73.92
51.78
46.733
40.933
43.81
n/a
nil
nil
nil
nil
nil
nil
nil
nil
nil
–
41.12
–
Dec 2018 – Jun 2019
56.37
65.09
66.66
74.29
73.92
51.78
46.733
40.933
66.50
–
–
56.37
65.09
66.66
74.29
73.92
51.78
46.733
40.933
43.81
nil
nil
nil
nil
nil
nil
nil
nil
nil
42.32
–
–
–
–
–
–
–
Jan 2017
Jul 2017
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
44.77
May 2017 – May 2024
41.12
38.25
–
–
Dec 2018 – Jun 2019
Dec 2021 – Jun 2022
nil
nil
nil
nil
nil
nil
nil
nil
nil
42.32
–
–
–
–
–
–
–
Jan 2017
Jul 2017
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
41.66
Apr 2016 – Apr 2023
–
54.92
–
Dec 2017 – Jun 2018
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Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
Maximum
receivable
at start of
financial
year
Awarded
during the
year
Shares
vested/
exercised
in the year
Date of award
Mar 2014
Sept 2014
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Apr 2013
Oct 2013
Oct 2016
5,428
6,145
6,0612
5,438
5,575
7,958
–
–
–
–
–
–
–
–
8,907
10,169
1,085
–
–
–
–
–
–
–
36,605
2,466
299
70
369
–
–
–
2,466
–
–
Options
lapsed
4,343
6,1452
–
–
–
–
–
–
–
–
–
Jane Shields
LTIP
SMP
Sharesave
Maximum
receivable
at end of
financial
year
Market
price at
award
date
£
Option
price
£
–
–
6,061
5,438
5,575
7,958
8,907
10,169
44,108
–
299
70
369
56.37
65.09
66.66
74.29
73.92
51.78
46.733
40.933
43.81
–
–
Market
price on
date of
vesting/
exercise
£
42.32
–
–
–
–
–
–
–
Vesting date/
exercisable dates1
Jan 2017
Jul 2017
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
41.66
Apr 2016 – Apr 2023
nil
nil
nil
nil
nil
nil
nil
nil
nil
41.12
38.25
–
–
Dec 2018 – Jun 2019
Dec 2021 – Jun 2022
1. 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 conditions have been satisfied, or shortly thereafter.
2. See page 77 for details of the performance conditions and vesting levels applicable to the LTIP schemes with performance periods ending in the financial year
2017/18.
3. The LTIP price at award date is NEXT’s average share price over the three months prior to the start of the performance period.
4. Within the above table, all awards are subject to performance conditions except for Sharesave options and Deferred Bonus Shares. From 2014 onwards, LTIP 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 aggregate gains of directors arising from the exercise of options granted under the SMP and Sharesave, and the LTIP that vested
in the 2017/18 year totalled £874,000 (2016/17: £2,325,000).
82
Scheme interests awarded during the financial year ended
January 2018 (audited information)
LTIP
Face value
In respect of the LTIP conditional share awards granted during the year 2017/18, 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
Amanda James
Michael Law
Jane Shields
Mar 2017
£000
773
416
416
416
Sep 2017
£000
773
416
416
416
Total
£000
1,546
832
832
832
Vesting if minimum
performance achieved
Performance period
Performance measures
20% of the entitlement will be earned for relative TSR at median. Full vesting requires relative TSR in the upper quintile.
March 2017 grant: three years to January 2020.
September 2017 grant: three years to July 2020.
The LTIP performance measures are detailed on page 90. The companies in the TSR comparator group for awards
granted during the financial year are:
ASOS
Dixons Carphone
Kingfisher
Pets at Home
B&M European Value Retail
Dunelm
Marks & Spencer
Burberry
Carpetright
Debenhams
Halfords
J Sainsbury
JD Sports
Morrisons
Mothercare
N Brown
Superdry
Ted Baker
Tesco
W H Smith
Dividend roll-up
For grants from September 2017, the award may be increased to reflect dividends paid over the period to vesting
(assuming reinvestment at the prevailing share price).
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 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.
No 2017/18 annual bonus was earned.
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:
Three year performance periods commencing
August 2015
February 2016 and August 2016
February 2017 and August 2017
Maximum potential award granted (% of base salary)
Amanda James, Michael
Law & Jane Shields
100%
100%
100%
Lord Wolfson
100%
100%
100%
Details of the comparator group for the LTIP three year performance periods commencing February 2017 and August 2017 are shown
above. The comparator group for the performance period commencing in August 2016 is also the same.
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Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
The comparator group for the performance periods commencing in August 2014, February 2015, August 2015 and February 2016
is the same as above with the exception of Home Retail Group and Poundland who were included, and Pets at Home and B&M
European Value Retail who were not included.
Following the acquisition by J Sainsbury of Home Retail Group in September 2016, Home Retail Group was delisted from the London
Stock Exchange. For the LTIP grants prior to that time, J Sainsbury and Home Retail Group will continue as two separate entries with
their relative TSRs being measured on pre (independent) and post (identical) takeover performance over each performance period.
Poundland was also delisted following its acquisition in September 2016. For the LTIP grants prior to that time which included
Poundland in the comparator group, from September 2016, the relative TSR of B&M European Value Retail replaces that of Poundland.
SMP (legacy only)
The Committee decided in 2014 that executive directors should no longer participate in the SMP. Amanda James was promoted to
the Board in 2015 and Amanda’s SMPs awarded prior to her promotion continued to run their course, with the last one vesting in May
2017. No executive director held any outstanding SMP awards as at the 2017/18 financial year end. The SMP remains open to a small
number of senior executives below Board level.
Vesting of awards is dependent solely on achieving the underlying fully diluted post-tax EPS targets detailed below. Under the
formulae, a notional adjustment is made to actual EPS achieved 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.
Payments to past directors (audited information)
There were no payments made to past directors during the 2017/18 financial year.
Payments for loss of office (audited information)
There were no payments made to any director in respect of loss of office during the 2017/18 financial year.
Performance and CEO remuneration comparison
Performance graph
The graph below illustrates the Total Shareholder Returns (TSR) 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 nine year period ended January 2018.
NEXT plc performance chart 2009-2018 Total Shareholder Return
820
740
660
580
500
420
340
260
180
100
20
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
NEXT
FTSE All Share
FTSE General Retailers
Re-based to 31 January 2009 = 100
84
Analysis of Chief Executive’s pay over 9 years
The table below sets out the remuneration for Lord Wolfson who has been the Chief Executive throughout this period.
Financial year to January
Single figure of total
remuneration £000
Annual bonus pay-out against
maximum opportunity1
2010
2,833
2011
3,010
2012
4,106
2013
4,630
2014
4,646
2015
4,660
2016
4,295
2017
1,831
2018
1,153
100%
100%
72%
99%
100%
100%
45%
0%
0%
LTIP pay-out against maximum
opportunity2
100%
65% Two semi-
annual
awards
vested
at 100%
and 83%,
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%
each,
however
total value
capped at
£2.5m
SMP pay-out against
maximum opportunity
n/a
n/a
n/a Entitlement
waived3
Entitlement
waived3
Two semi-
annual
awards
vested
at 76%
and 77%
Two semi-
annual
awards
vested
at 61%
and 20%
Two semi-
annual
awards
vested
at nil
100%
n/a
n/a
Two semi-
annual
awards
vested
at 100%
each,
however
total value
capped at
£2.5m
Did not
participate
in 2012-15
SMP
1. The maximum bonus for the Chief Executive is 150% of salary.
2. The first of semi-annual, rather than annual, awards vested in July 2011.
3. Lord Wolfson waived his entitlement to SMP awards in these years. Had he not done so, his total remuneration would have been £8,947k for the financial year to
January 2014 and £7,601k for the financial year to January 2013.
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 2016/17 and 2017/18 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 86% of the
Group’s workforce.
Lord Wolfson
UK/Eire Employees (average per FTE)
Salary
% change
+1.0%
+5.8%
Annual
bonus
% change
–
+18.1%
Taxable
benefits
% change
-49.3%
+17.7%
Relative importance of spend on pay
The graph below illustrates for the years 2017/18 and 2016/17 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
£586.1m £594.6m
2017/18
2016/17
£224.1m £225.8m
£361.7m
£255.6m
Special
dividends
£106.1m
Buybacks
£275.9m
£88.3m Special
dividends
£187.6m
Buybacks
Total wages and salaries
Buybacks and special dividends
Ordinary dividends
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Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
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 (refer to Note 23 of the financial statements).
Consideration of matters relating to directors’ remuneration
Remuneration Committee
During the year the Committee comprised the following independent non-executive directors:
Caroline Goodall (Committee Chairman)
Steve Barber (until May 2017)
John Barton (until August 2017)
Jonathan Bewes
Michael Roney (from February 2017)
Francis Salway
Dame Dianne Thompson
The Committee met five times during the year under review and all meetings were fully attended.
Role and work 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 our corporate 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 the Group Finance Director. Aon Hewitt Ltd and FIT
Remuneration Consultants LLP (FIT) also provided independent external advice, including updates on legislative requirements, best
practice, and other matters of a technical nature and related to share plans.
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. Aon Hewitt and FIT are members of
the Remuneration Consultants Group, the body that oversees the Code of Conduct in relation to executive remuneration consulting
in the UK, and have confirmed to us that they adhere to its Code. At the beginning of the year PricewaterhouseCoopers LLP (PwC)
provided independent verification services of total shareholder returns for NEXT and the comparator group of companies under the
LTIP and other technical assistance. This work was then moved to Deloitte LLP, prior to the appointment of PwC as external auditor
of NEXT.
During the year Aon Hewitt and FIT were each paid less than £17k and PwC and Deloitte were each paid less than £3k for the services
described above, charged at their standard hourly rates.
86
Voting outcomes at General Meetings
AGM
Votes for
%
for
Votes
against
%
against
Total votes
cast
% of shares
on register
Votes
withheld
2017 107,107,291
98.6 1,471,317
1.4 108,578,608
73.8 900,892
2017 108,223,045
99.6
436,396
0.4 108,659,441
73.9 820,060
2017 108,796,669
99.4
665,001
0.6 109,461,670
74.4
17,832
To approve the Remuneration
Policy
To approve the 2016/17
Remuneration Report
Authority for the directors to
amend the rules of the NEXT LTIP
(to permit new awards under this plan to
receive the benefit of dividends paid in
the period between grant and vesting)
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 page 92. 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:
Chairman
Michael Roney
Executive directors
Lord Wolfson
Amanda James
Michael Law
Jane Shields
Non-executive directors
Jonathan Bewes
Caroline Goodall
Francis Salway
Dame Dianne Thompson
* Appointed Chairman 2 August 2017
Date of
appointment to the
Board
Notice period
where given by the
Company
Notice period
where given by the
employee
14 February 2017*
12 months
6 months
3 February 1997
1 April 2015
1 July 2013
1 July 2013
3 October 2016
1 January 2013
1 June 2010
1 January 2015
12 months
12 months
12 months
12 months
1 month
1 month
1 month
1 month
6 months
6 months
6 months
6 months
1 month
1 month
1 month
1 month
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Strategic ReportGovernanceFinancial StatementsShareholder Information Remuneration Report
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 in May 2017, and is provided for ease of reference only. This is an edited version of the policy report and
has not been updated or amended in any way. The full Remuneration Policy is set out in the January 2017 Annual Report, pages 63 to
72, and is available on our corporate website www.nextplc.co.uk.
A shareholder vote on Remuneration Policy is not required in 2018.
On behalf of the Board
Caroline Goodall
Chairman of the Remuneration Committee
23 March 2018
Remuneration Policy table, as approved in 2017. All page references below are to the January 2017 Annual Report and Accounts
which is available on our website.
Base salary
Purpose and link to strategy
To attract, motivate and retain high calibre individuals, while not overpaying.
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.
Operation
Normally 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 individual experience and performance, the level
and structure of remuneration for other employees, the external environment
and market data. 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.
Maximum opportunity
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 the
normal course of events, increases in executive directors’ salaries
would be in line with the wider Company cost of living awards.
The Committee reserves flexibility to grant larger increases where
considered appropriate, such as where a new executive director,
being an internal promotion, has been appointed to the Board
with an initial salary which is considered below the normal market
rate, then the Committee may make staged increases to bring
the salary into line as the executive gains experience in the role.
Also if there have been significant changes in the size and scope
of the executive’s role then the Committee would review salary
levels accordingly.
Under the reporting regulations the Company is required to
specify a maximum potential value for each component of pay.
Accordingly, for the period of this policy no base salary paid to
an executive director in any year will exceed £850,000 (being
the current median base salary of FTSE 100 Chief Executives).
The amount of the maximum base salary which may be paid to an
executive director in any year shall increase in line with the growth
in RPI from the date of approval of this policy.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No material changes. To comply with the latest regulatory
guidance, the salary cap has been expressed as a fixed amount.
88
Annual bonus
Purpose and link to strategy
To incentivise delivery of stretching annual 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
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 financial measures (such as 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, although at least
75% of any bonus will continue to be subject to financial measures.
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 page 71, 50% of maximum bonus has
been assumed because it is the mid-point.
Dividend accruals (both in respect of special and ordinary dividends) may be
payable on any deferred bonus awards which vest.
The Company has the flexibility within the rules of the Deferred Share Bonus
Plan to grant nil cost options as an alternative to conditional share awards or
exceptionally to settle in cash.
Maximum opportunity
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.
Although the Committee has no current plan to make any changes,
for the period of this policy the Committee reserves flexibility to:
• 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
if considered appropriate by
of bonus outcomes
the Committee.
Performance measures and targets
Currently performance is assessed against pre-tax EPS targets set
annually, which take account of factors including the Company’s
budgets and the wider background of the UK economy. Pre-tax
EPS has been chosen as the basic metric to avoid executives
benefitting from external factors such as reductions in the rate of
corporation tax. Generally, 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.
The Committee reserves flexibility to apply different performance
measures and targets in respect of the annual bonus for the period
of this policy but a financial measure will continue to be used for
at least 75% of the award. The Committee will consult with major
shareholders before any significant changes are made to the use
of performance measures.
incorporates an
The basis of performance measurement
appropriate adjustment to EPS growth to reflect the benefit to
shareholders from special dividends paid in any period.
Key changes to last approved policy
Dividend accruals (both in respect of special and ordinary
dividends) may be payable on vested deferred bonus awards.
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Long Term Incentive Plan (LTIP)
Purpose and link to strategy
Maximum opportunity
To incentivise management to deliver superior total shareholder returns
(TSR) over three year performance periods relative to a selected group of
retail companies, and align the interests of executives and shareholders.
The maximum possible aggregate value of awards granted to all
executive directors will be 200% of annual salary (i.e. 100% every
six months) and up to 300% in exceptional circumstances.
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 further increase the holding period or to introduce a
retention requirement.
Performance measures and targets
Performance is measured over a period of three years.
Currently performance is measured based on 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.
Key changes to last approved policy
Dividend accruals (both in respect of special and ordinary
dividends) may be payable on vested awards.
Maximum opportunity
Under the DB section and the SPA, the maximum potential
pension is only achieved on completion of at least 20 years of
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 in service is
four times base salary.
No DC contributions, or equivalent cash supplement payments,
will be made to an executive director in any year that will exceed
25% of base salary (being slightly below the median level of
contributions or payments made to FTSE 100 Chief Executives).
Performance measures and targets
Not applicable.
Key changes to last approved policy
No material changes. To comply with the latest regulatory
guidance, the pension cap has been expressed as a fixed
percentage of salary.
Retention of key, high calibre employees over three year performance
periods and encouraging long term shareholding, through post vesting
holding requirement, and commitment to the Company.
Operation
A variable percentage of a pre-determined maximum number of shares can
vest, depending on the achievement of performance conditions.
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 any TSR
performance measure and to enhance the portfolio effect for participants of
more frequent, but smaller, grants.
The Company has the flexibility within the rules of the LTIP to grant nil cost
options as an alternative to conditional share awards and to settle vested LTIP
awards in cash.
Dividend accruals (both in respect of special and ordinary dividends) may be
payable on any vested LTIP awards.
Pension
Purpose and link to strategy
To provide for retirement through Company sponsored schemes or a cash
alternative for personal pension planning and therefore assist attraction
and retention.
Operation
Lord Wolfson, Michael Law and Jane Shields are deferred members of the
defined benefit (DB) section of the 2013 NEXT Group Pension Plan (the “Plan”).
In addition to being a deferred member of the DB section of the Plan, Lord
Wolfson is a member of the unfunded, unapproved supplementary pension
arrangement (SPA), described on page 77. His future pension will be calculated
by reference to his October 2012 salary, rather than his final earnings, and any
future salary changes will have no effect.
Jane Shields and Michael Law ceased to contribute to the Plan in 2011 and in
2012 respectively. Their pensions are no longer linked to salary and will increase
in line with statutory deferred revaluation only (i.e. in line with CPI).
Lord Wolfson, Michael Law and Jane Shields receive salary supplements of 15%
in lieu of past changes to their pension arrangements, in line with other senior
employee members of the DB section of the Plan.
Amanda James is a member of the defined contribution section of the Plan and
the Company currently makes a contribution equal to 5% of her salary into her
pension plan. Amanda can opt to receive an equivalent cash supplement in lieu
of this Company contribution. This is consistent with the pension provision and
alternatives available to employees generally.
New employees of the Group can join the defined contribution (DC) section of
the NEXT Plan or the statutory auto enrolment plan or receive a cash supplement.
Bonuses are not taken into account in assessing pensionable earnings in the Plan.
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Other benefits
Purpose and link to strategy
To provide market competitive non-cash benefits to attract and retain high
calibre individuals.
Operation
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.
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.
Reasonable business related expenses will be reimbursed (including any
tax thereon).
Save As You Earn Scheme (Sharesave)
Purpose and link to strategy
To encourage all employees to make a long term investment in the
Company’s shares.
Operation
Executive directors can participate in the Company’s Sharesave scheme which
is HMRC approved and open to all employees in the UK. A similar scheme is
available to employees in Eire. 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.
Maximum opportunity
During the policy period, the value of benefits (other than
relocation costs) paid to an executive director in any year will
not exceed £150,000. 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.
Performance measures and targets
Not applicable.
Key changes to last approved policy
Increased the benefits cap by £50,000 to £150,000 to provide
suitable flexibility over the period of the Remuneration Policy.
Maximum opportunity
Investment currently limited to a maximum amount of £250
per month. The Committee reserves the right to increase the
maximum amount in line with limits set by HMRC (currently £500
per month).
Performance measures and targets
Not applicable.
Key changes to last approved policy
Updated to permit the maximum amount to reflect the latest
HMRC limits.
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Termination payments
Purpose and link to strategy
Maximum opportunity
Consistent with market practice, to ensure NEXT can
recruit and retain key executives, whilst protecting
the Company from making payments for failure.
Operation
The Committee will consider the need for and quantum
of any termination payments having regard to all 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. Dates of appointment and
notice periods are disclosed on page 85. The contract is terminable by the Company on
giving one year’s notice and by the individual on giving six months’ notice. For current
directors, 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). For future directors, any payment in lieu of
notice would be limited to their base salary only.
For current directors, if notice of termination is given immediately following a change of
control of the Company, the executive director may request immediate termination of his/
her contract and payment of liquidated damages equal to the value of his/her base salary
and contractual benefits. Liquidated damages provisions will not be present in any service
contract for a new executive director. Any new service contract will include provision for
any termination payments to be made on a phased basis.
In normal circumstances executive directors have no entitlement to compensation
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, based on
performance. In addition, awards made under the LTIP 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 £10,000 (plus related taxes) per director.
Performance measures and targets
Not applicable.
Key changes to last approved policy
Payment in lieu of notice will be limited to base salary for any new executive directors.
Liquidated damages will not be used for any new executive director appointment. Any new
service contracts will include provision for phased payments.
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Recovery and withholding provisions
Purpose and link to strategy
To ensure the Company can recover any payments made or potentially due
to executive directors under performance-related remuneration structures.
Operation
Recovery and withholding provisions are in the service contracts of all executive
directors and will be enforced where appropriate to recover or withhold
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
Purpose and link to strategy
To ensure fees paid to the Chairman and non-executive directors are
competitive and comparable with other companies of equivalent size and
complexity so that the Company attracts non-executive directors who
have a broad range of experience and skills to oversee the implementation
of our strategy.
Operation
Remuneration of the non-executive directors is normally 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.
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.
Currently, for each day spent on Company business in excess of the normal time
commitment, the Chairman will be paid £1,500 and the non-executive directors
£1,000. These are subject to an annual review by the Board. Reasonable business
related expenses will be reimbursed (including any tax thereon).
Maximum opportunity
Not applicable.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No material changes.
Maximum opportunity
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).
Performance measures and targets
Non-executive directors receive the normal staff discount on
Group merchandise but do not participate in any of the Group’s
bonus, pension, share option or other incentive schemes.
Key changes to last approved policy
No material changes.
All page references above are to the January 2017 Annual Report and Accounts which is available on our website.
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to the Members of NEXT plc
Report on the audit of the financial statements
Opinion
In our opinion:
• NEXT plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Parent Company’s affairs as at 27 January 2018 and of the Group’s profit and cash flows
for the 52 week period (the “period”) then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101, “Reduced disclosure framework”, and
applicable law); 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.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise:
the Consolidated and Parent Company Balance Sheets as at 27 January 2018, the Consolidated Income Statement and Consolidated
Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Changes in Equity, and the Consolidated
Cash Flow Statement for the 52 week period then ended; the accounting policies; and the Notes to the financial statements.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the Parent Company.
Other than those disclosed in the Audit Committee Report, we have provided no non-audit services to the Group or the Parent
Company in the period from 29 January 2017 to 27 January 2018.
Our audit approach
Overview
• Overall Group materiality: £36.0 million, based on approximately 5% of profit before tax.
• Overall Parent Company materiality: £25.0 million, based on approximately 1% of total assets.
Materiality
• We conducted an audit of the complete financial information of one financially significant
reporting unit as well as five other reporting units.
• Five of these components were audited by the UK Group Engagement Team with the
remaining component audited by a local component team located in Hong Kong.
• Our scoping resulted in coverage of 95% of revenue, 97% of profit before tax and 98% of
total assets.
• Recoverability of Online customer receivables (Group).
• Inventory being in excess of net realisable value (Group).
• Appropriateness of other provisions (Group).
• Valuation of financial instruments (Group and Parent Company).
• Accounting for defined benefit pension arrangements (Group).
Audit scope
Key audit
matters
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The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates,
and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed
audit procedures at Group and significant component level to respond to the risk, recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give
rise to a material misstatement in the Group and Parent Company financial statements, including, but not limited to: the Companies
Act 2006, the Listing Rules, Pensions legislation, UK tax legislation and the Financial Conduct Authority’s handbook with respect to
credit related regulated activity.
Our tests included, but were not limited to: review of the financial statement disclosures to underlying supporting documentation,
review of correspondence with the regulators, enquiries of management, enquiries of internal legal team and review of internal audit
reports in so far as they related to the financial statements. There are inherent limitations in the audit procedures described above
and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial
statements, the less likely we would become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk
of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the
directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
Recoverability of Online customer receivables
Group
Refer to the Audit Committee Report on page 67, major sources of
estimation uncertainty within the Group Accounting Policies and Note 11
for customer and other receivables.
An allowance of £138.7m is recognised against Online customer receivables
of £1,255.6m. The allowance against Online customer receivables involves
judgement in determining the expected loss to NEXT where a loss event
has occurred by the year end date. The significant judgements and
assumptions as applied when calculating the allowance are:
• how impairment triggers (or “loss events”) are identified;
• the default rate representing the likelihood of eventual default for
debt within each risk or ageing category of the gross receivable
balance; and
• the recovery rate on defaulted debt which has been passed onto
debt collection agencies.
The above judgements and assumptions are influenced by a mixture of
internally and externally sourced information.
How our audit addressed the key audit matter
We have performed controls testing on the origination and servicing of
the underlying Online customer receivables and related IT systems and
have substantively tested the year end receivables balance to which
management have applied their provision assumptions.
We assessed management’s provision methodology against the
requirements of IAS 39, utilising our financial services specialists.
We have tested historical default experience and recoveries and the
stratification of the year end book by arrears position and customer
credit ratings, being the two key drivers to the provision calculated by
management. We have then independently re-calculated the provision,
based on management’s assumptions.
Independently, we have assessed the appropriateness of management’s
assumptions based on NEXT’s historical book experience and
externally sourced evidence. For those assumptions which involved
most management judgement, we have performed sensitivity analysis,
based on alternative assumptions.
In relation to management’s estimate of losses which have been
incurred as at the year end date but have not yet emerged through
missed payments, we have looked closely at the performance of the
book in the months leading up to the year end and subsequent and
applied additional sensitivities.
Our testing included assessing whether the performing Online
customer receivables are genuinely performing to ensure loans and
advances are appropriately recorded.
We formed our own independent expectation of the allowance amount
and concluded that the position taken by management was reasonable.
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Independent Auditor’s Report
to the Members of NEXT plc
Key audit matter
Inventory being in excess of net realisable value
Group
Refer to the Audit Committee Report on page 68 and the major sources of
estimation uncertainty within the Group Accounting Policies.
The valuation of inventory involves judgement in recording provisions
for slow moving or obsolete inventory. The significant judgements and
assumptions as applied when calculating the provisions are:
• the forecasted sell through rates of current and prior season
inventory to determine inventory expected to be sold via clearance
channels; and
• the
forecasted cash
recovery
rates on
inventory sold via
clearance channels.
In addition, provisions are recognised
faulty
inventory which require an estimate of expected inventory losses and
realisable amounts.
for shrinkage and
Appropriateness of other provisions
Group
Refer to the Audit Committee Report on page 68, the major sources of
estimation uncertainty within the Group Accounting Policies, Note 15 for
trade payables and other liabilities and Note 19 for provisions.
Revenue returns provisions involve judgement in determining the expected
amount of returns to be received subsequent to the year end date.
Property-related provisions involve judgement in determining the extent
to which certain leases are considered to be onerous and the expected
value of rectification costs to be incurred on leased properties when they
are vacated.
Valuation of financial instruments
Group and Parent Company
Refer to the Audit Committee Report on page 68 and Note 24 for
financial instruments.
The nature of the Group’s business means that it is exposed to fluctuations
in foreign exchange rates on purchases and sales. As such, the Group
takes out a number of foreign exchange derivatives which are valued on a
marked to market basis and are therefore valued on an estimated basis with
reference to market inputs rather than directly observable market values.
The Group also has in place interest rate derivatives on a similar basis.
Accounting for defined benefit pension
arrangements
Group
Refer to the Audit Committee Report on page 68, the major sources of
estimation uncertainty within the Group Accounting Policies and Note 18
for pension benefits.
The defined benefit pension scheme obligation of £830.3 million is
calculated based on actuarial assumptions which are subject to significant
management judgement and are also sensitive to small changes.
In addition, there are restrictions under IAS 19 and IFRIC 14 as to when a net
pension surplus should be recognised.
How our audit addressed the key audit matter
We evaluated the forecasted sell through and cash recovery rates
by corroborating historical rates and then assessing management’s
judgement as to changes in customer behaviour/macro-economic
conditions and the impact of this on forecasted rates.
We have performed sensitivity analysis over key judgements taken by
management and assessed the impact of this sensitivity analysis on the
provision value.
We tested the integrity of the provision model to ensure that it
was using the underlying data correctly and calculating provision
amounts accurately.
We reviewed inventory write-offs in the financial period to ensure they
are consistent with the total inventory provision held at year end.
We found that the provisions recorded were consistent with the
evidence obtained.
We evaluated revenue returns provisions by testing the expected
returns rate across the NEXT Retail and NEXT Online segments and
the gross margin amounts as applied to the net provision. We also
understood the rights of customers to return goods, tested the amount
of returns received in the period and post year end and then compared
that to the return rate per the provision calculation.
We evaluated the property-related provisions by testing management’s
assessment of the onerous elements of lease agreements and agreeing
management’s assumptions in relation to future property rectification
costs to the spend incurred during the year. We also evaluated loss
making stores where impairments and provisions were not in place to
confirm that it was reasonable that no impairments or provisions had
been recognised.
We found that the provisions recorded were consistent with the
evidence obtained.
We have obtained third-party confirmations for all foreign exchange
and interest rate derivatives and ensured these are consistent with the
amounts recognised by NEXT.
We used valuation specialists to form an independent expectation
of the risk free valuation recognised by NEXT for a sample of foreign
exchange and interest rate derivatives.
Our valuation specialists also estimated the impact of a credit risk
adjustment arising from the counterparty’s credit risk when NEXT holds
an asset and arising from NEXT’s credit risk when holding a liability.
We found the valuation of foreign exchange and interest rate derivatives
to be consistent with the evidence obtained.
We used actuarial specialists to review the key actuarial assumptions
across the Original Plan, the 2013 Plan and the SPA. We found that the
assumptions utilised by NEXT in the pension obligation valuation were
reasonable and within our expected range.
We reviewed the trust deeds for the 2013 Plan where a material net
surplus is recognised by NEXT. From this review, we concur with
management’s assessment that under the requirements of IFRIC 14,
NEXT should recognise the net surplus on the pension scheme.
We are satisfied that the valuation of the defined benefit pension
scheme obligations and the recognition of the net surplus is consistent
with the evidence obtained.
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How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the Group and the Parent Company, the accounting processes and controls, and the
industry in which they operate.
The Group financial statements are a consolidation of a number of reporting units, comprising the Group’s operating businesses within
its six segments with our audit work focused on the NEXT Retail, NEXT Online, NEXT Sourcing and Property Management segments.
In establishing the overall approach to the Group audit, we identified one reporting unit (Retail) which, in our view, required an audit
of its complete financial information both due to its size and risk characteristics (forms the majority of the NEXT Retail and NEXT
Online segments).
In addition, full scope audits were performed over five other reporting units which contribute to the highlighted segments, though
these are not considered to be individually significant either financially or due to risk characteristics.
The audit work performed at these six reporting units, together with additional procedures performed on centralised functions at
the Group level, including audit procedures over the consolidation and intangible asset impairment testing, gave us the evidence
we needed for our opinion on the Group financial statements as a whole. This scoping as described above results in the following
coverage at the key metrics:
• 95% of revenue;
• 97% of profit before tax; and
• 98% of total assets.
Five of the six in-scope components were audited by the UK Group Engagement Team with the remaining component audited
by a team in Hong Kong. Throughout the audit cycle, senior members of the Group Engagement Team worked closely with the
local component team including review of risk assessment and attendance via video conference at the local closing meeting with
management. Their workpapers were also subject to review by the Group Engagement Team.
The Parent Company is comprised of one reporting unit which was subject to a full scope audit for the purposes of the Group and
Parent Company financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£36.0 million.
£25.0 million.
How we determined it
5% of profit before tax.
1% of Total assets.
Group financial statements
Parent Company financial statements
Rationale for benchmark applied
Based on the benchmarks used in the
Annual Report, profit before tax is the
primary measure used by the shareholders
in assessing the performance of the
Group, and is a generally accepted
auditing benchmark.
The Parent Company’s main operations are
the holding and servicing of the Group's
corporate bonds and payment of dividends
to external equity shareholders. It does not
trade and therefore total assets is considered
to be the most appropriate benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was £6.0 million to £33.0 million. Certain components were audited to a local
statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1.8 million
(Group audit) and £1.3 million (Parent Company audit) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
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Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to
in respect of the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’ identification of any material
uncertainties to the Group’s and the Parent Company’s ability to continue as a going
concern over a period of at least twelve months from the date of approval of the
financial statements.
Outcome
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted,
this statement is not a guarantee as to the
Group’s and Parent Company’s ability to
continue as a going concern.
We are required to report if the directors’ statement relating to going concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06),
ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as
described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the period ended 27 January 2018 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Parent Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
98
The directors’ assessment of the prospects of the Group and of the principal risks
that would threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 42 of the Annual Report that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 47 of the Annual Report as to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of
the principal risks facing the Group and statement in relation to the longer term viability of the Group. Our review was substantially
less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements;
checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the Group and Parent Company and
their environment obtained in the course of the audit. (Listing Rules)
Other Code provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 61, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Parent Company’s position
and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Parent Company
obtained in the course of performing our audit.
• The section of the Annual Report on pages 67 to 70 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
• The directors’ statement relating to the Parent Company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 61, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our Auditors’ Report.
99
Strategic ReportGovernanceFinancial StatementsShareholder Information
Independent Auditor’s Report
to the Members of NEXT plc
Use of this report
This report, including the opinions, has been prepared for and only for the Parent Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 18 May 2017 to audit the
financial statements for the year ended 27 January 2018 and subsequent financial periods. This is therefore our first year of
uninterrupted engagement.
Andrew Lyon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
East Midlands
23 March 2018
100
101
GROUP FINANCIAL STATEMENTS 102 Consolidated Income Statement103 Consolidated Statement of Comprehensive Income 104 Consolidated Balance Sheet105 Consolidated Statement of Changes in Equity 106 Consolidated Cash Flow Statement 107 Group Accounting Policies 113 Notes to the Consolidated Financial StatementsStrategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Consolidated Income Statement
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other (losses)/gains
Trading profit
Share of results of associate and joint venture
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year attributable to equity holders of the Parent Company
Earnings Per Share
Basic
Diluted
The Notes 1 to 30 are an integral part of these consolidated financial statements.
52 weeks to
27 January
2018
£m
52 weeks to
28 January
2017
£m
4,055.5
(2,699.3)
1,356.2
(363.9)
(232.3)
(1.1)
758.9
1.0
759.9
1.3
(35.1)
726.1
(134.3)
591.8
4,097.3
(2,710.7)
1,386.6
(345.1)
(214.9)
0.1
826.7
1.0
827.7
0.3
(37.8)
790.2
(154.9)
635.3
416.7p
415.7p
441.3p
438.1p
Notes
1, 2
3
3
5
5
6
8
8
102
Consolidated Statement of
Comprehensive Income
Profit for the year
Other comprehensive income and expenses:
Items that will not be reclassified to profit or loss
Actuarial gains/(losses) on defined benefit pension scheme
Tax relating to items which will not be reclassified
Subtotal items that will not be reclassified
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Foreign currency cash flow hedges:
– fair value movements
– reclassified to the Income Statement
– recognised in inventories
Tax relating to items which may be reclassified
Subtotal items that may be reclassified
Other comprehensive expense for the year
Total comprehensive income for the year
52 weeks to
27 January
2018
£m
591.8
52 weeks to
28 January
2017
£m
635.3
Notes
18
6
6
43.4
(7.4)
36.0
(2.4)
0.2
(2.2)
7.8
0.3
(79.8)
(12.3)
8.8
14.2
(61.3)
(25.3)
566.5
111.6
(91.2)
(25.6)
2.0
(2.9)
(5.1)
630.2
103
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Consolidated Balance Sheet
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Associate, joint venture and other investment
Defined benefit pension asset
Other financial assets
Deferred tax assets
Current assets
Inventories
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
Other financial liabilities
Current tax liabilities
Non-current liabilities
Corporate bonds
Provisions
Other financial liabilities
Other liabilities
Deferred tax liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
27 January
2018
£m
28 January
2017
£m
Notes
9
10
18
12
6
11
12
13
14
15
16
17
19
16
15
6
558.9
42.9
2.1
106.2
48.1
5.8
764.0
490.1
1,248.2
5.7
53.5
1,797.5
2,561.5
(180.0)
(580.2)
(59.3)
(95.3)
(914.8)
(908.5)
(10.4)
(12.4)
(232.8)
–
(1,164.1)
578.6
43.3
2.1
62.9
57.3
–
744.2
451.1
1,125.8
34.0
49.7
1,660.6
2,404.8
(35.3)
(615.8)
(3.2)
(70.7)
(725.0)
(913.5)
(6.7)
(16.5)
(226.9)
(5.7)
(1,169.3)
(2,078.9)
(1,894.3)
482.6
482.6
510.5
510.5
The financial statements were approved by the Board of directors and authorised for issue on 23 March 2018. They were signed on
its behalf by:
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
104
Consolidated Statement of Changes
in Equity
Share
capital
£m
15.1
–
Share
premium
account
£m
Capital
redemption
reserve
£m
0.9
–
14.8
–
ESOT
reserve
£m
(208.7)
–
Fair value
reserve
£m
29.4
–
Foreign
currency
translation
£m
Other
reserves
(Note 21)
£m
Retained
earnings
£m
(4.8)
–
(1,443.8) 1,908.9
635.3
–
Total
equity
£m
311.8
635.3
At 30 January 2016
Profit for the year
Other comprehensive
(expense)/income for
the year
Total comprehensive
(expense)/income for
the year
Share buybacks and
commitments (Note 20)
ESOT share purchases and
commitments (Note 23)
Shares issued by ESOT
Share option charge
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
–
–
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
–
–
–
–
–
(50.9)
44.2
–
–
–
(3.2)
0.3
(3.2)
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 28 January 2017
14.7
0.9
15.2
(215.4)
26.2
(4.5)
(1,443.8) 2,117.2
Profit for the year
Other comprehensive
(expense)/income for
the year
Total comprehensive
(expense)/income for
the year
Share buybacks and
commitments (Note 20)
ESOT share purchases and
commitments (Note 23)
Shares issued by ESOT
Share option charge
Acquisition of minority
interest in subsidiary
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
–
–
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
(37.0)
20.8
–
–
–
–
–
–
(69.1)
7.8
(69.1)
7.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 27 January 2018
14.5
0.9
15.4
(231.6)
(42.9)
3.3 (1,443.8) 2,166.8
(2.2)
(5.1)
633.1
630.2
(187.6)
(187.6)
–
(13.7)
13.1
(10.8)
(225.8)
(50.9)
30.5
13.1
(10.8)
(225.8)
510.5
591.8
591.8
36.0
(25.3)
627.8
566.5
(106.1)
(106.1)
–
(10.5)
14.1
(37.0)
10.3
14.1
(0.4)
(0.4)
4.4
(479.7)
4.4
(479.7)
482.6
105
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Consolidated Cash Flow Statement
Cash flows from operating activities
Operating profit
Depreciation, impairment and loss on disposal of property, plant and equipment
Amortisation of intangible assets
Share option charge
Exchange movement
(Increase)/decrease in inventories
Increase in customer and other receivables
Decrease 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 and equipment
Movement in capital accruals
Payments to acquire property, plant and equipment
Proceeds from sale of property, plant and equipment
Outflow on the acquisition of minority interest in a subsidiary
Net cash from investing activities
Cash flows from financing activities
Repurchase of own shares
Purchase of shares by ESOT
Disposal of shares by ESOT
Proceeds from/(repayment of) unsecured bank loans
Issue of corporate bond
Repayment of corporate bond
Interest paid
Interest received
Dividends paid (Note 7)
Net cash from financing activities
Net decrease in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Closing cash and cash equivalents (Note 28)
52 weeks to
27 January
2018
£m
52 weeks to
28 January
2017
£m
759.9
122.6
0.4
14.1
6.1
(39.0)
(126.0)
(16.9)
–
721.2
(106.0)
615.2
(104.2)
(8.6)
(112.8)
1.0
(0.4)
(112.2)
(105.1)
(37.0)
11.3
135.0
–
–
(33.4)
1.3
(479.7)
(507.6)
(4.6)
14.4
(1.3)
8.5
827.7
116.3
0.4
13.1
0.3
35.3
(73.7)
(49.7)
(19.3)
850.4
(150.9)
699.5
(160.8)
3.8
(157.0)
2.7
–
(154.3)
(187.6)
(50.9)
29.9
(115.0)
297.3
(212.6)
(31.5)
0.1
(314.1)
(584.4)
(39.2)
52.7
0.9
14.4
106
Group Accounting Policies
General Information
NEXT plc and its subsidiaries (the “Group”) is a UK based retailer which offers exciting, beautifully designed, wonderful quality
clothing and homeware. The Company is a public limited company, which is listed on the London Stock Exchange and incorporated
in England and Wales and domiciled in the UK. The address of the registered office is Desford Road, Enderby, Leicester, LE19 4AT.
Basis of Preparation
The financial statements of NEXT plc and 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. As is common in the retail sector, the Group operates a weekly accounting
calendar and this year the financial statements are for the 52 weeks to 27 January 2018 (last year 52 weeks to 28 January 2017).
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. Subsidiaries are entities over which the Group has control. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Associates and joint ventures are all entities over which the Group has significant influence but not control. Investments in associates
and joint ventures are accounted for using the equity method of accounting. Under the equity method, the investment is initially
recognised at cost, and the carrying amount is increased or decreased to recognise the Group’s share of the change in net assets of
the associate or joint venture after the acquisition date.
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 other comprehensive income.
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, except when deferred in other comprehensive income as qualifying cash flow hedges.
Revenue
Revenue represents the fair value of amounts receivable for goods and services and is stated net of discounts, value added taxes and
returns. Sales of goods are recognised on delivery.
It is the Group’s policy to sell its products to the retail customer with a right to return within 14 days. Accumulated experience is used
to estimate and provide for such returns at the time of sale. The Group does not operate any loyalty programmes. Revenue from the
sale of gift cards is deferred until their redemption.
Online credit account interest is accrued on a time basis by reference to the principal outstanding and the effective interest rate.
Where third-party goods are sold on a commission basis, only the commission receivable is included in statutory revenue. To aid
comparability, “total sales” are disclosed in the Strategic Report and in Note 1 of the financial statements. Total sales includes the full
customer sales value of commission based sales and interest income, excluding VAT.
Royalty income is received from franchisees and is recognised on an accruals basis in accordance with the substance of the
relevant agreements.
Dividend Income
Dividend income is recognised when the right to receive payment is established.
107
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
Group Accounting Policies
Property, Plant and 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. Estimated useful lives are summarised
as follows:
Freehold and long leasehold property
Plant and equipment
Leasehold improvements
50 years
6 – 25 years
the period of the lease, or useful life if shorter
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the
identifiable net assets acquired. 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. For the purposes of impairment testing, goodwill acquired is allocated to the Cash generating unit (CGU)
that is expected to benefit from the synergies of the combination. The carrying value of the CGU containing the goodwill is compared
to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised
immediately as an expense and is not subsequently reversed.
Other Intangible Assets
Other intangible assets relate to the Lipsy brand names and trademarks obtained on acquisition which were initially recognised at fair
value. They are amortised on a straight line basis over their expected useful lives of 10 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 (Parent Company only) 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.
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. Where hedge accounting applies, an adjustment is applied such that the cost of
stock reflects the hedged exchange rate.
Online Customer and Other Receivables
Online customer receivables represent outstanding customer balances less any allowance for impairment which is based on objective
evidence and relevant 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.
Refer to Note 28 of the financial statements.
108
Corporate Bonds and Bank Borrowings
Corporate bonds and bank borrowings are initially recognised at fair value, net of transaction costs incurred and subsequently
measured at amortised cost and adjusted where hedge accounting applies (see interest rate derivatives on page 110). Accrued interest
is included within other creditors and accruals.
Pension Arrangements
The Group provides 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 separately for each plan
using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date by external actuaries.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest
rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to
maturity approximating to the terms of the related pension obligation. A net pension asset is only recognised to the extent that it is
expected to be recoverable in the future through a cash refund or a reduction in future payments.
The current service cost of the defined benefit plan is recognised in the Income Statement as an employee benefit expense. The net
interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of the
plan assets.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other
comprehensive income in the period in which they arise.
The cost of defined contribution schemes is recognised in the Income Statement as incurred. The Group has no further payment
obligations once the contributions have been paid.
Share-based Payment
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 or award, and is regularly reviewed and adjusted for the expected and actual number of options or
awards vesting. The social security contributions payable in connection with the grant of the share options is considered an integral
part of the grant itself, and the charge is treated as a cash-settled transaction.
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 recognised
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. Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset and there is an intention to settle the balances on a net basis.
Tax provisions are recognised when there is a potential exposure under changes to international tax legislation. Management uses
professional advisers and in-house tax experts to determine the amounts to be provided.
109
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Group Accounting Policies
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.
The Group designates certain derivatives as either:
a. Hedges of fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
b. Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of hedged items.
Interest rate derivatives – fair value hedges
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.
Foreign currency derivatives – cash flow hedges
Changes in the fair value of foreign currency derivatives which are designated and effective as hedges of future cash flows are
recognised in other comprehensive income and 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.
Share Buybacks
The Group has regularly returned surplus cash to shareholders through share buybacks. Shares purchased for cancellation are
deducted from retained earnings at the total consideration paid or payable. The Company also uses contingent share purchase
contracts and irrevocable closed period buyback programmes; the obligation to purchase shares is recognised in full at the inception
of the contract, even when that obligation is conditional on the share price. Any subsequent reduction in the obligation caused by the
expiry or termination of a contract is credited back to equity at that time.
Shares Held by ESOT
The NEXT Employee Share Ownership Trust (ESOT) provides for the issue of shares to Group employees, principally under share
option schemes. Shares in the Company held by the ESOT are included in the Balance Sheet at cost, including any directly attributable
incremental costs, as a deduction from equity.
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. Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the obligation.
110
Leasing Commitments
Rentals payable under operating leases are charged to the Income Statement 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, lease incentives and capital contributions receivable on entering an operating lease are released
to the Income Statement on a straight line basis over the lease term.
Major Sources of Estimation Uncertainty
The preparation of the financial statements requires estimations and assumptions to be made that affect the reported values of
assets, liabilities, revenues and expenses. The nature of estimation means that actual outcomes could differ from expectation.
Significant areas of estimation uncertainty for the Group include:
Recoverable amount of Online customer receivables
The provision for potentially irrecoverable debtors (refer to Note 11) is calculated using a combination of internally and externally
sourced information, including historical default and collection rates and other credit data. The basis for identifying when debtors
are potentially impaired has been applied consistently. A 1% movement in default rate would move the provision by c£2.5m.
A 1% movement in the collections rate would change the provision balance by c£0.8m.
Net realisable value of inventories
The selling prices of inventory are estimated to determine the net realisable value of inventory (£490.1m at 27 January 2018).
Historical sales patterns and post year end trading performance are used to determine these. A 2% change in the volume of inventories
going to clearance would impact the net realisable value by c£4m. A 2% change in the level of markdown applied to the selling price
would impact the value of inventories going to clearance by c£8m.
Defined benefit pension valuation
The assumptions applied in determining the defined benefit pension obligation (Note 18), are particularly sensitive to small changes in
assumptions. Advice is taken from a qualified actuary to determine appropriate assumptions at each balance sheet date. The actuarial
valuation involves making assumptions about discount rates, mortality rates and future pension increases. Due to the complexity of the
valuation, the underlying assumptions and the long term nature of these plans, such estimates are subject to significant uncertainty.
A sensitivity analysis is shown in Note 18. In determining the appropriate discount rate, management considers the interest rates of
high quality UK corporate bonds, with extrapolated maturities corresponding to the expected duration of the obligation. The mortality
rate is based on publicly available mortality tables.
Other
Other areas of estimation and judgement include product returns rates and property provisions. Product returns rates are based on
historical returns rate patterns and are recorded so as to allocate them to the same period in which the original revenue is recorded.
Sensitivities to the assumptions for product returns and property provisions are not expected to result in a material change in the
carrying amount. These provisions are reviewed regularly and updated to reflect management’s latest best estimates.
New Accounting Standards
Various new or revised accounting standards have been issued which are not yet effective. The key ones affecting the Group are
described below. The Group does not intend to early adopt these standards.
a. IFRS 15 “Revenue from contracts with customers” will be effective for the year ending January 2019 onwards, and will not impact
the Group’s profit. The majority of the Group’s sales are for standalone products made direct to customers at standard prices either
in-store or online. Estimates are already made of anticipated returns and sales awaiting delivery to the customer. Certain income
streams totalling around £30m currently netted off costs, will be recognised as statutory revenue on transition to IFRS 15.
The alternative performance measure “total sales” will not be adjusted for the impact of IFRS 15.
b. IFRS 9 “Financial instruments” will be effective for the year ending January 2019 onwards. IFRS 9 introduces:
• new requirements for the classification and measurement of financial assets and financial liabilities;
• a new model for recognising provisions based on expected credit losses; and
• simplified hedge accounting by aligning hedge accounting more closely with an entity’s risk management methodology.
The Group has completed an assessment of the impact of IFRS 9 and it is expected that adoption will not have a material impact on
Consolidated Income Statement or Consolidated Balance Sheet. As a retailer, NEXT is not required to provide against undrawn credit
under the “expected credit loss” model of Online customer receivables.
111
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Group Accounting Policies
New Accounting Standards (continued)
c. IFRS 16 “Leases” will be effective for the year ending January 2020. The Group has a large portfolio of leased properties and other
equipment, including stores and warehouses; the minimum lease commitment on these at the financial year end is disclosed in
Note 29.
On the adoption of IFRS 16, lease agreements will give rise to both a right-of-use asset and a lease liability for future lease payables.
The right-of-use asset will be depreciated on a straight-line basis over the life of the lease. Interest will be recognised on the lease
liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense recognised in the Income
Statement over the life of the lease will be unaffected by the new standard. However, IFRS 16 will result in the timing of lease expense
recognition being accelerated for leases which would be currently accounted for as operating leases.
There will be no impact on cash flows, although the presentation of the Cash Flow Statement will change significantly, with an increase
in cash flows from operating activities being offset by an increase in cash flows from financing activities.
The Group has established a working group to ensure we take all necessary steps to comply with the requirements of IFRS 16.
Significant work has been completed to date, including collection of relevant data, changes to IT systems and processes and the
determination of relevant accounting policies.
The Group intends to apply the fully retrospective approach on transition and will restate prior year comparatives. Given the
complexities of IFRS 16 and the material sensitivity to key assumptions, such as discount rates, it is not yet practicable to fully quantify
the effect of IFRS 16 on the financial statements of the Group.
112
Notes to the Consolidated
Financial Statements
Segmental Analysis
1.
The Group’s operating segments are determined based on the Group’s internal reporting to the Chief Operating Decision Maker
(CODM). The CODM has been determined to be the Group Chief Executive, with support from 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 38.
The Property Management segment holds properties and property leases which are sublet to other segments and external parties.
The NEXT International Retail segment comprises franchise and wholly owned stores overseas. International online sales are included
in the NEXT Online (formerly NEXT Directory) segment.
Where third-party branded goods are sold on a commission basis, only the commission receivable is included in statutory revenue.
“Total sales” represents the full customer sales value of commission based sales and interest income, excluding VAT.
Segment sales and revenue
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment sales/revenue
Eliminations
Total
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment sales/revenue
Eliminations
Total
52 weeks to 27 January 2018
Total sales
excluding
VAT
£m
2,123.0
1,887.4
67.2
6.6
4,084.2
24.2
9.1
4,117.5
–
4,117.5
Commission
sales
adjustment
£m
(1.0)
(59.8)
–
–
(60.8)
(1.2)
–
(62.0)
–
(62.0)
External
revenue
£m
2,122.0
1,827.6
67.2
6.6
4,023.4
23.0
9.1
4,055.5
–
4,055.5
Internal
revenue
£m
5.5
–
–
547.8
553.3
53.9
206.2
813.4
(813.4)
–
52 weeks to 28 January 2017
Total sales
excluding
VAT
£m
2,304.6
1,728.5
63.7
5.3
4,102.1
27.1
7.6
4,136.8
–
4,136.8
Commission
sales
adjustment
£m
(3.9)
(34.1)
–
–
(38.0)
(1.5)
–
(39.5)
–
(39.5)
External
revenue
£m
2,300.7
1,694.4
63.7
5.3
4,064.1
25.6
7.6
4,097.3
–
4,097.3
Internal
revenue
£m
5.9
–
–
599.9
605.8
38.8
205.6
850.2
(850.2)
–
Total
segment
revenue
£m
2,127.5
1,827.6
67.2
554.4
4,576.7
76.9
215.3
4,868.9
(813.4)
4,055.5
Total
segment
revenue
£m
2,306.6
1,694.4
63.7
605.2
4,669.9
64.4
213.2
4,947.5
(850.2)
4,097.3
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Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
Notes to the Consolidated
Financial Statements
1.
Segmental Analysis (continued)
Segment profit
During the year to January 2018, the recharges between NEXT Retail and NEXT Online were altered to better reflect the costs of the
standalone businesses. Prior year segment profit results for 2017 have been restated to provide comparability.
Segment profit
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment profit
Central costs and other
Share option charge
Other (losses)/gains
Trading profit
Share of results of associate and joint venture
Finance income
Finance costs
Profit before tax
2018
£m
268.7
461.2
7.7
33.0
770.6
6.0
3.6
780.2
(6.1)
(14.1)
(1.1)
758.9
1.0
1.3
(35.1)
726.1
2017
Restated
£m
353.3
429.5
9.3
44.7
836.8
5.5
6.8
849.1
(9.4)
(13.1)
0.1
826.7
1.0
0.3
(37.8)
790.2
2017
£m
338.7
444.1
9.3
44.7
836.8
5.5
6.8
849.1
(9.4)
(13.1)
0.1
826.7
1.0
0.3
(37.8)
790.2
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 Online.
114
1.
Segmental Analysis (continued)
Segment assets, capital expenditure and depreciation
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
Property, plant and
equipment
Capital
expenditure
Depreciation
2018
£m
390.7
82.3
1.0
2.6
3.5
78.8
558.9
2017
£m
405.4
88.6
0.7
2.8
3.2
77.9
578.6
2018
£m
88.6
10.9
0.6
1.1
1.0
2.0
104.2
2017
£m
138.2
19.0
–
1.0
0.9
1.7
160.8
2018
£m
98.9
17.4
0.2
0.9
0.9
0.3
118.6
2017
£m
96.0
15.7
0.3
1.0
1.0
0.3
114.3
Reporting to the Board with respect to assets includes values measured in a manner consistent with that of these financial statements.
These assets are allocated based on the operations of the segment and the physical location of the asset.
Impairment charges in relation to property, plant and equipment are included in the NEXT Retail segment. Segment liabilities have
not been disclosed as these are not regularly provided to the CODM.
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
Total
Non-current assets by geographical location
United Kingdom
Rest of Europe
Middle East
Asia
Total
2.
Revenue by Type
Sale of goods
Online account interest
Royalties
Rental income
Revenue
2018
£m
3,606.1
244.5
113.8
60.3
30.8
4,055.5
2018
£m
564.0
4.5
4.3
29.0
601.8
2018
£m
3,814.0
223.2
9.2
9.1
4,055.5
2017
£m
3,713.5
218.2
88.1
50.2
27.3
4,097.3
2017
£m
583.0
5.3
4.3
29.3
621.9
2017
£m
3,866.0
213.7
9.9
7.7
4,097.3
115
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
3. Operating Profit
Group operating profit is stated after charging/(crediting):
Depreciation on tangible assets
Loss/(profit) on disposal of property, plant and equipment
Impairment charges on tangible assets
Amortisation of intangible assets
Operating lease rentals:
Minimum lease payments (net of amortisation of incentives)
Contingent rentals payable
Customer and other receivables:
Impairment charge
Amounts recovered
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
2018
£m
118.6
0.8
3.2
0.4
225.1
5.1
28.5
(4.2)
2017
£m
114.3
(1.2)
3.2
0.4
219.8
5.8
35.0
(6.9)
1,433.9
116.1
1,550.0
1,441.0
109.9
1,550.9
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.
Gains on cash flow hedges removed from equity and included in the Income Statement for the period are £12.3m (2017: £91.2m)
included in cost of sales.
Other (losses)/gains reported in the Income Statement represent foreign exchange losses of £1.1m (2017: gains of £0.1m) in respect of
derivative contracts which do not qualify for hedge accounting under IAS 39.
Other foreign exchange differences recognised in the Income Statement were gains of £3.4m (2017: £4.2m).
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its
associates, including expenses:
Auditor's remuneration
Audit of the financial statements
Audit of subsidiaries
Total audit fees
Other services:
Tax compliance
Tax advisory services
Other assurance services
2018
£000
262
368
630
–
–
71
701
2017
£000
240
358
598
20
10
159
787
Audit fees presented in the table above represent auditor’s remuneration in respect of PwC and affiliates in the year ended 27 January
2018 and auditor’s remuneration in respect of EY and affiliates in the year ended 28 January 2017.
116
Staff Costs and Key Management Personnel
4.
Total staff costs were as follows:
Wages and salaries
Social security costs
Other pension costs
Share-based payments expense – equity-settled
Share-based payments benefit – cash-settled
2018
£m
586.1
42.5
21.9
650.5
14.1
(5.8)
658.8
2017
£m
594.6
39.5
20.5
654.6
13.1
(2.3)
665.4
Share-based payments comprise Management options, Sharesave options and potential LTIP and SMP awards, details of which are
given in Note 22.
In March 2017 the terms and conditions of the cash-settled share-based payment schemes were altered mandating that all awards
would be taken as shares. A net credit of £4.8m was recognised in the 2018 financial year on conversion of those share awards from
cash-settled to equity-settled.
Total staff costs by business sector were made up as follows:
NEXT Retail and Online
NEXT International Retail
NEXT Sourcing
Other activities
Total
NEXT Retail and Online
NEXT International Retail
NEXT Sourcing
Other activities
Total
2018
£m
604.3
2.0
29.6
22.9
658.8
2017
£m
619.2
1.9
27.5
16.8
665.4
Average employees
Full-time equivalents
2018
Number
39,859
133
3,725
253
43,970
2017
Number
44,887
135
3,760
251
49,033
2018
Number
24,265
106
3,725
222
28,318
2017
Number
26,445
111
3,760
209
30,525
The aggregate amounts charged in the accounts for key management personnel (including employer’s National Insurance
contributions), being the directors of NEXT plc, were as follows:
Short term employee benefits
Post-employment benefits
Share-based payments
Directors’ remuneration is detailed in the Remuneration Report.
2018
£m
3.1
0.3
1.5
4.9
2017
£m
2.9
0.3
(0.4)
2.8
117
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
5.
Finance Income and Costs
Interest on bank deposits
Other fair value movements
Other interest receivable
Finance income
Interest on bonds and other borrowings
Other fair value movements
Finance costs
Online account interest is presented as a component of revenue.
6.
Taxation
2018
£m
0.1
–
1.2
1.3
35.0
0.1
35.1
2017
£m
0.2
0.1
–
0.3
37.8
–
37.8
Tax charge for the year
Our tax charge for the year is shown below. Tax is made up of current and deferred tax. Current tax is the amount payable on the
taxable income in the year and any adjustments to tax payable in previous years. Deferred tax is explained on page 119.
Current tax:
Current tax on profits for the year
Adjustments in respect of prior years
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of prior years
Tax expense reported in the Consolidated Income Statement
2018
£m
147.8
(12.2)
135.6
(6.3)
5.0
134.3
2017
£m
157.1
–
157.1
1.1
(3.3)
154.9
Included within the adjustments in respect of prior years is an amount of £3.2m relating to the closure of open tax filings with HMRC.
Factors affecting the tax charge in the year
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
Adjustments in respect of prior years
Effective total tax rate on profit before taxation
2018
%
19.2
0.5
(0.2)
(1.0)
18.5
2017
%
20.0
0.6
(0.6)
(0.4)
19.6
118
6.
Taxation (continued)
Tax recognised in other comprehensive income and equity
In addition to the amount charged to the Income Statement, tax movements recognised in other comprehensive income and in
equity were as follows:
Deferred tax:
Pension benefit obligation
Fair value movements on derivative instruments
Tax (credit) in other comprehensive income
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Tax (credit)/charge in the Statement of Changes in Equity
2018
£m
7.4
(14.2)
(6.8)
2018
£m
(1.0)
(3.4)
(4.4)
2017
£m
(0.2)
(2.0)
(2.2)
2017
£m
(2.0)
12.8
10.8
Deferred tax
Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences that arise when the
carrying value of assets and liabilities differ between accounting and tax treatments. Deferred tax assets represent the amounts of
income taxes recoverable in the future in respect of those differences, while deferred tax liabilities represent the amounts of income
taxes payable in the future in respect of those differences.
The deferred tax asset/(liability) is made up of:
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 the beginning of the year
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 the end of the year
2018
£m
2.5
9.1
(18.1)
7.7
4.6
5.8
2018
£m
(5.7)
2.9
0.1
–
1.0
(2.7)
6.8
3.4
5.8
2017
£m
(0.4)
(5.2)
(10.7)
3.3
7.3
(5.7)
2017
£m
2.7
0.7
(0.1)
(1.7)
(2.1)
5.4
2.2
(12.8)
(5.7)
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Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
6.
Taxation (continued)
Deferred tax (continued)
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through
future taxable profits is probable. No recognition has been made of the following deferred tax assets:
Capital losses
Gross value
2018
£m
27.9
Unrecognised
deferred tax
2018
£m
4.7
Gross value
2017
£m
34.5
Unrecognised
deferred tax
2017
£m
5.8
The benefit of unrecognised capital losses will only accrue if taxable profits are realised on future disposals of the Group’s capital assets.
Factors affecting tax charges in future years
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2016 (on 6 September 2016).
These include reductions to the main rate of corporation tax to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred taxes
at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.
The Group’s effective tax rate is forecast to remain broadly in line with the current year.
Provisions, which are immaterial to the accounts, have been recognised in relation to uncertain tax positions. These relate to the
interpretation of tax legislation, including changes arising from the OECD’s Base Erosion and Profit Shifting project, that impact our
NEXT Sourcing operation in its ordinary course of business. Any uncertainty is likely to lessen as the business responds to these
rule changes.
NEXT manages its tax affairs responsibly and proactively to comply with tax legislation. We seek to build solid and constructive
working relationships with all tax authorities.
7. Dividends
Year to 27 January 2018
Special interim dividend
Final ordinary dividend for year to Jan 2017
Special interim dividend
Special interim dividend
Interim ordinary dividend for year to Jan 2018
Special interim dividend
Year to 28 January 2017
Special interim dividend
Final ordinary dividend for year to Jan 2016
Interim ordinary dividend for year to Jan 2017
Paid
2 May 2017
1 Aug 2017
1 Aug 2017
1 Nov 2017
2 Jan 2018
25 Jan 2018
Pence per
share
45p
105p
45p
45p
53p
45p
Paid
1 Feb 2016
1 Aug 2016
3 Jan 2017
Pence per
share
60p
105p
53p
Cash Flow
Statement
£m
64.3
149.3
64.0
63.8
74.8
63.5
479.7
Cash Flow
Statement
£m
88.3
150.2
75.6
314.1
Statement
of Changes
in Equity
£m
64.3
149.3
64.0
63.8
74.8
63.5
479.7
Statement
of Changes
in Equity
£m
–
150.2
75.6
225.8
It is intended that this year’s ordinary final dividend of 105p per share will be paid to shareholders on 1 August 2018. NEXT plc
shares will trade ex-dividend from 5 July 2018 and the record date will be 6 July 2018. The estimated amount payable is £144.0m.
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.
120
8.
Earnings Per Share
Basic Earnings Per Share
2018
416.7p
2017
441.3p
Basic Earnings Per Share is based on the profit for the year attributable to the equity holders of the Parent Company divided by the
net of the weighted average number of shares ranking for dividend less the weighted average number of shares held by the ESOT
during the period.
Diluted Earnings Per Share
2018
415.7p
2017
438.1p
Diluted Earnings Per Share is calculated by adjusting 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 4,779,181 non-dilutive share options in the current
year (2017: 2,578,878).
Fully diluted Earnings Per Share
2018
399.7p
2017
426.2p
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. Underlying fully diluted
Earnings Per Share is used for the purposes of the Share Matching Plan, described further in Note 22.
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 (£m)
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
2018
591.8
146.7
(4.7)
142.0
0.4
142.4
142.0
6.0
148.0
2017
635.3
148.4
(4.4)
144.0
1.0
145.0
144.0
5.1
149.1
As detailed in the Remuneration Report, the annual bonus for executive directors is determined by reference to underlying pre-tax
Earnings per Share of 511.3p (2017: 548.9p). This is calculated using 52 week underlying pre-tax profit of £726.1m (2017: £790.2m) as
shown in Note 1 divided by the net of the weighted average number of shares in issue less the weighted average number of shares
held by the ESOT during the period.
121
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
9.
Property, Plant and Equipment
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
Cost
At January 2016
Exchange movement
Additions
Disposals
At January 2017
Exchange movement
Additions
Disposals
At January 2018
Depreciation
At January 2016
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2017
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2018
Carrying amount
At January 2018
At January 2017
At January 2016
77.4
–
1.8
(0.8)
78.4
–
2.0
(0.9)
79.5
8.0
–
0.2
–
–
8.2
–
0.2
–
–
8.4
71.1
70.2
69.4
9.4
–
–
–
9.4
–
–
–
9.4
1.6
–
–
–
–
1.6
–
–
–
–
1.6
7.8
7.8
7.8
Total
£m
1,683.7
1.6
160.8
(55.0)
1,791.1
(1.4)
104.2
(76.5)
1,817.4
1,147.3
1.3
114.3
3.2
(53.6)
1,212.5
(1.1)
118.6
3.2
(74.7)
1,258.5
1,596.9
1.6
159.0
(54.2)
1,703.3
(1.4)
102.2
(75.6)
1,728.5
1,137.7
1.3
114.1
3.2
(53.6)
1,202.7
(1.1)
118.4
3.2
(74.7)
1,248.5
480.0
500.6
459.2
558.9
578.6
536.4
At January 2018 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £12.8m (2017: £14.2m).
Impairment charges relate to the impairment of shop fittings on loss-making stores.
122
10.
Intangible Assets
Cost
At January 2016, January 2017 and January 2018
Amortisation and impairment
At January 2016
Amortisation provided during the year
At January 2017
Amortisation provided during the year
At January 2018
Carrying amount
At January 2018
At January 2017
At January 2016
The carrying amount of goodwill is allocated to the following cash generating units:
NEXT Sourcing
Lipsy
Brand
names and
trademarks
£m
Goodwill
£m
4.0
2.9
0.4
3.3
0.4
3.7
0.3
0.7
1.1
44.2
1.6
–
1.6
–
1.6
42.6
42.6
42.6
2018
£m
30.5
12.1
42.6
Total
£m
48.2
4.5
0.4
4.9
0.4
5.3
42.9
43.3
43.7
2017
£m
30.5
12.1
42.6
Goodwill is tested for impairment at the balance sheet date on the basis of value in use calculations. As this exceeded carrying value
for each of the cash generating units concerned, no impairment loss was recognised (2017: £nil).
NEXT Sourcing
The key assumptions in testing the goodwill for impairment 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, budgets for the next year were used and
extrapolated for four further years using a growth rate of -10% (2017: 0% growth rate) and discounted at 10% (2017: 10%).
Lipsy
In assessing the recoverable amount of goodwill, internal budgets for next year were used and extrapolated for nine further years
using a growth rate of 2% (2017: 2%) and discounted at 12% (2017: 12%).
For both NEXT Sourcing and Lipsy, the calculated value in use significantly exceeded the carrying value of the goodwill. Therefore,
there is no reasonably possible change in any of the key assumptions that would give rise to an impairment.
123
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
11. Customer and Other Receivables
Online customer receivables
Less: allowance for doubtful debts
Other trade receivables
Less: allowance for doubtful debts
Prepayments
Other debtors
Amounts due from associate and joint venture
2018
£m
1,255.6
(138.7)
1,116.9
21.7
(0.1)
1,138.5
94.2
13.4
2.1
1,248.2
2017
£m
1,139.3
(137.5)
1,001.8
23.6
(0.3)
1,025.1
91.7
8.6
0.4
1,125.8
No interest is charged on Online customer receivables if the statement balance is paid in full and to terms; otherwise balances bear
interest at a variable annual percentage rate of 22.9% at the year end date (2017: 22.9%). The carrying values of customer and other
receivables materially approximate their fair value.
Expected irrecoverable amounts on balances with indicators of impairment 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.
Management consider the credit quality of customer receivables that are neither past due nor impaired can best be assessed by
reference to the historical default rate for the preceding 365 days of approximately 1% (2017: 1%). £Nil (2017: £nil) of customer and
other receivables are past due but not impaired.
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
1 – 30 days past due
31 – 60 days past due
61 – 90 days past due
91 – 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
124
2018
£m
1,137.9
42.8
9.9
5.3
6.9
58.1
16.4
1,277.3
2018
£m
137.8
28.5
(23.3)
(4.2)
138.8
2017
£m
1,043.6
33.2
8.8
4.9
4.4
55.3
12.7
1,162.9
2017
£m
162.5
35.0
(52.8)
(6.9)
137.8
12. Other Financial Assets
Foreign exchange contracts
Interest rate derivatives
2018
Current
£m
5.7
–
5.7
Non-current
£m
–
48.1
48.1
2017
Current
£m
34.0
–
34.0
Non-current
£m
–
57.3
57.3
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 (refer to Note 24). These instruments are primarily for US Dollars and Euros. Interest rate
derivatives relate to the corporate bonds (refer to Note 17).
13. Cash and Short Term Deposits
Cash at bank and in hand
Short term deposits
2018
£m
52.8
0.7
53.5
2017
£m
49.7
–
49.7
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.
14. Bank Loans and Overdrafts
Bank overdrafts and short term borrowings
Unsecured committed bank loans
2018
£m
45.0
135.0
180.0
2017
£m
35.3
–
35.3
Bank overdrafts are repayable on demand and bear interest at a margin over bank base rates. Unsecured bank loans relate to amounts
drawn under a medium term bank revolving credit facility which bear interest at a margin above LIBOR (refer to Note 24).
15. Trade Payables and Other Liabilities
Trade payables
Other taxation and social security
Deferred revenue from sale of gift cards
Property lease incentives
Share-based payment liability
Other creditors and accruals
2018
Current
£m
168.4
62.4
78.1
32.6
0.8
237.9
580.2
Non-current
£m
–
–
–
218.1
0.7
14.0
232.8
2017
Current
£m
186.1
62.5
77.3
31.9
1.9
256.1
615.8
Non-current
£m
–
–
–
212.9
5.6
8.4
226.9
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.
125
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
Notes to the Consolidated
Financial Statements
16. Other Financial Liabilities
Foreign exchange contracts
Interest rate derivatives
2018
Current
£m
59.3
–
59.3
Non-current
£m
–
12.4
12.4
2017
Current
£m
3.2
–
3.2
Non-current
£m
–
16.5
16.5
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 24). These instruments are primarily for US Dollars and Euros. Interest rate derivatives
relate to the corporate bonds (Note 17).
17. Corporate Bonds
Corporate bond 5.375% repayable 2021
Corporate bond 4.375% repayable 2026
Corporate bond 3.625% repayable 2028
Balance Sheet value
Nominal value
2018
£m
328.4
280.1
300.0
908.5
2017
£m
329.5
284.0
300.0
913.5
2018
£m
325.0
250.0
300.0
875.0
2017
£m
325.0
250.0
300.0
875.0
The Group uses interest rate derivatives to manage the interest rate risk associated with its bonds, the profile of which is shown below:
2021 bonds
Fixed
Fixed
Fixed
Fixed
Floating
2026 bonds
Floating
2028 bonds
Fixed
Total
2018
Nominal
value
£m
2018
Aggregate
interest
rate
2017
Nominal
value
£m
2017
Aggregate
interest
rate
5.375%
5.200%
5.150%
5.050%
6m LIBOR +1.9%
150.0
50.0
50.0
50.0
25.0
325.0
150.0
50.0
50.0
50.0
25.0
325.0
5.375%
5.200%
5.150%
5.050%
6m LIBOR +1.9%
250.0
6m LIBOR +1.4%
250.0
6m LIBOR +1.4%
300.0
875.0
3.625%
300.0
875.0
3.625%
Interest rate risk management is explained in Note 24 and the fair values of the corporate bonds are shown in Note 26.
126
18. Pension Benefits
The Group operates three pension arrangements in the UK: the Next Group Pension Plan (the “Original Plan”), the 2013 NEXT Group
Pension Plan (the “2013 Plan”) and the NEXT Supplementary Pension Arrangement (the “SPA”).
The Group’s UK pension arrangements include defined benefit and defined contribution sections. The Original Plan and 2013 Plan are
established under trust law and comply with all relevant UK legislation. Pension assets are held in separate trustee administered funds
which have equal pension rights with respect to members of either sex in so far as this is required by current legislation. The defined
benefit section was closed to new members in 2000 and over recent years the Group has taken steps to manage the ongoing risks
associated with its defined benefit liabilities.
The Group also provides additional retirement benefits through the SPA to some plan members whose benefits would otherwise be
affected by the lifetime allowance.
The Original Plan comprises predominantly members with pensions in payment, following the transfer of active and deferred
members (and associated liabilities) to the 2013 Plan. The risks associated with the payment of pensions of the Original Plan have
been largely mitigated by the purchase of two insurance contracts (“buy-ins”) with Aviva in 2010 and 2012 to cover the liabilities of this
Plan, although it remains the ultimate responsibility of the Company to provide members with benefits. The pensions and matching
insurance contracts held by the Original Plan are being converted to buy-out and the Original Plan will then be dissolved.
The 2013 Plan was established in 2013 via the transfer of liabilities and assets from the Original Plan. This arrangement provides
benefits to the majority of members whose pensions were not insured with Aviva. From November 2012, the future accrual of benefits
for remaining active employee members has been based on pensionable earnings frozen at that time, rather than final earnings.
Further information on the Group’s pension arrangements is given in the Remuneration Report on page 79.
Principal risks
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. If plan assets underperform corporate bonds, this will create a deficit.
Investment risk in the Original Plan is negligible, as almost all liabilities in this plan are covered by the
insurance contracts. The strategic allocation of assets in the 2013 Plan is currently weighted towards equity
assets as its liability profile is relatively immature and it is expected that these asset classes will, over the long
term, outperform gilts and corporate bonds.
A fall in corporate 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.
Pensions in payment are increased annually in line with RPI or CPI for Guaranteed Minimum Pensions built up
since 1988. Pensions built up since 2005 are capped at 2.5% and pensions built up between 1997 and 2005
are capped at 5%. When discretionary increases have been awarded for pensions built up before 1997, they
too have tended to reflect RPI, capped at 2.5%. Therefore an increase in inflation would increase the value
of pension liabilities. The assets would be expected to also increase, to the extent that they are linked to
inflation, but this would not be expected to fully match the increase in 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 live longer than this mortality assumption, this will increase
the liabilities.
The buy-in insurance contracts represent over 99% of the Original Plan pension liabilities and 18% of the total pension liabilities.
This partially offsets the total risks described above. Derivatives are not used to hedge any of the risks noted above.
127
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany SPA
£m
0.4
0.4
–
0.8
SPA
£m
(1.6)
(1.9)
(3.5)
Total
£m
7.8
(1.8)
1.9
7.9
Total
£m
13.0
(135.6)
(122.6)
Notes to the Consolidated
Financial Statements
18. Pension Benefits (continued)
Income statement
The components of the net defined benefit expense recognised in the Consolidated Income Statement are as follows:
Current service cost
Net interest
Administration costs
Net defined benefit expense
2018
2013
Plan
£m
8.3
(2.2)
1.4
7.5
Original
Plan
£m
–
–
0.1
0.1
SPA
£m
0.4
0.5
–
0.9
Total
£m
8.7
(1.7)
1.5
8.5
2017
2013
Plan
£m
7.4
(2.2)
1.8
7.0
Original
Plan
£m
–
–
0.1
0.1
Other comprehensive income
The components of the net defined benefit expense recognised in other comprehensive income are as follows:
2013
Plan
£m
4.4
(15.4)
(11.0)
54.1
2018
Original
Plan
£m
(0.2)
(1.7)
(1.9)
2.0
SPA
£m
0.4
(0.2)
0.2
Total
£m
4.6
(17.3)
(12.7)
2013
Plan
£m
12.2
(121.9)
(109.7)
2017
Original
Plan
£m
2.4
(11.8)
(9.4)
–
56.1
108.8
11.4
–
120.2
Actuarial gains/(losses) due
to liability experience
Actuarial losses due to
liability assumption changes
Return on plan assets greater
than discount rate
Actuarial gains/(losses)
recognised in other
comprehensive income
43.1
0.1
0.2
43.4
(0.9)
2.0
(3.5)
(2.4)
Balance sheet valuation
The net defined benefit pension asset/(liability) recognised in the Consolidated Balance Sheet is analysed as follows:
2018
2013
Plan
£m
Original
Plan
£m
Present value of benefit
obligations
Fair value of plan assets
Net pension asset/(liability)
(667.3)
788.5
121.2
(146.0)
148.0
2.0
SPA
£m
(17.0)
–
(17.0)
Total
£m
(830.3)
936.5
106.2
2017
2013
Plan
£m
Original
Plan
£m
(646.6)
723.8
77.2
(148.0)
150.0
2.0
SPA
£m
(16.3)
–
(16.3)
Total
£m
(810.9)
873.8
62.9
A net asset has been recognised as the Trust Deeds of the Original and 2013 Plans provide the Group with an unconditional right to
a refund assuming the gradual settlement of the Plans’ liabilities over time until all members have left the Plans.
128
18. Pension Benefits (continued)
Plan obligations
Changes in the present value of defined benefit pension obligations are analysed as follows:
2018
2017
2013
Plan
£m
646.6
8.3
17.9
0.1
(16.6)
–
32.5
(4.4)
(17.1)
667.3
Original
Plan
£m
148.0
–
3.8
–
(7.7)
–
3.9
0.2
(2.2)
146.0
SPA
£m
16.3
0.4
0.5
–
–
–
(0.4)
(0.4)
0.6
17.0
Total
£m
810.9
8.7
22.2
0.1
(24.3)
–
36.0
(4.6)
(18.7)
830.3
2013
Plan
£m
521.3
7.4
18.8
0.1
(13.5)
2.8
113.3
(12.2)
8.6
646.6
Original
Plan
£m
146.1
–
4.7
–
(9.4)
(2.8)
12.0
(2.4)
(0.2)
148.0
SPA
£m
12.0
0.4
0.4
–
–
–
1.9
1.6
–
16.3
Total
£m
679.4
7.8
23.9
0.1
(22.9)
–
127.2
(13.0)
8.4
810.9
Opening obligation
Current service cost
Interest cost
Employee contributions
Benefits paid
Transfers between plans
Actuarial (gains)/losses
– financial assumptions
– experience
– demographic assumptions
Closing obligation
The present value of the defined benefit closing obligation of £830.3m was comprised of approximately 28% relating to active
participants, 47% relating to deferred participants and 25% relating to pensioners.
Plan assets
Changes in the fair value of defined benefit pension assets were as follows:
2018
2017
2013
Plan
£m
723.8
8.4
0.1
(16.6)
–
20.1
54.1
(1.4)
788.5
Original
Plan
£m
150.0
–
–
(7.7)
–
3.8
2.0
(0.1)
148.0
SPA
£m
–
–
–
–
–
–
–
–
–
Total
£m
873.8
8.4
0.1
(24.3)
–
23.9
56.1
(1.5)
936.5
2013
Plan
£m
579.2
27.2
0.1
(13.5)
2.8
21.0
108.8
(1.8)
723.8
Original
Plan
£m
146.2
–
–
(9.4)
(2.8)
4.7
11.4
(0.1)
150.0
SPA
£m
–
–
–
–
–
–
–
–
–
Total
£m
725.4
27.2
0.1
(22.9)
–
25.7
120.2
(1.9)
873.8
Opening assets
Employer contributions
Employee contributions
Benefits paid
Transfers between plans
Interest income on assets
Return on plan assets
(excluding amounts included
in interest)
Administrative costs
Closing assets
129
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
18. Pension Benefits (continued)
Plan assets (continued)
The fair value of plan assets was as follows:
Equities
Equity-linked bonds
Bonds
Gilts
Property
Insurance contracts
Cash and cash equivalents
2018
2017
2013
Plan
£m
369.4
62.6
102.4
187.8
56.0
–
10.3
788.5
Original
Plan
£m
–
–
–
2.2
–
145.8
–
148.0
Total
£m
369.4
62.6
102.4
190.0
56.0
145.8
10.3
936.5
%
39.4
6.7
10.9
20.3
6.0
15.6
1.1
100.0
2013
Plan
£m
459.2
95.4
53.0
61.4
29.2
–
25.6
723.8
Original
Plan
£m
1.5
–
–
0.7
–
147.8
–
150.0
Total
£m
460.7
95.4
53.0
62.1
29.2
147.8
25.6
873.8
%
52.8
10.9
6.1
7.1
3.3
16.9
2.9
100.0
None of the pension arrangements directly invest in any of the Group’s own financial instruments nor any property occupied by, or
other assets used by, the Group. The fair values of the above equity and debt instruments are determined based on quoted prices
in active markets. The property assets relate to investments in property funds and their fair value is based on quoted prices in active
markets. The majority of the benefits within the Original Plan are covered by two insurance contracts with Aviva. The insurance assets
have been valued so as to match the defined benefit obligations, the value of which was calculated by Aviva.
Principal assumptions
The IAS 19 (accounting) valuation of the defined benefit obligation was undertaken by an external qualified actuary as at January 2018
using the projected unit credit method. The principal actuarial assumptions used in the valuation were as follows:
Discount rate
Inflation – RPI
Inflation – CPI
Salary increases
Pension increases in payment
– RPI with a maximum of 5.0%
– RPI with a maximum of 2.5% and discretionary increases
Life expectancy at age 65 (years)
Male
Female
2018
2017
Original
Plan
2.40%
3.45%
2.45%
–
2013 and
SPA
2.50%
3.20%
2.20%
–
3.15%
2.05%
3.00%
1.95%
Original
Plan
2.65%
3.60%
2.60%
–
3.25%
2.10%
2013 and
SPA
2.80%
3.40%
2.40%
–
3.10%
2.00%
2018
Pensioner
aged 65
Non-
pensioner
aged 45
2017
Pensioner
aged 65
Non-
pensioner
aged 45
22.7
25.0
24.5
26.7
22.9
25.3
23.3
25.8
The discount rate has been derived as the single average discount rate appropriate to the term of the liabilities, based on the yields
available on high quality Sterling corporate bonds. The expected average duration of the Original Plan’s liabilities is 13 years and for
the SPA and 2013 Plans it is 26 years.
The rate of retail price inflation (RPI) has been derived in a consistent way to the discount rate, so that it is appropriate to the term of
the liabilities. As in previous years, the RPI assumption for the 2013 and SPA allow for the inflation risk premium of 0.2% per annum
whereas that for the Original Plan does not, because its assets and liabilities are almost fully matched.
130
18. Pension Benefits (continued)
Principal assumptions (continued)
The rate of consumer price inflation (CPI) is set at 1.0% lower than the assumption for retail price inflation, reflecting the long term
expected gap between the two indices.
For the 2013 Plan and the SPA, the base mortality assumptions reflect the best estimate output from a postcode mortality study.
This results in an assumption in line with the standard SAPS Series 2 All Pensioner tables (with a multiplier of 95% for males and 92%
for females) with improvements in line with the CMI 2015 Core Projection model with a long term trend towards 1.5% per annum from
2007 to 2016. Future improvements from 2016 have been allowed for in line with the most recent CMI 2016 core projection model
with a long term trend towards 1.5% per annum.
The base mortality assumption for the Original Plan is in line with the standard SAPS Series 1 All Pensioner tables with medium
cohort improvements to 2009 and CMI 2013 improvements with a long term trend towards 1.5% per annum from 2009 to 2016.
Future improvements from 2016 have been allowed for in line with the most recent CMI 2016 core projection model, with a long term
trend towards 1.5% per annum.
Sensitivity analysis
The sensitivity of the net pension asset to changes in the principal assumptions is:
Discount rate
Price inflation
Price inflation
Mortality
Sensitivity analysis
0.5% decrease
0.5% increase to RPI and CPI
0.1% decrease to CPI (i.e. increase in the gap between RPI and CPI)
Life expectancy increased by one year
Impact on net pension asset
as at 27 January 2018
£89.2m decrease
£48.6m decrease
£4.4m increase
£21.9m decrease
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this
is unlikely to occur and changes in some of the assumptions may be correlated. Aside from the matching insurance contracts held
in the Original Plan, no allowance has been made for any change in assets that might arise under any of the scenarios set out above.
When calculating the sensitivity of the defined benefit obligation to changes in the significant assumptions, the same method has
been applied as when calculating the pension liability recognised within the Consolidated Balance Sheet. The inflation assumption
impacts the “pension increases in payment” and deferred pension calculations.
The sensitivities shown are just one possible outcome and should not be taken as an indication of the likelihood of a change occurring
in the future. Economic markets have been particularly volatile in recent months and market metrics used to derive the discount rate
and price inflation assumptions could increase or decrease in the future, by more or less than the change set out.
Full actuarial valuation
The latest full actuarial valuation of the 2013 Plan was undertaken as at 30 September 2016 by Willis Towers Watson (who act as
Actuary to the Trustees). The valuation showed a funding deficit on the Technical Provisions basis required by legislation of £70.2m
at that date.
The Group has agreed a recovery plan to meet the funding deficit, which is intended to restore the Plan assets to a fully funded
position on a Technical Provisions basis by 30 September 2021. Under that agreement, the Group will contribute five annual payments
of up to £14.0m by 31 January each year. The first payment of £14.0m under this agreement was made in January 2017 and future
contributions will only be required to be paid to the extent that there is a funding deficit at the preceding 31 December.
At 31 December 2017 the 2013 Plan was estimated to be fully funded on a Technical Provisions basis with a surplus in the region of
£37m, therefore a deficit contribution was not payable in January 2018.
With effect from January 2018, the Company also agreed to pay contributions of 31.3% per annum of members’ frozen pensionable
salaries as at 31 October 2012 towards the future accrual of benefits for active members, an increase from 17.5% per annum.
131
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
18. Pension Benefits (continued)
Contributions
Members of the Defined Benefit Section of the 2013 Plan contribute 3% or 5% of pensionable earnings. With effect from January 2018,
employer contributions increased from 17.5% per annum to 31.3% (c£6m to c£8m) per annum. Members of the defined contribution
section contribute 3% or 5% of pensionable earnings which is matched by the Group.
Contributions paid by the Group are set out below:
Defined contribution – recognised as an expense
Automatic enrolment – recognised as an expense
Defined benefit
2018
£m
11.6
1.8
8.4
21.8
2017
£m
10.8
1.8
27.2
39.8
The £27.2m paid into the defined benefit section of the 2013 Plan in 2017 included an additional contribution of £14m paid in respect
of the recovery plan agreed with the Trustees following the September 2016 full actuarial valuation and a prepayment of contributions
of £6m for the cost of future accrual in the year to January 2018.
Employer contributions to the defined benefit section in the year ahead are expected to be around £22m assuming a contribution of
£14m is paid in January 2019, although in practice this is contingent on there being a deficit on a funding (Technical Provisions) basis
at this time (refer to details in Full actuarial valuation section above). Employer contributions for the defined contribution scheme is
expected to be similar in the year ahead. Employer contributions for the automatic enrolment scheme are expected to increase to
around £9m, including salary sacrifice contributions.
19. Provisions
At the beginning of the year
Provisions made in the year
Utilisation of provisions
Release of provisions
Unwind of discount
At the end of the year
Vacant property costs
2017
£m
7.3
4.4
(1.8)
(3.4)
0.2
6.7
2018
£m
6.7
7.0
(2.0)
(1.6)
0.3
10.4
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 for these properties is 8 years (2017: 11 years).
20. Share Capital
Allotted, called up and fully paid
Ordinary shares of 10p each
At the start of the year
Purchased for cancellation in the year
At the end of the year
2018
Shares ‘000
2017
Shares ‘000
2018
£m
147,057
(2,175)
144,882
150,670
(3,613)
147,057
14.7
(0.2)
14.5
The table below shows the movements in equity from share purchases and commitments during the year:
Shares purchased for cancellation in the year
Amount shown in Statement of Changes in Equity
2018
Shares
‘000
2,175
Cost
£m
106.1
106.1
2017
Shares
‘000
3,613
2017
£m
15.1
(0.4)
14.7
Cost
£m
187.6
187.6
Subsequent to the end of the financial year and before the start of the closed period, the Company purchased for cancellation
1,403,228 shares at a cost of £69.1m.
132
21. 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.
22. 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 if, in the same financial year, they have received an
award under NEXT’s Long Term Incentive Plan or Share Matching Plan.
The total number of options which can be granted is subject to limits. There are no cash-settlement alternatives and they are therefore
accounted for under IFRS 2 as equity-settled awards. Option prices 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 UK employees. Invitations to participate are generally issued
annually and the scheme is subject to HMRC rules. The current maximum monthly savings 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.
A similar Sharesave scheme is open to the Company’s Eire employees. Sharesave options are also accounted for as equity-settled
awards under IFRS 2.
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
2018
2017
Weighted
average
exercise
price
£47.61
£41.31
£28.49
£47.46
£47.12
£45.06
No. of
options
5,064,951
1,696,653
(411,350)
(767,459)
5,582,795
1,610,693
No. of
options
4,624,159
2,129,400
(883,097)
(805,511)
5,064,951
1,392,536
Weighted
average
exercise
price
£47.60
£45.54
£33.94
£56.97
£47.61
£31.90
133
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
22. Share-based Payments (continued)
Management and Sharesave options (continued)
Options were exercised on a regular basis throughout the year and the weighted average share price during this period was £44.24
(2017: £52.89). Options outstanding at January 2018 are exercisable at prices ranging between £10.81 and £70.80 (2017: £10.81 and
£70.80) and have a weighted average remaining contractual life of 6.0 years (2017: 5.7 years), as analysed below:
Exercise price range
£10.81 – £38.25
£41.09
£41.12 – £42.08
£54.10 – £59.76
£66.95 – £70.80
2018
2017
Weighted
average
remaining
contractual
life
(years)
2.8
9.2
4.3
6.9
6.7
6.0
No. of
options
1,290,078
1,257,902
917,899
1,024,461
1,092,455
5,582,795
Weighted
average
remaining
contractual
life
(years)
3.6
–
5.3
7.4
7.7
5.7
No. of
options
1,889,021
–
757,351
1,219,448
1,199,131
5,064,951
Share Matching Plan (SMP)
The SMP is an equity-settled scheme open to a small number of senior executives below Board level. From January 2014, executive
directors are no longer granted SMP awards. Participants who invest a proportion of any annual cash bonus in NEXT shares will
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 maximum matching ratio available under the SMP rules is 3:1,
matching the pre-tax equivalent of the amount invested in shares. For any SMP grants made from 2018, participants will be entitled
to receive ordinary and special dividend accruals on any awards vesting under the SMP.
The Remuneration Committee’s policy is to set performance measures by reference to underlying fully diluted post-tax EPS but the
Committee has flexibility to use different measures. Under the formulae, a notional adjustment is made to actual EPS achieved 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.
The following table summarises the movements in nil cost SMP options during the year:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
2018
No. of
options
76,946
17,298
(43,228)
(5,452)
45,564
–
2017
No. of
options
85,657
15,002
(21,081)
(2,632)
76,946
21,390
The weighted average remaining contractual life of these options is 5.8 years (2017: 7.6 years). SMP options were exercised at different
times in the year and the weighted average share price during this period was £43.12 (2017: £52.47).
Long Term Incentive Plan (LTIP)
As explained in the Remuneration Report, the Group operates an LTIP scheme for executive directors and other senior executives.
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 are settled in shares with no cash-settlement alternative. Awards to other senior executives were
generally cash-settled until March 2017, since that date they are settled in shares. As a result, all LTIP awards were accounted for
under IFRS 2 as equity-settled in the year ended 27 January 2018. Performance conditions for the LTIP awards are detailed in the
Remuneration Report.
134
22. Share-based Payments (continued)
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
Vested
Forfeited
Change in accounting (cash to equity)
Outstanding at end of year
The weighted average remaining contractual life of these options is 1.6 years (2017: 1.5 years).
Cash-settled LTIP awards
The following table summarises the movements in cash-settled LTIP awards during the year:
Outstanding at beginning of year
Granted
Vested
Forfeited
Change in accounting (cash to equity)
Outstanding at end of year
2018
No. of
awards
164,783
222,467
(12,752)
(134,668)
247,612
487,442
2017
No. of
awards
100,745
64,038
–
–
–
164,783
2018
No. of
awards
247,612
–
–
–
(247,612)
–
2017
No. of
awards
338,760
92,912
(114,345)
(69,715)
–
247,612
A credit of £5.8m for the year (2017: credit of £2.3m) has been made in the accounts in respect of cash-settled LTIP grants, of which
a credit of £0.1m (2017: credit of £2.1m) related to the executive directors. The weighted average remaining contractual life of these
awards in 2018 was nil years (2017: 1.4 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 27 January 2018 and 28 January 2017 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
2018
2017
£41.09
£41.09
25.90%
4 years
0.32%
3.85%
£5.35
£54.10
£54.10
20.60%
4 years
0.64%
2.83%
£6.22
135
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
22. Share-based Payments (continued)
Fair value calculations (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
SMP (granted in May)
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
2018
£52.60
£42.08
29.20%
3.3 years
0.63%
3.00%
£12.77
2018
£41.85
Nil
27.80%
3 years
0.21%
3.78%
£37.37
2017
£47.81
£38.25
25.22%
3.3 years
0.31%
3.30%
£10.04
2017
£52.65
Nil
21.53%
3 years
0.58%
2.91%
£48.25
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 27 January 2018 and
28 January 2017 based on information at the date of grant:
Equity-settled LTIP awards (granted in March)
Share price at date of grant
Award 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
Award price
Volatility
Life of award
Risk free rate
Dividend yield
Fair value per award
2018
£41.99
Nil
27.10%
3 years
0.30%
3.76%
£16.74
2018
£50.45
Nil
29.40%
3 years
0.52%
0.00%
£23.45
2017
£56.35
Nil
20.92%
3 years
0.64%
2.72%
£23.27
2017
£50.05
Nil
24.54%
3 years
0.16%
3.16%
£20.60
From September 2017, for all new LTIP awards, dividend accruals (both in respect of special and ordinary dividends) may be payable
on vested awards.
136
23. 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 27 January 2018 the ESOT held 4,826,665 (2017: 4,414,892) ordinary shares of 10p each in the Company, the market value of which
amounted to £251.8m (2017: £170.0m). Details of outstanding share options are shown in Note 22.
The consideration paid for the ordinary shares of 10p each in the Company held by the ESOT at 27 January 2018 and 28 January 2017
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 during the year:
Shares purchased by ESOT in the year
Shares issued on employee option exercises
2018
2017
Shares
‘000
842
431
£m
37.0
10.3
Shares
‘000
978
911
£m
50.9
30.5
Proceeds of £11.3m (2017: £29.9m) were received on the exercise of Management and Sharesave options. The amount shown in
the Statement of Changes in Equity of £10.3m (2017: £30.5m) is after the issue of nil cost LTIP, SMP and Deferred bonus shares.
The weighted average cost of shares issued by the ESOT was £20.8m (2017: £44.2m).
At 22 March 2018, employee share options over 14,812 shares had been exercised subsequent to the balance sheet date and had
been satisfied by ordinary shares issued by the ESOT.
24.
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 financial instruments.
In accordance with the Group’s treasury policy, financial 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 financial instruments, also includes cash, short term deposits, bank overdrafts, loans, and corporate bonds. The main
purpose of these financial instruments is to raise finance for the Group’s operations. In addition, the Group has various other financial
assets and liabilities such as trade receivables and trade payables arising directly from its operations.
Liquidity risk
The Group manages its cash and borrowing requirements centrally to minimise net interest expense within risk parameters agreed by
the Board, whilst ensuring that the Group has sufficient liquid resources to meet the operating needs of its businesses. The forecast cash
and borrowings profile of the Group is monitored to ensure that adequate headroom remains under committed borrowing facilities.
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s
financial liabilities, including cash flows in respect of derivatives:
2018
Bank loans and overdrafts
Trade and other payables
Corporate bonds
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
Less than 1
year
£m
180.0
382.4
39.3
601.7
(7.0)
(1,051.7)
1,114.8
657.8
1 to 2
years
£m
–
12.8
39.3
52.1
(5.8)
–
–
46.3
2 to 5
years
£m
–
–
425.4
425.4
(12.3)
–
–
413.1
Over 5
years
£m
–
–
659.0
659.0
(10.7)
–
–
648.3
Total
£m
180.0
395.2
1,163.0
1,738.2
(35.8)
(1,051.7)
1,114.8
1,765.5
137
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
Notes to the Consolidated
Financial Statements
24.
Financial Instruments:
Risk Management and Hedging Activities (continued)
Liquidity risk (continued)
2017
Bank loans and overdrafts
Trade and other payables
Corporate bonds
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
Less than 1
year
£m
35.3
479.4
39.3
554.0
(7.2)
(1,106.0)
1,067.9
508.7
1 to 2
years
£m
–
7.7
39.3
47.0
(7.1)
–
–
39.9
2 to 5
years
£m
–
–
442.8
442.8
(18.2)
–
–
424.6
Over 5
years
£m
–
–
680.8
680.8
(16.9)
–
–
663.9
Total
£m
35.3
487.1
1,202.2
1,724.6
(49.4)
(1,106.0)
1,067.9
1,637.1
At 27 January 2018, the Group had borrowing facilities of £525.0m (2017: £525.0m) in respect of which all conditions precedent have
been met. £225.0m is committed until September 2020 and a further £300.0m is committed until November 2022. £135.0m of this
facility was drawn down at January 2018 (2017: £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
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. The Group also has interest rate swaps where the Group
receives a variable rate of interest, and pays a fixed rate. Details of the aggregate rates payable are given in Note 17.
The fair values of the Group’s interest rate swaps, including accrued interest, are as follows:
Derivatives in designated fair value hedging relationships
2018
£m
35.7
2017
£m
40.8
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.
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 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 the 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 27.
138
24.
Financial Instruments:
Risk Management and Hedging Activities (continued)
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
2018
£m
(51.8)
(1.8)
(53.6)
The total notional amount of outstanding foreign exchange contracts at the balance sheet date is as follows:
US Dollar
Euro
Other
2018
£m
963.9
44.7
43.1
1,051.7
2017
£m
31.6
(0.8)
30.8
2017
£m
1,003.4
39.2
63.3
1,105.9
Credit risk
Investments of cash surpluses, borrowing commitments and other contracts in financial instruments are made through banks and
companies which must fulfil credit rating and investment criteria approved by the Board. Risk is further mitigated by diversification
and limiting counterparty exposure. 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 Online customer base being large and diverse. The Group’s outstanding receivables balances are
detailed in Note 11.
Capital risk
The capital structure of the Group consists of debt, as analysed in Note 28, 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 may be transacted
through both on-market purchases and off-market contingent contracts.
25. 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
2018
£m
2.4
51.4
1,153.0
53.5
1.0
(4.2)
(67.5)
(908.5)
(575.2)
2017
£m
–
91.3
1,033.2
49.7
1.0
(0.8)
(18.9)
(913.5)
(446.3)
All derivatives are categorised as Level 2 under the requirements of IFRS 13 “Fair value measurement”, as they are valued using
techniques based significantly on observed market data.
139
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
26. 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
2018
Carrying
amount
£m
Fair value
£m
2017
Carrying
amount
£m
Fair value
£m
458.5
450.0
908.5
478.8
487.9
966.7
463.5
450.0
913.5
478.5
481.3
959.8
Corporate bonds are held at amortised cost adjusted for the effect of the change in fair value hedge.
The fair values of corporate bonds are their market values at the balance sheet date (IFRS 13 Level 1) reflecting quoted (unadjusted)
prices in active markets for identical assets or liabilities. Market values include accrued interest and changes in credit risk and interest
rate risk, and are therefore different to the reported carrying amounts.
27. Financial Instruments: Sensitivity Analysis
Foreign currency sensitivity analysis
The Group’s principal foreign currency exposures are to US Dollars and the Euro. The table below illustrates the hypothetical sensitivity
of the Group’s reported profit and closing equity to a 10% increase and decrease in the US Dollar/Sterling and Euro/Sterling exchange
rates at the year end date, assuming all other variables remain unchanged. The sensitivity rate of 10% represents the directors’
assessment of a reasonably possible change, based on historic volatility.
The analysis assumes that exchange rate fluctuations on currency derivatives that form part of an effective cash flow hedge relationship
affect the fair value reserve in equity and the fair value of the hedging derivatives. For foreign exchange derivatives which are not
designated hedges, movements in exchange rates impact the Income Statement.
Positive figures represent an increase in profit or equity.
Sterling strengthens by 10%
US Dollar
Euro
Sterling weakens by 10%
US Dollar
Euro
Income statement
2017
£m
2018
£m
Equity
2018
£m
(1.6)
–
1.8
–
(3.6)
–
(0.4)
–
(46.5)
(2.7)
57.8
3.3
2017
£m
(64.2)
(2.2)
73.0
2.7
Year end exchange rates applied in the above analysis are US Dollar 1.42 (2017: 1.25) and Euro 1.14 (2017: 1.17). 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.
140
27. Financial Instruments: Sensitivity Analysis (continued)
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 the 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%
28. Analysis of Net Debt
Cash and short term deposits
Overdrafts and short term borrowings
Cash and cash equivalents
Unsecured bank loans
Corporate bonds
Fair value hedges of corporate bonds
Total net debt
Income statement
2017
£m
(2.2)
2.2
2018
£m
(2.1)
2.1
Equity
2018
£m
(2.1)
2.1
2017
£m
(2.2)
2.2
January
2017
£m
49.7
(35.3)
14.4
–
(913.5)
38.6
(860.5)
Other non-cash changes
Fair value
changes
£m
Foreign
exchange
Cash flow
(4.6)
(135.0)
–
–
(139.6)
(1.3)
–
–
–
(1.3)
–
–
5.0
(5.1)
(0.1)
January
2018
£m
53.5
(45.0)
8.5
(135.0)
(908.5)
33.5
(1,001.5)
29. Operating Lease Commitments
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.
Future minimum rentals payable (to the nearest break-clause) under non-cancellable operating leases where the Group is the lessee:
Leases expiring:
Within one year
In two to five years
Over five years
2018
£m
243.3
779.6
824.8
1,847.7
2017
£m
246.3
825.6
963.6
2,035.5
At January 2018, future rentals receivable under non-cancellable sub-leases where the Group is the lessor were £12.7m (2017: £12.0m).
141
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Consolidated
Financial Statements
29. Operating Lease Commitments (continued)
Additional information on the Group’s leasing commitments as at 27 January 2018 is detailed in the table below:
Year to January 2017 (Actual)
Year to January 2018 (Actual)
Year to January 2019
Year to January 2020
Year to January 2021
Year to January 2022
Year to January 2023
Subtotal 5 years to January 2023
5 years from February 2023 to January 2028
10 years from February 2028 to January 2038
2038 and beyond
Total future obligations
Future minimum rentals payable to the end of the lease term are as follows:
Minimum
lease
payments
£m
243.5
Less
sub-lease
income
£m
(7.7)
Net total
£m
235.8
250.0
(9.2)
240.8
243.3
239.0
206.3
178.8
155.5
(7.4)
(4.0)
(0.8)
(0.2)
(0.1)
235.9
235.0
205.5
178.6
155.4
1,022.9
(12.5)
1,010.4
508.2
299.3
17.3
(0.2)
–
–
508.0
299.3
17.3
1,847.7
(12.7)
1,835.0
Minimum
lease
payments
£m
243.5
250.0
244.0
242.7
214.3
189.8
168.1
1,058.9
566.8
368.8
17.3
2,011.8
Year to January 2017 (Actual)
Year to January 2018 (Actual)
Year to January 2019
Year to January 2020
Year to January 2021
Year to January 2022
Year to January 2023
Subtotal 5 years to January 2023
5 years from February 2023 to January 2028
10 years from February 2028 to January 2038
2038 and beyond
Total future obligations
142
30. Related Party Transactions
During the year the Group sold goods and services in the normal course of business to its associate undertaking, Choice Discount
Stores Limited, as follows:
Sales
Trade receivables
2018
£m
7.1
0.6
2017
£m
8.6
0.4
During the year the Group entered into the following transactions with its joint venture Retail Restaurants Limited, as follows:
Loan receivable
Recharges of costs
2018
£m
1.5
0.6
2017
£m
–
–
The loan of £1.5m earns interest at a commercial arms-length rate.
The Group’s other related party transactions were the remuneration of key management personnel (refer to Note 4).
143
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany 144
PARENT COMPANY FINANCIAL STATEMENTS 145 Parent Company Balance Sheet146 Parent Company Statement of Changes in Equity 147 Notes to the Parent Company Financial Statements Parent Company Balance Sheet
Fixed assets
Investments
Other financial assets
Current assets
Other debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
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
27 January
2018
£m
28 January
2017
£m
Notes
C2
C3
C4
C5
C5
C6
C6
C6
C7
2,475.7
48.1
2,523.8
2,475.7
57.3
2,533.0
99.5
0.3
99.8
(170.0)
(70.2)
7.9
–
7.9
(48.0)
(40.1)
2,453.6
2,492.9
(920.9)
(1,090.9)
1,532.7
(923.8)
(971.8)
1,569.1
14.5
0.9
15.4
(231.6)
985.2
748.3
14.7
0.9
15.2
(215.4)
985.2
768.5
1,532.7
1,569.1
The profit for the year dealt with in the accounts of the Company is £562.0m (2017: £540.7m).
The financial statements were approved by the Board of directors and authorised for issue on 23 March 2018. They were signed on
its behalf by:
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
145
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Parent Company Statement of
Changes in Equity
At 30 January 2016
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Share buybacks and commitments (Note
C6)
ESOT share purchases and commitments
(Note C6)
Shares issued by ESOT
Share option charge
Equity dividends
At 28 January 2017
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Share buybacks and commitments (Note
C6)
ESOT share purchases and commitments
(Note C6)
Shares issued by ESOT
Share option charge
Equity dividends
Share
capital
£m
15.1
–
–
–
(0.4)
–
–
–
–
14.7
–
–
–
(0.2)
–
–
–
–
0.9
–
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
Share
premium
account
£m
Capital
redemption
reserve
£m
ESOT
reserve
£m
(208.7)
–
–
–
Other
reserves
£m
Profit and
loss account
£m
985.2
–
–
–
641.8
540.7
–
540.7
Total
equity
£m
1,449.1
540.7
–
540.7
14.8
–
–
–
0.4
–
–
–
–
–
15.2
–
–
–
(50.9)
44.2
–
–
(215.4)
–
–
–
0.2
–
–
–
–
–
(37.0)
20.8
–
–
–
–
–
–
–
985.2
–
–
–
(187.6)
(187.6)
–
(13.7)
13.1
(225.8)
768.5
562.0
–
562.0
(50.9)
30.5
13.1
(225.8)
1,569.1
562.0
–
562.0
–
–
–
–
–
(106.1)
(106.1)
–
(10.5)
14.1
(479.7)
(37.0)
10.3
14.1
(479.7)
At 27 January 2018
14.5
0.9
15.4
(231.6)
985.2
748.3
1,532.7
146
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”). 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 accounting policies adopted for the Parent Company, NEXT plc, are otherwise consistent with those
used for the Group which are set out on pages 107 to 112. The ESOT is consolidated on the basis that the parent has control, thus
the assets and liabilities of the ESOT are included in the Balance Sheet and shares held by the ESOT in the Company are presented
as a deduction from equity. 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.
Investments
C2.
The £2,475.7m (2017: £2,475.7m) investment shown in the Balance Sheet of NEXT plc relates to its investment in NEXT Group Limited
(2017: NEXT Holdings Limited). A full list of the Group’s related undertakings is contained in the table below.
Company name
AgraTech Limited
Registered office address
Glen House, 200-208 Tottenham Court Road, London, W1T 7PL
Belvoir Insurance Company Limited
Maison Trinity, Trinity Square, St Peter Port, GY1 4AT, Guernsey
Brecon Debt Recovery Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Cairns Limited
Callscan, Inc.
Choice Discount Stores Limited
14/F Cityplaza 1, 1111 King’s Road, Taikoo Shing, Quarry Bay, Hong Kong
McSwiney, Semple, Hankin-Birke & Wood PC, PO Box 2450, 280 Main Street, New
London, NH 03257, USA
14-14A Rectory Road, Hadleigh Benfleet, Essex, SS7 2ND, UK
Lipsy Limited
LLC Next
Next (Asia) Limited
Next (Europe) BV
Desford Road, Enderby, Leicester, LE19 4AT, UK
7 Dolgorukovskaya Street, 127006, Moscow, Russian Federation
14/F Cityplaza 1, 1111 King's Road, Taikoo Shing, Quarry Bay, Hong Kong
Herikerbergweg 238, Luna Arena,1101CM Amsterdam, Netherlands
Next Sourcing Limited Shanghai Office
9F, Building 1, Highstreet loft, No.508 Jiashan Road, Shanghai
Next AV s.r.o.
Next Brand Limited
Pribinova 8, 811 09, Bratislava, Slovakia
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Distribution Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Financial Services Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Germany GmbH
Next Group Limited
Landsberger Stra. 155, 80687 München
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Hempel Fashions (Shanghai) Co Ltd
Next Holdings Limited
Next Holding Wholesale Private Limited
Next Manufacturing (Pvt) Limited
Room 201A-201B, Infiniti Plaza, No. 138 HuaiHai Zhong Road, HuangPu District, Shanghai
PRC, 200021
Desford Road, Enderby, Leicester, LE19 4AT, UK
Level 2 Raheja, Centre Point, 294 CST Road Near, Mumbai University, Santacruz, East
Mumbai, Mumbai City, MH 400098 India
Phase 1, Ring Road, 2,E.P.Z, Katunayake, Sri Lanka
Next Manufacturing Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Near East Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Pension Trustees Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next PK s.r.o.
Rohanské nábreží 671/15, Karlín, Prague 8, 186 00, Czech Republic
Next Procurement (Private) Limited
House No.680, Safari Villas, Sector B Bahria Town, Lahore, Pakistan
Next Properties Limited
Next Retail Limited
Next Sourcing Company Limited
Next Sourcing (UK) Limited
Next Sourcing Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
2nd Floor S.I. Building, No. 93 Preash Sihanouk Blvd, Sangkat Chaktomuk, Khan Daun
Penh, Phnom Penh, Cambodia
Desford Road, Enderby, Leicester, LE19 4AT, UK
14/F Cityplaza 1, 1111 King's Road, Taikoo Shing, Quarry Bay, Hong Kong
Next Sourcing Limited Domestic and/or Foreign
Trade Limited Liability Company
Next Sourcing Services (India) Private Limited
Kemankes Karamustafapasa Mahallesi Tophane iskele Cad. No: 12/5 Beyoglu, Istanbul,
Turkey
207 Jaina Tower, 1 District Centre, Janakpuri, New Delhi, 110058, India
Next Sourcing VM Limited
14/F Cityplaza 1, 1111 King's Road, Taikoo Shing, Quarry Bay, Hong Kong
Next Sweden AB
Desford Road, Enderby, Leicester, LE19 4AT, UK
Next Commercial Trading (Shanghai) Co Limited Room 301, Building No.4, No.58 Ruixing Lu, Shanghai FTC, PRC, 201306
% held by
Group
companies
100
100
100
100
100
49
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
147
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany Notes to the Parent Company
Financial Statements
C2. Investments (continued)
Company name
NSL Limited
Perimeter Technology Inc.
Retail Restaurants Limited
The Next Directory Limited
The Paige Group Limited
UJ Next Kereskedelmi Korlatolt
Felelossegu Tarsasag
Ventura Group Limited
Registered office address
14/F Cityplaza 1, 1111 King's Road, Taikoo Shing, Quarry Bay, Hong Kong
McSwiney, Semple, Hankin-Birke & Wood PC, PO Box 2450, 280 Main Street, New
London, NH 03257, USA
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
1132 Budapest, Vaci ut 22-24, Budapest, Hungary
Desford Road, Enderby, Leicester, LE19 4AT, UK
Ventura Network Distribution Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
% held by
Group
companies
100
100
50
100
100
100
100
100
C3. Other Financial Assets
Other financial assets comprise interest rate derivatives as detailed in Note 12 of the consolidated financial statements, which are
carried at their fair value.
C4. Other Debtors
Amounts due from subsidiary undertaking
Prepayments
C5. Current and Non-current Creditors
Corporate bonds
Unsecured bank loans
Short term borrowings
Amounts due to subsidiary undertaking
Corporation tax creditor
Other financial liabilities
Accruals and other creditors
2018
£m
91.1
8.4
99.5
2017
£m
–
7.9
7.9
2017
Current
£m
–
–
–
32.1
–
–
15.9
48.0
Non-current
£m
907.3
–
–
–
–
16.5
–
923.8
2018
Current
£m
–
135.0
15.0
–
1.0
–
19.0
170.0
Non-current
£m
908.5
–
–
–
–
12.4
–
920.9
Further information on the Company’s corporate bonds is given in Note 17. Other financial liabilities include interest rate swaps
carried at fair value (refer to Note 16).
C6. Share Capital, ESOT and Other Reserves
Details of the Company’s share capital and share buybacks are given in Note 20. ESOT transactions are detailed in Note 23.
Other reserves in the Company Balance Sheet of £985.2m (2017: £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 Holdings Limited (formerly
NEXT Group plc) which was subject to Section 131 Companies Act 1985 merger relief.
C7. Profit and Loss Account and Distributable Reserves
The profit and loss account of the Parent Company does not include any unrealised profits, however the amount available for distribution
under the Companies Act 2006 by reference to these accounts is effectively reduced by the ESOT reserve of £231.6m (2017: £215.4m).
At January 2018, therefore, the amount available for distribution by reference to these accounts is £516.7m (2017: £553.1m). The Group
also has substantial retained profits in its subsidiary companies which are expected to flow up to the Parent Company in due course,
such that surplus cash generated can continue to be returned to our external shareholders.
148
149
SHAREHOLDER INFORMATION150 Half Year and Segment Analysis (unaudited) 151 Five Year History (unaudited) 152 Glossary 154 Notice of Meeting 160 Other Shareholder InformationStrategic ReportGovernanceFinancial StatementsShareholder Information Half Year and Segment Analysis (unaudited)
Total sales1
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
Profit before tax
NEXT Retail
NEXT Online
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Other activities
Operating profit
Net finance costs
Total
First
half
£m
Second
half
£m
52 weeks to
Jan 2018
£m
First
half
£m
Second
half
£m
52 weeks to
Jan 2017
£m
993.2
868.4
32.6
3.2
12.1
4.5
1,914.0
89.5
217.1
4.1
16.1
3.1
2.9
(7.6)
325.2
(15.8)
309.4
1,129.8
1,019.0
34.6
3.4
12.1
4.6
2,203.5
179.2
244.1
3.6
16.9
2.9
0.7
(12.7)
434.7
(18.0)
416.7
2,123.0
1,887.4
67.2
6.6
24.2
9.1
4,117.5
268.7
461.2
7.7
33.0
6.0
3.6
(20.3)
759.9
(33.8)
726.1
1,083.6
821.2
32.1
2.5
14.1
3.6
1,957.1
133.9
204.2
4.2
21.8
2.8
3.0
(9.4)
360.5
(18.4)
342.1
1,221.0
907.3
31.6
2.8
13.0
4.0
2,179.7
204.8
239.9
5.1
22.9
2.7
3.8
(12.0)
467.2
(19.1)
448.1
2,304.6
1,728.5
63.7
5.3
27.1
7.6
4,136.8
338.7
444.1
9.3
44.7
5.5
6.8
(21.4)
827.7
(37.5)
790.2
The year ended 28 January 2017 balances have not been restated for the change in recharges between the NEXT Retail and NEXT
Online segments (refer to Note 1 of the consolidated financial statements for further details).
1. As defined in Note 1 of the consolidated financial statements.
150
Five Year History (unaudited)
Year to January
Underlying2 continuing business
Total sales1
Statutory revenue
Operating profit – underlying 52 weeks
Net finance costs – underlying 52 weeks
Profit before tax – underlying 52 weeks
53rd week (pre-tax)
Exceptional items (pre-tax)
Taxation
Profit after taxation
Total equity
Shares purchased for cancellation
Dividends per share – ordinary
– special
Basic Earnings Per Share
Underlying (52 weeks)
Total
2018
£m
4,117.5
4,055.5
759.9
(33.8)
726.1
–
–
(134.3)
591.8
482.6
2.2m
158.0p
180.0p
416.7p
416.7p
2017
£m
2016
£m
2015
£m
2014
£m
4,136.8
4,097.3
4,213.7
4,176.9
4,027.8
3,999.8
3,758.2
3,740.0
827.7
(37.5)
790.2
–
–
(154.9)
635.3
851.8
(30.5)
821.3
14.8
–
(169.3)
666.8
812.1
(29.9)
782.2
–
12.6
(159.9)
634.9
722.8
(27.6)
695.2
–
–
(142.0)
553.2
510.5
311.8
321.9
286.2
3.6m
2.2m
2.2m
6.2m
158.0p
–
441.3p
441.3p
158.0p
240.0p
442.5p
450.5p
150.0p
150.0p
419.8p
428.3p
129.0p
50.0p
366.1p
366.1p
1. As defined in Note 1 of the consolidated financial statements.
2. Underlying is shown pre-exceptional items.
151
Strategic ReportGovernanceFinancial StatementsShareholder Information Glossary
Alternative performance measures
The directors use alternative performance measures (APMs) as they believe these measures provide additional useful information on
the underlying trends, performance and position of the Group. These measures are used for performance analysis. The APMs are not
defined by IFRS and therefore may not be directly comparable with other companies’ APMs. These measures are not intended to be
a substitute for, or superior to, IFRS measurements.
Divisional operating profit
Divisional profit before interest and tax, excluding equity-settled share option charges recognised under IFRS 2 “Share-based payment”
and unrealised foreign exchange gains and losses on derivatives which do not qualify for hedge accounting. Refer to Note 1 of the
financial statements.
Earnings Per Share (EPS)
The level of growth in EPS provides a suitable measure of the financial health of the Group and its ability to deliver returns to
shareholders. Refer to Note 8 of the financial statements.
Full price sales
Total sales excluding items sold in our mid-season or end-of-season Sale events and our Clearance operations and includes interest
income relating to those sales. Full price sales are a direct indicator of the performance and profitability of the business.
Bought-in gross margin
Difference between the cost of stock and initial selling price, expressed as a percentage of achieved total VAT exclusive selling prices.
Bought-in gross margin is a measure of the profit made on the sale of stock at full price.
Like-for-like sales
Growth in sales from Retail stores which have been open for at least one full year. This metric enables the performance of the Retail
stores to be measured on a consistent year-on-year basis and is a common term used in the retail industry.
Net branch profit/contribution
Retail store total sales less cost of sales, payroll, controllable costs, occupancy costs and depreciation. Expressed as a percentage of
VAT inclusive sales. Net branch profit is a measure of the profitability on a store by store level.
Net debt
Comprises cash and cash equivalents, bank loans, corporate bonds, fair value hedges of corporate bonds and finance leases. Refer to
Note 28 of the financial statements. Net debt is a measure of the Group’s indebtedness.
Net operating margin
Profit after deducting markdowns and all direct and indirect trading costs, expressed as a percentage of achieved total sales.
Net margin measures whether profitability is changing at a higher or lower rate relative to revenue.
Total sales
VAT exclusive full price and markdown sales including the full value of commission based sales and interest income (as described and
reconciled in Note 1 of the financial statements). Total sales is a direct indicator of performance.
Underlying like-for-like sales
Like-for-like sales, excluding stores impacted by new openings. This is a measure of the annual performance of stores taking into
account the impact of new store openings on existing stores.
Underlying profit and Earnings Per Share
Underlying profit and Earnings Per Share measures exclude exceptional items and are shown on a consistent 52 week basis, where
relevant. Allows for more consistent comparison, excluding one-off items.
152
Other definitions
Capital expenditure (“Capex”)
The additions to property, plant and equipment.
Exceptional items
Exceptional items relate to certain costs or incomes that derive from events or transactions that fall within the normal activities of the
Group but which, individually or, if of a similar type, in aggregate, are excluded from the Group’s underlying performance measures
by virtue of their size and nature in order to better reflect management’s view of the performance of the Group.
FTE
FTE refers to full time equivalent number of employees.
Internal rate of return (IRR)
Internal rate of return is a discount rate that makes the net present value of all cash flows from a particular project equal to zero.
Like-for-like stores
Retail stores which have traded for at least one full year.
Mainline store
Non-clearance store. Clearance stores sell stock left over from the NEXT end-of-season Sale activity.
Markdown sales
VAT exclusive sales of stock items in our mid-season or end-of-season Sale events and our Clearance operations.
Online active customers
Customers who have placed an Online order or received a standard account statement in the last 20 weeks.
Online cash customers
Online customers who pay at the time of ordering online or via the Call Centre.
Online credit customers
Customers who order using an Online credit account (nextpay account).
Retail selling space
Selling space is defined as the trading floor area of a store which excludes stockroom and administration areas.
LTIP
Long Term Incentive Plan (refer to page 77).
SMP
Share Matching Plan (refer to page 77).
Total Shareholder Returns (TSR)
TSR has been calculated by reference to the growth in share price combined with the notional investment of gross dividends on
ex-dividend dates to create a dividend fraction.
153
Strategic ReportGovernanceFinancial StatementsShareholder Information Notice of Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR
IMMEDIATE ATTENTION.
If you are in any doubt as to the action you should take, you
are recommended to seek your own personal financial advice
from your stockbroker, bank manager, solicitor, accountant
or other financial advisor authorised under the Financial
Services and Markets Act 2000.
If you have sold or otherwise transferred all your NEXT plc
(“NEXT” and/or the “Company”) 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 (AGM) of NEXT
will be held at the Leicester Marriott Hotel, Smith Way, Grove
Park, Leicester LE19 1SW on Thursday 17 May 2018 at 9.30 am at
which the following resolutions will be proposed, resolutions 1 to
14 as Ordinary Resolutions and 15 to 19 as Special Resolutions.
Further information on these resolutions can be found in the
Directors’ Report on pages 56 to 58 and in the Appendix to
this Notice. Biographies of the directors are shown on pages
54 and 55 of the Annual Report.
To receive and adopt the accounts and reports of the
directors and auditor for the year ended 27 January 2018.
1
2
14 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.
ii.
in accordance with article 7 of the Company’s Articles
of Association (the “Articles”), up to a maximum
nominal amount of £4,700,000 (as reduced by any
equity securities allotted under paragraph (a)(ii)
below); and
up to a maximum nominal amount of £9,500,000
(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(b)(ii) of
the Articles);
b. in accordance with article 7 of the Articles this authority
shall expire at the conclusion of the next AGM of the
Company after the passing of this resolution, or, if earlier,
at the close of business on 17 August 2019; 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).
To approve the Remuneration Report
(excluding the
Directors’ Remuneration Policy set out on pages 88 to 93) for
the year ended 27 January 2018.
15 General disapplication of pre-emption rights
That, subject to resolution 14 being passed:
3
To declare a final dividend of 105p per share in respect of the
year ended 27 January 2018.
a.
in accordance with article 8 of the Articles, the directors
be given power to allot equity securities for cash;
4 To re-elect Jonathan Bewes as a director.
5 To re-elect Caroline Goodall as a director.
6 To re-elect Amanda James as a director.
7 To elect Richard Papp as a director.
8 To re-elect Michael Roney as a director.
9 To re-elect Francis Salway as a director.
10 To re-elect Jane Shields as a director.
11 To re-elect Dame Dianne Thompson as a director.
12 To re-elect Lord Wolfson as a director.
13 To re-appoint PricewaterhouseCoopers LLP as auditor of
the Company, to hold office until the conclusion of the 2019
AGM of the Company and to authorise the directors to set
their remuneration.
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 £717,000 representing 5% of the issued
ordinary share capital;
c.
in accordance with article 8 of the Articles this authority
shall expire at the conclusion of the next AGM of the
Company after the passing of this resolution or, if earlier,
at the close of business on 17 August 2019; 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).
154
16 Additional disapplication of pre-emption rights
That, subject to resolutions 14 and 15 being passed:
a.
in accordance with article 8 of the Articles, the directors
be given the power to allot additional 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:
i.
ii.
limited to the allotment of equity securities having a
nominal amount not exceeding in aggregate £717,000
representing 5% of the issued ordinary share capital;
and
used only for the purposes of financing (or refinancing,
if the authority is to be used within six months after the
original transaction) a transaction which the directors
determine to be an acquisition or other capital
investment of a kind contemplated by the Statement
of Principles on Disapplying Pre-emption Rights most
recently published by the Pre-Emption Group prior to
the date of this notice;
c.
in accordance with article 8 of the Articles this authority
shall expire at the conclusion of the next AGM of the
Company after the passing of this resolution or, if earlier,
at the close of business on 17 August 2019; and
d. other than in respect of authorities granted pursuant to
resolution 15, 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 21,521,000 ordinary shares of 10p each
and no more than 14.99% of the issued ordinary shares
outstanding at the date of the AGM, 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: (i) 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 (ii) an amount equal to the higher of the
price of the last independent trade of an ordinary share
of the Company and the highest current independent bid
for an ordinary share of the Company as derived from the
London Stock Exchange Trading System;
d. this authority shall expire at the conclusion of the next
AGM of the Company after the passing of this resolution
or, if earlier, at the close of business 17 August 2019;
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 the appendix on
pages 156 to 157 of this Notice (the authority conferred by
this special resolution shall expire at the conclusion of the next
AGM of the Company after the passing of this resolution or, if
earlier, at the close of business on 17 August 2019, (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 Articles, a general meeting
(other than an AGM) may be called on not less than 14 clear
days’ notice.
By order of the Board
Seonna Anderson
Company Secretary
Registered Office: Desford Road, Enderby, Leicester, LE19 4AT
16 April 2018
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Notice of Meeting
Appendix
Further information on resolution 18:
Off-market purchases of own shares
As noted in the Directors’ Report on page 58, 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 20 passed at the Company’s
2017 AGM, shareholder authority was given to the Company to
make on-market purchases of shares. This authority was limited
to a maximum of 22,043,000 shares and expires on the earlier
of the date of the AGM held in 2018 or 18 August 2018. 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 3 million shares and expires on the earlier of the date
of the AGM to be held in 2018 or 18 August 2018. Pursuant to
those authorities and up to 22 March 2018, the Company has
bought back 3,577,585 shares for cancellation, representing
2.4% of its issued share capital as at the date of the 2017 AGM,
at a total cost of £175.2m. No shares were bought back under
contingent purchase contracts.
Under Sections 693 and 694 of 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, the Market Abuse
Regulations (MAR) limit the Company’s ability to 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 (“Closed Periods”). The Company typically follows
the definition of Closed Period in Article 19(11) of MAR which
includes 30 days before the announcement of its interim results
in September and full year results in March each year. In the
absence of a Programme Agreement (as defined below), these
Closed 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 Closed
Periods. Another method of providing flexibility and reducing
the cost, is for the Company to enter into contingent forward
purchase contracts outside of Closed 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” and together with the Upper
Suspension Level, the “Suspension Levels”). 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 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 2019 and 17 August 2019
and will incorporate the terms of an ISDA Master Agreement and
Schedule. The Programme Agreements will be entered into and
each CFT will be affected outside a Closed Period but shares
may be purchased during a Closed Period by the Company.
156
Should shareholder approval be granted, any number of CFT
may be affected 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% of its issued share capital at
22 March 2018;
• the total cost of shares that the Company would be permitted
to purchase pursuant to this authority may not exceed £200m
(including costs);
• the Forward Price may not exceed 105 per cent of the average
of the middle market price of a share according to the
Daily Official List of the London Stock Exchange for the five
business days immediately preceding the day on which the
share is purchased;
• the Forward Price will be no more than 99% of the share price
at the time the CFT was effected;
• the minimum price that can be paid for any share is 10p; and
• only one CFT 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 17 May 2018 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 2019 or on 17 August 2019,
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 17 May 2018. 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 Slaughter and
May at One Bunhill Row, London, EC1Y 8YY during usual business
hours until the date of the AGM and at the AGM itself.
The Company has no warrants in issue in relation to its shares and
no options to subscribe for its shares outstanding. Exercise of
all outstanding employee share options and share awards will
be satisfied by the transfer of market-purchased shares from the
ESOT (refer to Note 23 of the financial statements).
Meeting formalities and voting
Attending the Annual General Meeting
To be entitled to attend and vote at the AGM (and in accordance
with the Articles 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 6.30 pm on 15 May 2018 or, if the meeting
is adjourned, shareholders must be entered on the Company’s
register of members at 6.30 pm on the day two days before the
adjourned meeting.
The total number of the Company’s issued share capital on
22 March 2018, which is the latest practicable date before the
publication of this Notice, is 143,478,977 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. The directors believe a poll is more representative of
shareholders’ voting intentions because shareholders’ votes are
counted according to the number of shares held and all votes
tendered are taken into account. 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 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 our corporate website
(www.nextplc.co.uk) after the meeting and notified to the UK
Listing Authority.
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Strategic ReportGovernanceFinancial StatementsShareholder Information Notice of Meeting
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 9.30
am on 15 May 2018 (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 AGM 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.
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 9.30 am on 15 May 2018.
158
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 17 May 2018 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 AGM but no
such answer need be given if (i) to do so would interfere unduly
with the preparation for the meeting or involve the disclosure of
confidential information, (ii) the answer has already been given
on a website in the form of an answer to a question, or (iii) it is
undesirable in the interests of the Company or the good order of
the AGM that the question be answered.
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
• The Programme Agreements pursuant to resolution 18
Copies will also be available for inspection at the offices of
Slaughter and May at One Bunhill Row, London, EC1Y 8YY during
usual business hours until the close of the AGM.
Company website
A full copy of the Annual Report (which includes this Notice),
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 AGM; 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 AGM 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 and Wales, no. 4412362
Payment of dividend
The recommended final dividend, if approved, will be paid
on 1 August 2018 to holders of ordinary shares registered at
close of business on 6 July 2018. The ordinary shares will trade
ex-dividend from 5 July 2018.
Annual General Meeting
The AGM will be held at 9.30 am on Thursday 17 May 2018 at
the Leicester Marriott Hotel, Smith Way, Grove Park, Leicester
LE19 1SW. The Notice of the Meeting on pages 154 to 159 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)
2018
£52.18
£7,560m
2017
£38.50
£5,662m
£70.20
£38.26
£53.20
£36.17
Share price at financial year end
Market capitalisation
Share price movement during year:
High mid-market quotation
Low mid-market quotation
Discount voucher
The Company offers a discount voucher to any first named,
registered shareholder holding a minimum number of 100
ordinary shares as at 1 April each year. 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 Online (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 +44 (0) 371 384 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 8.30 am to
5.30 pm Monday to Friday.
Shareholder enquiries
The Company’s share register is maintained by Equiniti.
Please contact them online at www.shareview.co.uk or using the
contact details above if you have any enquiries about your NEXT
shareholding including the following matters:
• change of name and address;
• loss of share certificate, dividend warrant or dividend
confirmation;
• 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.
The Shareview Portfolio service from Equiniti gives you more
online information about your NEXT 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;
• telephone number +44 (0) 371 384 2255 for shareholders with
hearing difficulties;
• hearing loop facilities in their buildings for use by visiting
shareholders.
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 confirmation or is available to
download from the NEXT website on www.nextplc.co.uk or from
Equiniti, telephone +44 (0) 371 384 2164.
160
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 42 to 46; 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 Online; 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.
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