ANNUAL REPORT
AND ACCOUNTS
JANUARY 2019
A
N
N
U
A
L
R
E
P
O
R
T
A
N
D
A
C
C
O
U
N
T
S
2
6
J
A
N
U
A
R
Y
2
0
1
9
CONTENTS
Chairman’s Statement
Chief Executive’s Review
Strategic
Report
3
4
50 Business Model
52 Key Performance Indicators
54 Risks and Uncertainties
59 Viability Assessment
60 Employees
61
Social, Community
and Human Rights
63 Environmental Matters
Governance
66
72
Directors’ Report Including
Annual General Meeting
& Other Matters
Directors’
Responsibilities Statement
73 Corporate Governance Report
Nomination Committee Report
79
80
Audit Committee Report
85 Remuneration Report
107 Independent Auditor’s Report
Financial
Statements
Group Financial Statements
115 Consolidated Income Statement
116 Consolidated Statement of
Comprehensive Income
117 Consolidated Balance Sheet
118 Consolidated Statement of Changes
in Equity
119 Consolidated Cash Flow Statement
120 Group Accounting Policies
132 Notes to the Consolidated
Financial Statements
Company Financial Statements
170
171
Parent Company Balance Sheet
Parent Company Statement
of Changes in Equity
172 Notes to the Parent Company
Financial Statements
Half Year and Segment Analysis
Shareholder
Information
175
176 Five Year History
177 Glossary
179 Notice of Meeting
185 Other Shareholder
Information
FINANCIAL
HIGHLIGHTS
TOTAL SALES*
+2.5%
Underlying continuing business
Jan 15
Jan 16†
Jan 17
Jan 18
Jan 19
n
b
0
4
£
.
n
b
1
4
£
.
n
b
1
4
£
.
n
b
1
4
£
.
n
b
2
.
4
£
PROFIT
BEFORE TAX
Underlying continuing business
-0.4%
Jan 15◊
Jan 16†
Jan 17
Jan 18
Jan 19
m
2
8
7
£
m
1
2
8
£
m
0
9
7
£
m
6
2
7
£
m
3
2
7
£
EARNINGS
PER SHARE
Underlying
+4.5%
Jan 15◊
Jan 16†
Jan 17
Jan 18
Jan 19
.
p
8
9
1
4
.
p
5
2
4
4
.
p
3
1
4
4
.
p
7
6
1
4
p
3
.
5
3
4
DIVIDENDS
PER SHARE
Excluding special dividends
+4.4%
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
p
0
5
1
p
8
5
1
p
8
5
1
p
8
5
1
p
5
6
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 Jan 15 are shown
pre-exceptional items.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
S
h
a
r
e
h
o
d
e
r
l
I
n
f
o
r
m
a
ti
o
n
1
STRATEGIC
REPORT
3
4
Chairman’s Statement
Chief Executive’s Review
50 Business Model
52 Key Performance Indicators
54 Risks and Uncertainties
59 Viability Assessment
60 Employees
61 Social, Community and Human Rights
63 Environmental Matters
2
CHAIRMAN’S STATEMENT
The NEXT Group has delivered profits exactly in line with the guidance we issued in January 2019
and we are maintaining our guidance for the year ahead.
As anticipated, the year to January 2019 was challenging for NEXT as we continued to experience a
structural change in our business, with sales continuing to transfer from our stores to online.
Despite this, Earnings Per Share for the Group increased by +4.5% to 435.3p. We are proposing a
final ordinary dividend of 110p taking the total ordinary dividend for the year to 165p, an increase of
+4.4% on last year.
Total1 Group sales were £4.2bn. Full price sales2 were up +3.1%. Online3 full price sales increased
by +14.8% and Retail full price sales declined by -7.3%.
Cash flow remained strong and we returned £541m to shareholders through a combination of
ordinary dividends (£216m) and share buybacks (£325m). During the year we purchased 6.3m
shares at an average price of £51.65 and reduced our shares in issue by 4.3%.
We have continued to invest in the business, spending £129m on stores, warehousing and
systems. Net debt increased to £1,096m from £1,002m driven by the sales growth in nextpay, our
online credit business. Net debt of £1.1bn remains well within our bond and bank facilities of £1.5bn
and broadly aligned to our Online debtor book.
We have had a number of changes to the Board during the year. Michael Law, Group
Operations Director who had been with NEXT for 23 years, retired from the Board at the 2018
AGM in May. Richard Papp, who has been with NEXT for 25 years, succeeded Michael on the
Board as Group Merchandise and Operations Director.
Caroline Goodall, non-executive director and Chairman of the Remuneration Committee, retired
from the Board on 1 January 2019. Tristia Harrison joined our Board in September 2018 as a non-
executive director. Tristia is Chief Executive Officer of TalkTalk Telecom Group plc.
The strength of the Group is built on the hard work and dedication of all NEXT’s people. 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 High Street looks set to remain challenging our Online business continues to
increase its contribution to sales and profit of the Group. Our central guidance for the year ahead is
for Earnings Per Share to grow by +3.6%. 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; focus on our customers, products and profitability, continuing to build
on the capabilities of our brand and Online Platform and returning surplus cash to our shareholders.
Michael Roney
Chairman
21 March 2019
1 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).
2 Full price sales are VAT exclusive sales, excluding items sold in our mid-season, Black Friday, end-of-season Sale events and our Clearance
operations.
3 Formerly known as NEXT Directory.
3
Strategic ReportGovernanceFinancial StatementsShareholder Information CHIEF EXECUTIVE'S REVIEW
DOCUMENT PURPOSE AND STRUCTURE
The intention of this report is to inform investors how the Company has performed in the previous
year and give a clear understanding of how we plan to manage the business going forward. It is also
written with colleagues in mind, to give them a better sense of our longer-term direction of travel, the
challenges we face and the opportunities we aim to exploit.
As always, we give a detailed analysis of last year’s financial performance along with a description of
the key tasks for the coming year. We also set out our view of the consumer economy, with sales and
profit guidance for the year ahead. In addition we have also stepped back from the detail to take a
longer-term view of the Group’s prospects. We have set out our understanding of the structural
changes affecting our sector, how we think those changes are likely to evolve and how they might
affect the long-term financial performance of NEXT. The document is divided into five parts as set out
in the table below.
PART 1
FINANCIAL OVERVIEW p6
Headline summary of the year’s financial performance.
PART 2
THE BIG PICTURE p7
PART 3
FIFTEEN-YEAR STRESS
TEST p14
PART 4
2018/19 FINANCIAL
REVIEW p21
Reflection on how the internet is changing the way we do
business, the long-term threats and opportunities it
presents to the Group and how we intend to move the
business forward in an internet age.
This section gives a detailed forward-looking fifteen-year
financial scenario. It models how the business might
perform in an environment of prolonged like-for-like
Retail sales decline, along with the continued growth of
our Online and Finance businesses.
The output demonstrates the potential for the Group to
deliver strong and accelerating cash flows over the next
fifteen years.
This section gives a detailed description of the Group’s
financial performance by business channels: (1) Retail, (2)
Online, (3) Finance and (4) Other Activities. It also
outlines the progress that we have made in delivering
some of our operational initiatives in the year and how
we see them progressing in the year ahead.
It finishes with information about the Group’s balance
sheet, financing and cash flows.
PART 5 OUTLOOK FOR SALES
AND PROFIT
IN 2019/20 p44
This section gives our view on the outlook for the
consumer in the year ahead along with our guidance for
sales, profits and Earnings Per Share for the full year.
All information detailed within this review excludes the impact of the new accounting standard IFRS 16 “Leases”.
4
CHIEF EXECUTIVE'S REVIEW
DOCUMENT PURPOSE AND STRUCTURE
The intention of this report is to inform investors how the Company has performed in the previous
year and give a clear understanding of how we plan to manage the business going forward. It is also
written with colleagues in mind, to give them a better sense of our longer-term direction of travel, the
challenges we face and the opportunities we aim to exploit.
As always, we give a detailed analysis of last year’s financial performance along with a description of
the key tasks for the coming year. We also set out our view of the consumer economy, with sales and
profit guidance for the year ahead. In addition we have also stepped back from the detail to take a
longer-term view of the Group’s prospects. We have set out our understanding of the structural
changes affecting our sector, how we think those changes are likely to evolve and how they might
affect the long-term financial performance of NEXT. The document is divided into five parts as set out
in the table below.
PART 1
FINANCIAL OVERVIEW p6
Headline summary of the year’s financial performance.
PART 2
THE BIG PICTURE p7
Reflection on how the internet is changing the way we do
PART 3
FIFTEEN-YEAR STRESS
This section gives a detailed forward-looking fifteen-year
TEST p14
business, the long-term threats and opportunities it
presents to the Group and how we intend to move the
business forward in an internet age.
financial scenario. It models how the business might
perform in an environment of prolonged like-for-like
Retail sales decline, along with the continued growth of
our Online and Finance businesses.
The output demonstrates the potential for the Group to
deliver strong and accelerating cash flows over the next
fifteen years.
financial performance by business channels: (1) Retail, (2)
Online, (3) Finance and (4) Other Activities. It also
outlines the progress that we have made in delivering
some of our operational initiatives in the year and how
we see them progressing in the year ahead.
It finishes with information about the Group’s balance
sheet, financing and cash flows.
PART 4
2018/19 FINANCIAL
This section gives a detailed description of the Group’s
REVIEW p21
PART 5 OUTLOOK FOR SALES
This section gives our view on the outlook for the
AND PROFIT
IN 2019/20 p44
consumer in the year ahead along with our guidance for
sales, profits and Earnings Per Share for the full year.
All information detailed within this review excludes the impact of the new accounting standard IFRS 16 “Leases”.
Sales, Profit and Customers
Focus on Marketing and Systems
The Continued Development of LABEL
Development of our Overseas Business
Step 1: Retail Sales and Costs Walk-Forward
Step 2: Projected Retail Cash flows
Step 3: Adding Online Cash Flows
Step 4: Combined Group Cash Flows
Stress Test Conclusion
Sales and Profit
Retail Space
Portfolio Profitability and Long-Term Lease Commitments
Managing Retail Costs
Developing Our Stores as Part of Our Online Platform
CONTENTS
PART 1 FINANCIAL OVERVIEW ....................................................................................................... 6
PART 2 THE BIG PICTURE ............................................................................................................... 7
PART 3 FIFTEEN-YEAR STRESS TEST .............................................................................................. 14
14
17
18
19
20
PART 4 REVIEW OF 2018/19 ........................................................................................................ 21
FINANCIAL OVERVIEW................................................................................................................. 21
NEXT RETAIL ............................................................................................................................... 22
22
23
26
27
28
NEXT ONLINE .............................................................................................................................. 29
29
31
32
34
NEXT FINANCE ............................................................................................................................ 36
36
37
OTHER BUSINESS ACTIVITY .......................................................................................................... 38
38
38
39
39
COST INFLATION AND COST CONTROL ......................................................................................... 40
CASH FLOW ................................................................................................................................ 41
41
42
43
NET DEBT AND FINANCING .......................................................................................................... 43
PART 5 OUTLOOK FOR SALES AND PROFIT ................................................................................... 44
THE WIDER MARKET ................................................................................................................... 44
SALES AND PROFIT GUIDANCE FOR THE YEAR AHEAD .................................................................. 45
45
45
47
ACTION PLAN FOR THE YEAR AHEAD ........................................................................................... 47
APPENDIX 1 ................................................................................................................................ 48
APPENDIX 2 ................................................................................................................................ 49
Lipsy
International Retail and Franchise Stores
NEXT Sourcing
Non-Trading Activities
Sales Outlook for the Year Ahead
Profit Outlook For the Year Ahead
Outlook for Profits
Interest and Taxation
Capital Expenditure
Ordinary Dividends
NEXT Finance Profit and Loss
Credit Customer Base
5
Strategic ReportGovernanceFinancial StatementsShareholder Information PART 1
FINANCIAL OVERVIEW
NEXT Brand full price sales4 were up +3.1% on last year and total sales5 (including markdown sales)
were up +2.6%. In line with the guidance we gave in our January 2019 trading statement, Group profit
was £722.9m, down -0.4% on last year and Earnings Per Share (EPS) were up +4.5%.
TOTAL SALES
Retail
Online
Finance
Brand
Other6
Total Group sales
Statutory revenue
PROFIT and EPS
Retail
Online
Finance (after funding costs)
Brand
Other
Recharge of interest to Finance
Operating profit
Net external interest
Profit before tax
Taxation
Profit after tax
Earnings Per Share
Ordinary dividends per share
Jan 2019
£m
1,955.1
1,918.8
250.3
4,124.2
96.7
4,220.9
4,167.4
Jan 2019
£m
212.3
352.6
121.2
686.1
35.8
40.1
762.0
(39.1)
722.9
(132.5)
590.4
435.3p
165.0p
Jan 2018
£m
2,123.0
1,672.4
223.2
4,018.6
98.9
4,117.5
4,090.77
Jan 20188
£m
268.7
309.8
111.9
690.4
28.9
40.6
759.9
(33.8)
726.1
(134.3)
591.8
416.7p
158.0p
- 7.9%
+14.7%
+12.1%
+2.6%
+2.5%
- 21.0%
+13.8%
+8.4%
- 0.6%
+0.3%
- 0.4%
+4.5%
+4.4%
4 Full price sales are VAT exclusive sales, excluding items sold in our mid-season, Black Friday, end-of-season Sale events and our Clearance
operations.
5 Total sales are VAT exclusive sales including the full value of commission based sales (refer to Note 1 of the financial statements). Prior year
total sales have been reclassified, refer to Appendix 1.
6 Other includes: NEXT Sourcing external sales, Franchise and Lipsy non-NEXT business.
7 Prior year statutory revenue has been restated by £35.2m to reflect the transition to IFRS 15; these IFRS 15 adjustments did not impact total
or full price sales, refer to Appendix 1.
8 Prior year profit by division has been reclassified, refer to Appendix 1. Group profit remains as reported.
6
PART 2
THE BIG PICTURE
The World Moves On
The internet has been good for consumers. It has given access to an unprecedented choice of goods
along with delivery networks that are faster, more efficient and cheaper than ever before. It is a fact
of life for those of us who are established High Street retailers that one way or another, less clothing,
homeware, electrical goods and food are going to be sold on the High Street and more sold online. For
NEXT, we believe that this market represents a long-term threat to our Retail business but potentially,
a much larger opportunity for the Group as a whole.
This type of change is not unprecedented. The emergence of supermarkets in the 1960s heralded a
profound change in the way people shopped for food. Old structures of supply and distribution were
replaced with new and better ones. People no longer had to go to several shops to buy their food and
the choice and value on offer to consumers was dramatically improved.
The Changing Shape of NEXT
The online retail revolution is very similar and is likely to result in similar levels of threats and
opportunities for those of us who make a living in retail. No one knows what the High Street will look
like in ten years, but one thing is certain: the people walking down it will be wearing clothes. And
hundreds of thousands of people will be employed in the design, manufacture, distribution, marketing
and fulfilment of that product.
We cannot decide how our customers will shop; our job is to adapt and serve them in whatever way
they most want. To this end NEXT has changed dramatically over the last fifteen years. The business
has moved from stores to internet, from UK only to international, from mono-brand to multi-brand
aggregator. The table tells that story in numbers. It gives the percentage of our sales by channel (note
that we have used Directory to describe what is now our Online business as in 2003 more than half of
our Directory sales came over the phone!), our Directory sales by brand, and our Directory sales by
location.
Sales
by Channel
2003
2018
Directory
Sales by
Brand
2003
2018
Directory
Sales by
Location
2003
2018
Retail
Directory
77%
23%
47%
NEXT
100%
78%
UK
53%
3rd Party Brands
-
22%
Overseas
100%
-
83%
17%
Total
100%
100%
Total
100%
100%
Total
100%
100%
7
Strategic ReportGovernanceFinancial StatementsShareholder Information
The Cost of Change
The evolution required has not been easy nor is it without cost. Retail costs such as rent, rates and
service charge have remained fixed as sales have fallen, whilst every additional order Online has
increased variable costs, such as warehouse picking and delivery costs (page 46). Last year, every
Pound of NEXT business that transferred from Retail to Online cost an additional 6p. In the short to
medium term, the costs of structural change will persist.
These costs mean that we have had to work very hard to stand still and the year ahead looks like more
of the same. Remaining positive in these circumstances might, at first, appear challenging. However,
as the direction of travel becomes clearer, three important facts give us increasing confidence in the
longer-term growth prospects for the Group:
1.
Our stores remain a valuable financial asset and an increasingly important part of our Online
Platform.
2. Whilst Retail costs remain fixed in the short term, they are likely to decline in the longer run –
they are not an everlasting weight on the business.
3. Most importantly, the internet age offers the NEXT Group new and unexpected opportunities
for growth as a UK aggregator and overseas brand.
Retail Shops in an Online World
The shift online is not quite as one-way as it might first appear. It costs us less to deliver Online orders
to our stores than to a customer’s home. So, we offer free delivery for orders collected in store, as
against a charge of £3.99 for delivery to home. For many customers the store collection service is not
only cheaper, it is also more convenient than staying at home to receive a delivery. As a result, around
half of our Online orders are delivered to our stores. These orders, though smaller in value than orders
delivered to home, represent one third of our Online turnover.
Shops are even more important in facilitating Online returns. Over 80% of all our Online returns come
back through our stores. So, for the moment, our Retail estate and staff remain central to the service
we offer Online. The development of our stores as part of our Online Platform will remain a critical
part of our stores work-programme for the year ahead. The other priorities for our stores will be:
• The management of Retail costs and efficiencies to ensure that our Retail costs decline in line
with reducing sales (page 27).
• The effective renegotiation, re-location or closure of stores as and when their leases come up
for renewal (pages 15 and 24).
• The maintenance of retail standards and stock control to ensure Retail sales losses are
minimised (page 28).
How Much Space Do We Need?
We are often asked “how much less space will you need in the future?” It is the wrong question. We
do not have too much space, we have too much rent, rates and service charge. The amount of Retail
space we trade in the future will depend on whether the cost of retail space adequately reflects the
reality of retail trading conditions. Our guess is that there will be shops in fifteen years’ time, but they
will be fewer in number, possibly smaller and MUCH less expensive.
8
No one knows how far retail rents will fall but recent evidence is encouraging. Last year we negotiated
a rent reduction9 of -29% on the leases that we renewed; we experienced a reduction of -25% on leases
renewed in the previous year and we expect similar reductions in the year ahead (page 25). Our
average lease term10 is 6 years. A more benign outlook for our rental costs (which longer term will
feed through into lower rates as well) has important implications for the long-term viability of our store
portfolio and is considered later in our fifteen-year stress test.
However, the impact on the High Street is not the only effect the internet is having on our industry.
There is another, potentially more profound change taking place: the internet has also dramatically
reduced the barriers of entry to clothing and homeware markets.
The Wider Effects of the Internet - Reducing Barriers to Entry
Twenty years ago, those aspiring to create a new brand would have to invest a large amount of time
and capital in developing a store network, warehouses, retail systems and distribution networks. None
of these costs directly related to the origination of their product – the task at the heart of any fashion
brand.
To a large extent the speed at which a brand was able to expand its physical space determined the rate
at which it could grow. That allowed incumbent retailers (like NEXT) to defend large market share
through owning sections of the nation’s finite prime retail selling space. The other side of the same
coin meant that consumers who lived in areas with few shops had little choice as to what they could
buy.
In an internet age, a good buying, design and sourcing operation hooked into the right distribution
channel (for example, through NEXT’s LABEL business) can reach millions of consumers with virtually
no investment in a physical infrastructure. And customers living in remote parts of the country have
access to the same choice of goods available to those living near to London’s Oxford Street.
The Threat
The erosion of the advantage NEXT enjoyed through occupying prime retail space represents a
significant challenge to our Retail business, and we believe it will be hard for the Brand to maintain UK
market share in this new world.
The Opportunities
However, as fast as one door closes others open. Specifically, the internet opens up two significant
opportunities for the Group: (1) the opportunity to leverage our online assets and build a powerful
aggregation Platform in the UK and Eire and (2) the ability to build our brand in overseas markets. Each
will be dealt with in turn.
9 Rent reductions include the release of any unspent capital contributions over the term of the lease.
10 The lease term is the time to either, the end of the lease or any option to terminate the lease.
9
Strategic ReportGovernanceFinancial StatementsShareholder Information
The NEXT Online Platform
The scale of our Online business in the UK has allowed us to develop an increasingly effective Platform
for selling clothing and homeware in the UK and Eire. At the heart of our Platform are eight million
square feet of highly mechanised warehousing capable of handling flat packed, hanging, palletised and
furniture items, seven wholly owned distribution depots in addition to 500 stores. In the year ahead
we are looking to increase the reach of our Platform through gaining access to stock in our partners’
warehouses (page 33).
But we are beginning to think of the distribution network as only one part of five Platform layers, each
of which we aim to improve in the years ahead. The other layers are: Digital Marketing and Website
(page 31), UK Customer Base (page 31), Finance credit business (page 36) and Overseas customer base
(page 35).
Unique, flexible and robust retail infrastructure
Digital marketing and website
4 million UK customers
£1.2bn NEXT Finance credit business
1 million Overseas customers in 71 countries
The Growth of LABEL
We have taken advantage of the increasing power of our Platform to sell other brands through our
third-party branded business, LABEL (including Lipsy) which now turns over £400m and delivers a profit
of £66m (page 32).
Should we Compete with Ourselves?
Inevitably some of the third-party brands we sell compete with our own products. We have
consciously accepted this competition as the price of building a much larger business and securing the
future of the Group. Our view is that we cannot shield customers from other people’s products online,
eventually they will find them, one way or another. Preventing our competitors trading on our website
could, at best, slow down the advance of competition but it only puts off the inevitable.
We have taken the view that if you cannot beat them, join them. In doing so we can secure the long-
term future of the Group and increase the scale of our Platform, in a market where scale and choice
are critical.
Objectives for NEXT Platform
We have three objectives for the NEXT Online Platform:
• To be our customer’s first choice online retailer for clothing and homeware.
• To be the most profitable third-party route to market for our partner brands.
• To provide a quality of service that both we and our partner brands can be proud of.
The first of these objectives is all about the quality of our Online service and breadth of our product
offer. The second objective is more important than it might at first appear. We recognise that in this
new world more and more power will lie with the originators of product – they will be able to choose
10
their route to market and there will always be more than one. If we are successful in the long run it
can only be if our collaboration is mutually beneficial.
Of course, we have to make a profit, financial discipline is at the heart of everything we do. We have
managed our LABEL net margins to 16%, high enough to withstand the inevitable vagaries of the
fashion world, but not so high as to be uncompetitive. Once we have made our margin we give
everything else back to our customers and partners. Last year we achieved a number of efficiencies
and as a result reduced the commission we charge our partners; if we achieve more savings we intend
to pass them on.
The Opportunity Overseas
The internet has given the NEXT brand the chance to sell our products in markets where we were either
unable to open profitable shops or where we had to rely on franchise stores offering a very limited
selection of goods at a significant premium to UK prices.
In overseas markets NEXT is a challenger brand and in most major markets we can now offer our whole
range at prices commensurate with the UK. Low barriers of entry alongside the ability to tap into
overseas third-party platforms have allowed us to make good progress in developing a profitable and
fast growing £360m overseas Online business (page 34).
Perhaps our increasing traction overseas is evidence that the internet is also breaking down the
geographical fashion boundaries. Little by little the world’s fashion markets appear to be becoming
less distinct – bad news for competition in our home markets but good news for us overseas.
11
Strategic ReportGovernanceFinancial StatementsShareholder Information
Fifteen-Year Stress Test
We have asked ourselves what the combination of Online opportunities and negative Retail like-for-
likes might mean for the long-term financial performance of the Group. Last year we issued a fifteen-
year stress test modelling the cash flows from our Retail business in an environment of -10% compound
like-for-like Retail sales. We have updated this model in the following ways:
• Maintaining the -10% decline in like-for-like Retail sales.
• Accounting for the improving outlook for retail rent, rates and staffing costs.
•
Layering on the potential cash flows from the compound annual growth of +7.5% in Online
business (including Overseas).
The model implies Group Sales growth over the period of +3.0% and cash generation11 of around £12bn
over the next fifteen years, in addition to growing our Online nextpay debtor book by another £900m.
This revised stress test is set out in detail in the following section (page 14).
Not a Plan or a Forecast
It is important to emphasise that the fifteen-year stress test is not a plan or a forecast. No one can
predict the future and the numbers are very unlikely to turn out exactly as modelled. They depend on
too many unknowns, not least the quality of our execution and continued innovation (which, by
definition, cannot be foreseen).
A Way Through the Woods
Nonetheless the model is important because it demonstrates that, using a reasonable set of sales and
cost assumptions, NEXT’s economic structure allows its profitable transition into the online world.
It shows what is possible within the constraints of our balance sheet, current lease structures,
warehousing and distribution capacities, infrastructure costs and likely changes to our revenue cost
base if we continue to see a migration online similar to that which we are currently experiencing.
It is not necessarily the path we will follow but it is a way through the woods: a realistic scenario under
which we might deliver a growing, profitable and potentially world-class online clothing and homeware
business. And at the same time generate around £12bn of pre-tax cash flow over fifteen years.
Importance of Execution
Having a cogent vision is comforting, but ultimately only a small part of the battle. Investors should
be sceptical of any long-term business model if it is held out as a plan. Other than the obvious objection
that forecasting growth rates into the distant future is intrinsically uncertain, there are two more
important reasons for investors to be wary of grand plans:
• Future success will depend entirely on the quality of execution achieved by the business, not
•
least the continued delivery of excellent clothing and homeware ranges.
If we are to achieve anything like the sales growth anticipated in the model, we will need to
continue to innovate: to develop new products, services, systems, distribution channels and
more.
By definition future innovation cannot be foreseen today. What is important is maintaining an
environment and culture which encourages evolution and exploits innovation at every level.
11 Cash generation is pre-tax and pre-shareholder distributions, but after capital expenditure and funding the increase in Online debtors.
12
Evolution – A way of working
Evolution means much more than gradual change, it is the process of improvement that comes from
a myriad of independent experiments, most of which fail but some of which succeed; and in doing so
produce something better than that which has gone before.
Plenty of good ideas spring from leadership discussions but many more come from initiatives and trials
conceived by colleagues at every level of the organisation - each working to improve their part of our
business.
Business ideas which have had a profound effect on the future of the Group have all started with small
initiatives. A trial to sell some third-party sportswear in 2006 evolved into NEXT's £400m LABEL
business, a low-cost website delivering stock to Spain spurred the growth of NEXT's International
business.
What we are and may become is dependent on many small decisions: new businesses, cost saving
ideas, partnerships, services, products, operating efficiencies, marketing tactics and training
programmes. Many ideas have come to nought, but the cost of small failures is low (apart from some
damaged pride!) and the rewards of their success is high. Fostering, encouraging and directing a
constant effort to experiment with new business ideas, move on quickly if they fail and, more
importantly, rapidly exploit them if they succeed.
Lunch, NEXT Head Office, Leicester
13
Strategic ReportGovernanceFinancial StatementsShareholder Information
PART 3
FIFTEEN-YEAR STRESS TEST
The Nature of this Model
This model gives the possible performance of the NEXT Group over the next fifteen years in terms of
sales and cash flow. It seeks to model the financial consequences of continuing a -10% fall in Retail
like-for-like sales. This is set alongside the continued growth of our Online business in the UK and
overseas. The model is in four steps, each of which is explained in turn:
Step 1: Retail sales and costs walk-forward
Step 2: Projected Retail cash flows
Step 3: Adding Online cash flows
Step 4: Combined Group cash flows
It is important to re-emphasise that this is a scenario not a forecast, a plan or guidance. Its purpose
is to test the economic structure of the Group in an environment of rapid change rather than give a
forecast of how the future is actually going to pan out.
STEP 1: RETAIL SALES AND COSTS WALK-FORWARD
Retail Sales Assumptions
We have assumed that like-for-like Retail sales decline at -10% per annum for the next fifteen years.
On a store by store basis we have assumed that this decline is mitigated by some transfer of trade from
other store closures.
Retail Closure Assumptions
We have assumed that we will close a store once it gets close to making a net loss at branch level (store
cash profit before central overheads). At lease renewal we have assumed the following outcomes:
Store Profitability
Profitability > 20%
Profitability > 15% and <20%
Profitability > 4% and < 15%
Profitability < 4%
Assumed Outcome at Lease Renewal
Renew for 5 years at market rent
Renew for 3 years at market rent
Hold over* at passing rent
Close
*When stores are held over at passing rent, the retailer carries on paying the historic rent (or in some
cases lower) and both landlord and tenant have the right to terminate the lease after a short notice
period.
Transfer of Retail Trade on Closure – Assumptions
When we close stores we tend to see some of their sales migrate to other nearby NEXT shops. Last
year we observed an average transfer of trade from closing stores of 25%. Unsurprisingly, this number
corresponds to the levels of cannibalisation we usually observe when opening new stores.
The model accounts for transfer of trade on a store by store basis depending on the number and
proximity of other local stores. The table below sets out the level of sales transfer we anticipate in
different circumstances. For example, if there is only one store within five miles, we have assumed a
Retail sales transfer of 20%. For clarity, if there is a store within five miles and another within ten
miles, we have made the simple assumption that all the 20% transfer goes to the nearest store and
none to the farther one.
14
Transfer of Trade Assumptions12
Sales transfer %
2 Stores within 5 miles
1 Store within 5 miles
1 Store within 10 miles
No Stores within 10 miles
25%
20%
10%
0%
We have not assumed any transfer of trade from Retail to Online when a store closes, we have
assumed that 50% of store collections are transferred to stores within 10 miles and that the balance
of collections switch to being delivered to home. This last assumption may be optimistic and in reality,
some sales might be lost if customers are unable to collect and return their goods in local stores. This
issue is addressed by altering the model to keep some loss-making stores open in order to service
Online orders and returns (page 17).
Retail Rent Assumptions
We have assumed that during the term of any lease the rents will not come down. Understandably,
landlords will not unilaterally agree to a rent reduction until a lease expires (or a break clause is
exercisable). However, at lease break we are currently experiencing significant rent reductions where
we are able to agree a new lease. Last year we agreed rent reductions of -29% in the stores where we
agreed a new lease and we expect similar rent reductions on renewals agreed in the year ahead, with
new lease terms averaging around five years in duration (page 24).
We have assumed that today’s market rent (i.e. the rent which could be achieved for a new lease) is
25% lower than the rent we are currently locked into for all leases more than three years old. We have
further assumed that, in an environment of -10% decline in like-for-like sales, market rents would
continue to decline by a further -5% per annum after 2022.
The table below shows how the implied market rent would vary for a store indexed to a current rate
of 100.
Year end January 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Current rent
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Market rent
% var per annum
Total % var
75
75
75
71
68
64
61
58
55
52
50
47
45
43
41
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-25%
-25%
-25%
-29%
-32%
-36%
-39%
-42%
-45%
-48%
-50%
-53%
-55%
-57%
-59%
Where we have renewed leases in the model, we have assumed that a store’s rent will move to its
market rent (as calculated by the table above) upon renewal.
At first sight the anticipated falls in rent towards the outer years of the model look aggressive, but
remember they are based on the assumption that like-for-like sales continue to fall at -10%. If sales
reductions ease, then so should the decline in rent.
12 We have assumed lower travel distances for stores in central London with transfer thresholds at 1.5 and 3 miles.
15
Strategic ReportGovernanceFinancial StatementsShareholder Information
Alternative Use Rental Values
In the light of such extreme rental declines, the question then arises as to whether alternative use of
the space (for residential, office space or other) would provide a rental floor, beneath which retail
rents could no longer fall. Our analysis indicates that this floor is a long way below the levels of rent
we are currently paying in most locations (though central London would be a notable exception).
In most prime retail locations, we pay significantly more per square foot than could be achieved
through rents for residential, office or warehousing. In addition, the cost of converting space from one
use to another pushes the rental floor even lower.
For example, in one of the UK’s major cities, NEXT currently pays a rent of £1.7m per annum for a large
prime High Street store. If the building were converted to office space, we estimate it could achieve a
rent of £1.2m as office space or £1.0m as residential. However, the cost of converting the building to
offices would be in the order of £20m (including any incentives paid to the occupant) without
accounting for any void rent during construction. The cost of financing the additional capital, at a rate
of 3.5%, would be £700k per annum. So, the rental floor for the building as office space, after
accounting for the capital costs of conversion, would be nearer £500k. This example is set out in the
table below:
Location
City Centre
Current Rent
Rent for
Office Use
Cost of
Conversion
£1.7m
£1.2m
£20m
Capital Cost
at 3.5%
- £700k
Net Rent after
Cost of Capital
£500k
In many of our other trading locations, such as retail parks, there is no demand for offices and better
land is available for housing, so the alternative use values are even lower. Therefore, in most locations,
it will be the highest paying retailer that determines rental levels for many years to come.
Important Caveat
It should be stressed that the above rental scenario is over simplified: the net rent after capital would
not necessarily be the same as a rental floor. A landlord may well choose a lower (but more secure)
alternative rent to a higher retail rent. In addition, rental values for offices and residential may rise
over the next fifteen years. However, the exercise gives a sense of the order of magnitude by which
rents might fall if Retail like-for-like sales persist at -10%.
Rates Assumptions
Rates have been modelled to fall in line with rents based on rates revaluations in the financial years
ending January 2022, 2025, 2028 and 2031. The decline in rates is modelled subject to existing rules
on transition relief and would be phased in over the period up to the next rates revaluation. We have
assumed no change to Uniform Business Rates.
Retail Wage Cost Assumptions
Wages are assumed to decline broadly in line with sales. It has been assumed that twenty percent of
the store wage bill will remain fixed (for example management cover and the minimum number of
people required to open a store safely). So, the model assumes that 80% of wages will decline in line
with sales. The high level of variability is made possible by the fact that increasing numbers of store-
based staff are required to handle Online collections and returns. As a result of the combined effects
of Online staffing requirements and cost saving initiatives, we have managed to reduce the cost of
wages in our stores in line with sales over the last three years (i.e. wages have been 100% variable with
sales in the last three years).
16
Central Overheads
Most of our central overheads are shared between Online and Retail. Our buying, quality, sourcing,
finance, HR, and systems teams serve both businesses. It is assumed that these costs are divided
between the businesses in proportion to their turnover. So, as long as our total sales move forward,
these costs will come down in our Retail business in direct proportion to sales declines.
STEP 2: PROJECTED RETAIL CASH FLOWS
Preliminary Output, Store Numbers and Cash Flows
The left-hand graph below shows the cash flow from our branches by year for the next 15 years after
accounting for closures, transfer of trade and reductions in rent, rates and other costs. In year fifteen
150 stores remain and cumulative cash flow from the branches over the period is £400m. In the final
year the model assumes that the Retail business will make a -£3m cash loss.
It can be seen from the model that whilst fifteen years of -10% like-for-like sales declines in our stores
is uncomfortable, the Retail business does not represent a burden or hindrance to our Online business.
In fact, it provides a network of stores that remain important to Online sales.
£550m
£350m
£150m
(£50m)
Years
15
LFL
-10%
Net Cash
£400m
Stores
150
£550m
£350m
£150m
(£50m)
Net Cash pa
Cum. Net Cash
Years
15
LFL
-10%
Net Cash
£260m
Stores
270
Net Cash pa
Cum. Net Cash
2019
2021
2023
2025
2027
2029
2031
2033
2019
2021
2023
2025
2027
2029
2031
2033
(a) Cash flows assuming closure of all loss-making stores
(b) Cash flows with 120 stores retained for Online services
The effect of keeping 120 stores open to service Online sales
The projected reduction in stores poses a potential threat to Online sales, as we would lose many of
our Online collection and return locations. So, we have assumed that we would keep open a further
120 loss-making Retail Stores in order to maintain Online store services in key locations. This takes the
store numbers up from 150 to 270 and ensures that we maintain coverage at more than 80% of 2018’s
collection volumes.
The cost of carrying these stores is a -£25m cash loss per annum in the final year. In reality, we would
probably relocate these stores to smaller less expensive collection shops with a very limited retail offer,
but for the purposes of this model we have simply accepted the £25m cost. The Retail cash flows,
adjusting for the cost of carrying loss making stores, is set out in the right-hand graphic above. As can
be seen the cumulative cash flow has fallen by £140m to £260m.
17
Strategic ReportGovernanceFinancial StatementsShareholder Information
STEP 3: ADDING ONLINE CASH FLOWS
This section combines the Retail cash flow scenario with a projection of what might happen to Online
sales and cash flows in the period. The assumptions used and cash flow impact are set out in the
paragraphs below.
Online Sales Growth Assumptions
The central scenario sets out the likely financial performance of the Group if current sales trends
continue, namely:
• The continued growth in Online sales of NEXT branded goods in the UK.
• The continued growth in the sales and participation of our third-party branded business,
LABEL.
• The continued growth of our overseas Online business (which is mainly NEXT branded goods
but includes a small element of third-party branded sales).
The table below sets out the annual sales growth modelled for each year for each constituent part of
the business over the next fifteen years. The UK Retail line shows the decline of total sales including
the effect of closures and transfer of trade. The last column gives the effective compound annual
growth (CAGR) over the fifteen-year period.
CAGR
UK NEXT Online
UK LABEL
Total Online UK
UK Retail
Total UK
Overseas
Group Total
Years 1-5
+5.7%
Years 6-10
+4.5%
Years 10-15
+4.2%
15-year CAGR
+4.8%
+14.6%
+8.4%
- 10.1%
+0.0%
+18.1%
+2.4%
+6.9%
+5.4%
- 13.7%
+0.7%
+11.5%
+3.1%
+4.1%
+4.2%
- 13.5%
+2.2%
+7.3%
+3.6%
+8.4%
+6.0%
- 12.4%
+1.0%
+12.2%
+3.0%
Online Cost Assumptions
We have taken a much simpler approach to modelling Online costs and have assumed no economies
of scale as Online sales grow. We have broadly maintained the net margins of each channel within the
Online business, as set out in the table below:
Online channel
NEXT UK
LABEL UK
Overseas
Net Margin %
after all central
and fixed costs
20%
16%
16%
Finance
We have assumed compound annual growth rate of +4% in our consumer debt, which is two thirds of
the growth we are modelling for our UK Online business.
Total cash invested in our Online nextpay debtor book over the course of the fifteen-year period is
modelled at £900m. We expect the return on capital employed (after funding costs) to be maintained
at around 11%.
18
Group Capital Expenditure
Our model allows for ongoing investment in Online infrastructure and maintenance capex for our
stores. The result is that the model anticipates an average capital spend of £110m per annum for the
Group over the next fifteen years. This means that capital expenditure broadly matches Group
depreciation. This run rate is expected to be lower than current levels because our Online business
demands less capital investment per pound of sales than a store-based business.
STEP 4: COMBINED GROUP CASH FLOWS
Over the fifteen-year period, the model generates cash for the Group amounting to £12bn13. The cash
flow in the final year is £1.1bn.
Summary of Key Inputs and Outputs
KEY INPUTS
SALES ASSUMPTIONS
Retail LFLs
NEXT UK Online CAGR
LABEL CAGR
Online Overseas CAGR
Transfer of trade to a store within five
miles
COST, MARGINS AND CAPEX
% of store wages that vary with sales
2020 market rent as % of current rent
Market rent decline beyond 2022
Average Group CAPEX per annum
Online net margins by channel
Retail Net Cash pa
£1,100m
Online Net Cash pa
-10%
+4.8%
+8.4%
+12.2%
20%
80%
75%
-5%
£110m
In line with
2018/19
£900m
£700m
£500m
£300m
£100m
KEY OUTPUTS
Cumulative cashflow over 15 years
Fifteen-year increase in debtor
book
Year 15 Group cashflow
£12bn13
£900m
£1.1bn
Group fifteen-year CAGR
3.0%
Years
15
LFL
-10%
Net Cash
£12bn
Retail
£0.3bn
Online
£12bn
No. of Stores
270
-£100m
2019
2033
13 Rounded to the nearest one billion.
19
Strategic ReportGovernanceFinancial StatementsShareholder Information
STRESS TEST CONCLUSION
In summary, annual declines of -10% in like-for-like sales in our Retail business, combined with CAGR
of +7.5% in our Online business looks likely to deliver cash generation of around £12bn over the next
fifteen years, with cash generation in the final year being in the order of £1.1bn.
In all probability, many of the assumptions about both sales and costs are likely to be incorrect.
Nonetheless, the exercise demonstrates that a radical re-structuring of the Company’s cost base and
sales profile is possible over time. Furthermore, the Company would at the same time continue to
generate significant positive cash flows.
20
PART 4
REVIEW OF 2018/19
FINANCIAL OVERVIEW
NEXT Brand full price sales14 were up +3.1% and Brand total sales15 (including markdown sales) were
up +2.6% on last year. Group profit before tax was down - 0.4% and Earnings Per Share (EPS) were up
+4.5% on last year.
We are proposing an ordinary dividend of 110p per share, making 165p in total for the year, which is
up +4.4% on last year.
TOTAL SALES
Retail
Online
Finance
Brand
Other16
Total Group sales
Statutory revenue
PROFIT and EPS
Retail
Online
Finance (after funding costs)
Brand
Other
Recharge of interest to Finance
Operating profit
Net external interest
Profit before tax
Taxation
Profit after tax
Earnings Per Share
Ordinary dividends per share
Jan 2019
£m
1,955.1
1,918.8
250.3
4,124.2
96.7
4,220.9
4,167.4
Jan 2019
£m
212.3
352.6
121.2
686.1
35.8
40.1
762.0
(39.1)
722.9
(132.5)
590.4
435.3p
165.0p
Jan 2018
£m
2,123.0
1,672.4
223.2
4,018.6
98.9
4,117.5
4,090.717
Jan 201818
£m
268.7
309.8
111.9
690.4
28.9
40.6
759.9
(33.8)
726.1
(134.3)
591.8
416.7p
158.0p
- 7.9%
+14.7%
+12.1%
+2.6%
+2.5%
- 21.0%
+13.8%
+8.4%
- 0.6%
+0.3%
- 0.4%
+4.5%
+4.4%
14 Full price sales are VAT exclusive sales, excluding items sold in our mid-season, Black Friday, end-of-season Sale events and our Clearance
operations.
15 Total sales are VAT exclusive sales including the full value of commission based sales (refer to Note 1 of the financial statements). Prior year
total sales have been reclassified, refer to Appendix 1.
16 Other includes: NEXT Sourcing external sales, Franchise and Lipsy non-NEXT business.
17 Prior year statutory revenue has been restated by £35.2m to reflect the transition to IFRS 15; these IFRS 15 adjustments did not impact
total or full price sales, refer to Appendix 1.
18 Prior year profit by division has been reclassified, refer to Appendix 1. Group profit remains as reported.
21
Strategic ReportGovernanceFinancial StatementsShareholder Information
NEXT RETAIL
SALES AND PROFIT
Full price Retail sales were down -7.3%, which was +1.2% ahead of our initial budget for the year. Total
sales, including markdown sales, reduced by -7.9%. Net new space contributed +0.6% to total sales
growth. Profits reduced by -21%, driven mainly by the diseconomies of scale caused by declining like-
for-like19 sales of -8.5%.
£m
Total sales
Operating profit
Net margin
Jan 2019
1,955.1
212.3
10.9%
Jan 2018
2,123.0
268.7
12.7%
The table below sets out significant Retail margin movements by major heads of costs.
Net margin on total sales to January 2018
Bought-in gross margin
Improved underlying bought-in gross margin added +0.2%
to margin.
- 7.9%
- 21.0%
12.7%
+0.2%
+0.5%
Markdown
Store payroll
Store occupancy
Warehousing &
distribution
Stock for Sale was down -13% with markdown sales down
-11%. The combination of improved clearance rates and
a higher participation of full price sales increased margin
by +0.5%.
Productivity initiatives more than offset underlying pay
increases.
+0.1%
Falling like-for-like sales increased occupancy costs as a
percentage of sales.
- 2.0%
Falling sales increased costs as a percentage of sales.
- 0.6%
Net margin on total sales to January 2019
10.9%
Anticipated Retail Margin in the Year Ahead
As set out in our January Trading Statement we are budgeting for full price sales to fall by -8.5%. Based
on this guidance, we expect Retail net margin in 2019/20 to reduce from 10.9% to around 7.5%, as
occupancy and overhead costs will not reduce at the same rate as sales.
19 Like-for-like sales is the change in sales from stores which have been open for at least one full year.
22
RETAIL SPACE
Net Retail space increased by 23,000 square feet in the year, taking our portfolio to 8.3m square feet.
This is marginally lower than the guidance given in September, due to the delay of one new store which
opened just after the year end and one closure brought forward from 2019. The table below sets out
the change in store numbers and space for the full year.
January 2018
New mainline stores
Mainline closures
Clearance closures
January 2019
Change in square feet
Change %
Store
numbers
528
+2
- 15
- 8
507
NEXT
Sq. ft. (k)
8,029
+141
- 110
- 71
7,989
- 40
- 0.5%
Concessions
Sq. ft. (k)
242
+65
- 2
-
305
+63
+26.2%
Total
Sq. ft. (k)
8,271
+206
- 112
- 71
8,294
+23
+0.3%
Looking ahead, we expect that trading space will increase by around 50,000 square feet during 2019,
subject to lease renewal negotiations. We expect new stores to add +160k sq ft, mainline store
closures to deduct -60k sq ft and clearance store closures to deduct -50k sq ft.
New space
Branch profitability20 of the portfolio opened or extended in the last 12 months was 21% of VAT
inclusive sales. Payback on the net capital invested was 27.5 months, which is marginally beyond our
internal payback hurdle of 24 months and reflective of the difficulty in predicting new store
performance in the current environment.
Plymouth, Marsh Mills
20 Branch profitability is defined as profit before central overheads and is expressed as a percentage of VAT inclusive sales.
23
Strategic ReportGovernanceFinancial StatementsShareholder Information
Store Closures
The table below sets out the store closures in the year to January 2019 with their annualised profit at
the point of closure.
Mainline closures
Clearance closures
No. of
stores
15
8
Branch
profit £m
3.2
2.9
Branch
profit %
13%
16%
As detailed in our Half Year Results, the decision to close eight Clearance stores in the year is in
response to: (1) lower levels of Sale surpluses and (2) the success we are having clearing surplus stock
Online.
A breakdown of the mainline store closures is shown below. The stores we closed with higher
profitability were those where we anticipated (and subsequently experienced) high levels of sales
transfer into other local stores.
Mainline store closure by reason
Trade transfer expected to offset closure losses
Forced closure (Stansted)
Low profitability closures
No. of
stores
7
Branch
profit £m
1.8
1
7
0.5
0.9
Branch
profit %
14%
24%
9%
Over the last 12 months, following most store closures, we have seen an encouraging amount of sales
transfer to nearby NEXT stores. On average this has been around 25% of the sales lost from the closing
stores. This level of transfer may not be indicative of all future closures but if it is, it will mitigate much
of the profit lost from store closures going forward.
Lease Renewals
This year we renegotiated and renewed lease terms in 28 stores. The table below summarises the
reductions in occupancy costs as a result of the lease renewals. In our Half Year Results, we had
forecast renewals for 33 stores; the remaining 5 are still under negotiation.
28 store renewals
2018/19 £m
Rental costs21
Concession income
Net rent
Net rent/sales (VAT inc.)
Rent-free incentive/capital contribution used for store upgrade22
Average lease term23
Average branch profitability (before central overheads)
Before
renewal
9.3
-
9.3
9.4%
-29%
-31%
After
renewal
6.6
- 0.2
6.4
6.5%
£5m
5 years
26%
21 Rental costs include the release of any capital contributions or rent-free incentives, over the term of the lease, which will not be used to
refit the stores being renewed. Excluding the release of surplus capital contributions, rent would have decreased by -24%.
22 This is a cash contribution or rent free period provided by the landlord and spent on upgrading the store.
23 Average lease term shown is to the earlier of the lease end or break clause.
24
Future Lease Renewals
There are a further 37 store leases currently in the process of being renegotiated, where the lease has
either expired already or is reaching the end of its term in 2019. We expect to achieve similar rent
reductions to those seen in 2018. If we cannot agree lease terms, they will either be held over at the
current passing rent (pending negotiation) or will be closed. Our forecast for lease renewals during
2019 is summarised in the table below.
37 store renewals
2019/20 £m (e)
Rental costs 24
Concession income
Net rent
Net rent/sales (VAT inc.)
Rent-free incentive / capital contribution used for store upgrade25
Average lease term23
Average branch profitability (before central overheads)
Before
renewal
13.8
-
13.8
9.9%
After
renewal
10.1
- 0.5
9.6
6.9%
£4.5m
4.5 years
26%
- 27%
- 30%
Our general approach to lease renewals is that we will renew a lease in any of the three following
circumstances:
• A store is highly profitable (e.g. making >20% branch profitability) and the lease commitment
is not too onerous (i.e. up to 5 years).
• Where store profitability is low (e.g. 10%-20%) but the renewal period is very short (i.e. 6
months to 3 years).
• Where store profitability is above 4% but below 10% and the landlord is content for us to hold
over at the existing or lower rent. Holding over means after the lease expiry, NEXT can give
notice to terminate its occupation at will and exit subject to a short notice period.
The only caveat to the above approach is that sometimes it may be advantageous to shut a profitable
store if the transfer of trade is expected to be high enough to offset any losses from closure.
Concessions
In the year we have increased annualised concession income by £4m, from £8m to £12m. The space
occupied by concessions increased by +26% to 305,000 square feet representing 3.7% of our total
trading space.
24 Rental costs include the release of any capital contributions or rent-free incentives, over the term of the lease, which will not be used to
refit the stores being renewed. Excluding the release of surplus capital contributions rent is forecast to decline by -25% in 2019/20.
25 This is a cash contribution or rent free period given by the landlord and spent on upgrading the store.
25
Strategic ReportGovernanceFinancial StatementsShareholder Information
PORTFOLIO PROFITABILITY AND LONG-TERM LEASE COMMITMENTS
Lease Commitment Profile
The average lease term remaining (to the nearest break clause) on our current portfolio of stores is 6
years and 78% of our rental liabilities will have expired within the next 10 years. The expiry profile of
our store portfolio’s lease commitments is set out in the graph below. More than half our leases (by
value) will expire, or can be terminated, within the next 4.9 years. This compares to 5.2 years for the
same measure this time last year.
Cumulative Lease Expiries by Rental Value
Cumulative rent expired %
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Already
Expired
1
2
3
4
5
8
Remaining Lease Commitment (Years)
7
6
9
10
11
12
13
14
Portfolio Profitability
Despite falling like-for-like sales, the vast majority of our stores remain very profitable.
The left-hand table below summarises our store portfolio in different profitability bandings as at
January 2019. As can be seen, 93% of turnover remains in stores making more than 10% branch
profitability (before central overheads). The right-hand table shows the same information projected
forward one year, based on our central guidance.
January 2019
Branch
profitability
% of turnover
January 2020 (e)
Branch
profitability
% of turnover
>20%
>15%
>10%
>5%
>0%
59%
81%
93%
97%
98%
>20%
>15%
>10%
>5%
>0%
51%
73%
89%
96%
98%
26
MANAGING RETAIL COSTS
The management of costs remains a huge focus for our Retail teams and last year we saved c.£5m
across various initiatives in Retail. These savings were achieved by a combination of the following:
• Technology enabled improvements to in-store stock management processes.
• Right-sizing of our management structure to account for today’s levels of sales (mainly
achieved through natural management turnover).
• Savings to our delivery schedule to account for lower unit volumes.
As usual, cost savings have come from a large number of small initiatives rather than any single project.
The management of costs and the search for innovative ways to operate more efficiently remain
priorities for our Retail teams.
In the year ahead, we have budgeted a further £3m of cost saving initiatives, with an additional £2m
of potential savings also identified.
The work done in the branches to process Online collections, returns and orders is now having a
meaningful impact on our ability to manage our Retail wage costs down in line with sales. In the past
the minimum crews required to open a shop represented a considerable fixed cost for the Retail
business; if sales declined the numbers required at the quietest times of the day were not able to fall.
In today’s world some of the hours not needed in Retail are now required for Online work and so make
good use of surplus Retail hours at the times of day our Retail sales are lowest. Online work now
accounts for 12% of the work done in stores, in the quietest hour of the day (09:30-10:30) Online work
accounts for around 15% of store wages.
We remain acutely conscious that cost savings in our branches can be counter productive if they impair
the quality of service we offer our customers or reduce the speed and efficiency with which we can
replenish our stores.
Last year we made one such mistake and cut our store deliveries back too much; this affected the
timely replenishment of our stores and led to processing backlogs in the branches. In the year ahead
we are budgeting to add back some of the deliveries we cut last year and re-organise our store staff
rotas. The combined effect will be to improve our shop floor stock availability and standards.
Additional deliveries will also have the effect of improving the speed by which customer returns can
get back to our warehouse – a major focus for the year ahead.
27
Strategic ReportGovernanceFinancial StatementsShareholder Information
DEVELOPING OUR STORES AS PART OF OUR ONLINE PLATFORM
2018 Projects
During the year we have made the following improvements to further integrate our Retail stores and
Online businesses. The aim is to maximise the value of the stock we have available for sale across both
businesses.
• Use of Retail stock to service Online demand where stock available in stores is unavailable in
our warehouses. This stock is offered on a 48-hour delivery promise.
• Same Day Click-and-Collect, allowing customers to access our store stock file and reserve stock
for same day collection.
• Store to store stock balancing, to give better stock availability in our shops.
The combination of these initiatives serviced sales of around £60m. We cannot be certain that all
these sales are incremental (some of the items found in store may have been substituted by others
available in the warehouse), but we estimate that at least 50% are incremental.
2019 Priority – Improved Returns Processing
From a customer perspective, our store returns process is efficient and goods returned are credited to
customers’ accounts within one working day. However, the speed and efficiency with which returned
stock gets back to our warehouses for resale has been less than optimal.
In the run up to Christmas it was taking us an average of 15 days to get stock back from stores and
available for dispatch to customers. The resulting queue tied up £70m of stock which was unavailable
to order. Improving the speed of returns to the warehouse will be a priority in the year ahead. The
queue has already reduced to around £30m and we expect further improvements as the year
progresses.
One innovation we believe will significantly improve the speed of returns will be the undertaking of a
simple fold-and-pack operation in our stores for the items that can be made ‘online ready’ with
relatively little work. This will allow these items to bypass the re-packing process when they get to our
warehouses and become available for resale as soon as they get into our central warehouse.
28
NEXT ONLINE
This section starts by giving an update on the performance of our Online business in the year, broken
down by division (NEXT Brand UK, LABEL and Overseas). This is followed by three focus sections
covering:
• Marketing and systems
• The continued development of LABEL
• The development of our Overseas business
SALES, PROFIT AND CUSTOMERS
Sales and Profit Summary
Full price sales grew by +14.8%, with total sales growth (including markdown26) of +14.7%. Net margin
was 18.4%.
£m
Total sales
Operating profit
Net margin
Sales by Division
Jan 2019
1,918.8
352.6
18.4%
Jan 201827
1,672.4
309.8
18.5%
+14.7%
+13.8%
To give a clearer picture of how our Online business is developing, it is helpful to think of the business
as being divided into three divisions: (1) The NEXT branded business in the UK, (2) the LABEL UK third-
party branded business and (3) Online Overseas. The table below sets out the full price sales
performance of each of these three divisions in the year ending January 2019.
Full price sales growth
NEXT Brand UK
LABEL UK28
Total UK
Overseas
Total full price sales
£m
75
80
155
64
219
% var
+8.3%
+28.8%
+13.1%
+22.1%
+14.8%
H128
+10.7%
+26.7%
+14.4%
+22.0%
+16.0%
H2
+6.3%
+30.5%
+12.0%
+22.1%
+13.8%
26 Markdown sales were up +13.8%; this includes Clearance offers and all Sale events up to the year end date.
27 Jan 2018 total sales, operating profit and net margin have been restated to separately report the Finance business, refer to Appendix 1.
28 Our Home Branded business continues to grow and is becoming a meaningful part of our LABEL business. As a result, some longstanding
third-party Brands sold in our Home division, historically reported within NEXT, have been reclassified from NEXT Brand UK to LABEL UK.
In the year to January 2018, this increased LABEL UK full price sales and reduced NEXT Brand UK by £4m.
29
Strategic ReportGovernanceFinancial StatementsShareholder Information
Profit by Division
The table below sets out operating profit and net margin by channel for the Online business in the
year.
NEXT Brand UK
LABEL UK
Overseas
Total Online operating profit
Profit £m
Increase £m29
Net margin %
227.9
66.2
58.5
352.6
18.6
18.0
6.2
42.8
20.0%
16.0%
16.1%
18.4%
As we reported in our Half Year Results, the reported net margins in LABEL and Overseas had,
historically, been calculated including a deduction for attributable fixed logistics costs and markdown
costs but no account had been taken for indirect central overheads. As these businesses have grown,
they now meaningfully draw on our central overheads (such as Systems, Finance and, in the case of
Overseas, Product teams). So we have decided to allocate a proportionate share of all central
overheads to both businesses. This reduces margins by -3% in Overseas and -1% in LABEL.
Margin Movement Analysis
The table below sets out significant Online margin movements by major heads of costs.
Net margin on total sales to January 2018 – restated29
Bought-in
gross margin
Markdown
Underlying NEXT bought-in gross margin has improved by +0.2%. An
increase in the participation of third-party branded sales, which have a
lower bought-in gross margin, reduced margin by -1.4%.
Surplus stock for Sale was down -0.5% but markdown sales were up
+3.8%. The combination of improved clearance rates and a higher
participation of full price sales increased margin by +1.0%.
Warehousing
& distribution
Growth in Overseas sales, which have a higher cost of distribution,
eroded margin by -0.3%. Reduced delivery income from nextunlimited
has reduced margin by a further -0.3%. Other operational costs have
reduced margin by -0.4%.
Catalogues &
photography
Production of fewer catalogues has increased margin by +1.1%.
Photography savings have increased margin by +0.2%.
Marketing &
systems
Investment in both marketing and systems meant costs have grown
slightly faster than sales.
Net margin on total sales to January 2019
18.5%
- 1.2%
+1.0%
- 1.0%
+1.3%
- 0.2%
18.4%
For the year ahead our central guidance is for full price sales to be up +11%. Based on this guidance
we expect Online net margin in 2019/20 to be around 18.5%.
29 Operating profit and net margin for the prior year have been reclassified, refer to Appendix 1.
30
Customer Base
Average active customers30 increased by +8% to 5.3 million, driven by the growth in Overseas and UK
cash customers (those who do not use our nextpay credit account when ordering). UK credit
customers increased by +1%. The table below sets out the growth in the respective parts of our
customer base.
Average active customers (m)
UK Credit
UK Cash
Total UK
Overseas Cash
Total
Jan 2019
2.52
1.66
4.18
1.15
5.33
Jan 2018
2.49
1.50
3.99
0.94
4.93
+1%
+11%
+5%
+22%
+8%
FOCUS ON MARKETING AND SYSTEMS
Three years ago we described the extent to which our Online marketing and website systems had fallen
behind the best in our sector. Since that time, we have responded vigorously and made significant
progress in bringing our website, marketing capabilities and other online systems up to date with new
technology.
Whilst we still have much to learn from industry leaders, we now believe that our systems put us at an
advantage to many smaller online retailers and serve to increase the attractiveness of our Platform to
partner brands. The table below sets out our expenditure on digital marketing, marketing
professionals and systems. The figures given are for the last four years and estimates for the year
ahead.
Category (£m)
Digital marketing
Marketing professionals
Online systems
Total
Jan
2016
8
4
34
46
Jan
2017
16
6
38
60
Jan
2018
19
9
44
72
Jan
2019
36
11
49
96
Jan
2020(e)
46
12
57
115
Four-
year
growth
+500%
+159%
+71%
+150%
Continued Improvement of our Website
We continue to invest in improving the user experience on our website with developments planned
for our home pages, navigation, product pages, search, onsite product recommendation, payment &
checkout and registration. Personalisation and improving the performance of our new search engine
(which has already delivered some promising results) remain a particular priority in the year ahead.
Mobile devices continue to increase in importance and account for around 70% of our customer visits
and 55% of sales. In the year ahead we will be extending the functionality of our apps (iPhone and
Android) to reflect the specialist functionality that is currently available on our main site (for example
our ‘sofa builder’). In addition, some of our most interesting initiatives are now being designed
specifically to optimise mobile device functionality.
30 Active customers are defined as those who have placed an Online order or received a standard account statement in the last 20 weeks.
31
Strategic ReportGovernanceFinancial StatementsShareholder Information
Digital Advertising
During the year we dropped some of our more traditional marketing, such as direct mail and
recommend-a-friend, and invested the money in digital marketing. The returns achieved on digital
marketing have been higher than expected and particularly strong overseas, where we have struggled
to make a return in the past. We plan to increase expenditure on digital marketing by at least 28% in
the year ahead.
THE CONTINUED DEVELOPMENT OF LABEL
Sales Performance
LABEL has had an excellent year with full price sales up +29%. Growth has been driven by:
•
Increasing sales with our existing partner brands, where we have successfully increased our
breadth of offer and improved stock availability.
• The introduction of new partner brands (such as All Saints and River Island).
LABEL Sales and Profit History
The table below sets out the last five years’ sales, profits and net margins for LABEL, along with our
estimate for the current year. Note that this table shows total sales (including markdown sales) so the
growth rate is not identical to the full price growth rate quoted above.
£m
Total sales
Operating profit
Net margin
Jan
2015
151
21
14%
Jan
2016
187
23
12%
Jan
2017
215
35
16%
Jan
201831
303
52
17%
Operating profit including all central overheads
Net margin including all central overheads
Jan
2019
414
Jan
2020 (e)
475
70
17%
66
16%
81
17%
76
16%
LABEL in the Year Ahead
For the year ahead, we expect full price sales to be up +15% and net margin after central overheads to
be 16% and in line with last year.
We plan to continue extending our third-party offer with some important new clothing brands and an
increased focus on new homeware and furniture brands. In the run up to Christmas last year, we
significantly expanded our Beauty offer and we hope to develop this business further in the year ahead.
31 Our Home branded business continues to grow and is becoming a meaningful part of our LABEL business. As a result, some longstanding
third-party brands sold in our Home division, historically reported within NEXT, have been reclassified from NEXT Brand UK to LABEL UK.
In the year to January 2018, this increased LABEL UK total sales and reduced NEXT Brand UK by £5m, £4.5m of which, was full price.
32
Commission and Wholesale
More than half of our third-party branded business is now sold on a commission basis32. Although we
make lower net margins on the commission model, we encourage our brand partners to adopt it
because we believe that it will generate higher sales growth. This belief is reinforced by our sales
performance as demonstrated in the table below; the growth rate of commission brands is higher than
the rate of those bought on a wholesale basis.
Full price sales £m
Wholesale
Commission
LABEL full price sales
Jan 2019
172
184
356
Jan 2018
138
138
276
+25%
+33%
+29%
We plan to work with more of our brand partners on a commission basis in the year ahead, with some
key brands changing over to commission.
Platform Plus
We are expanding our Platform capabilities and in March 2019 we started a trial with three commission
partner brands offering for sale on our website items that are only available in our partners’
warehouses. Items ordered in this way are transferred from our partners’ warehouses and distributed
through our network of warehouses, couriers and stores. The key here will be to ensure that the
process is cost effective and that we can fulfil the orders in good time.
The advantages of bringing these items into our network (as opposed to sending them directly to our
customers from partners’ warehouses) are as follows:
•
•
•
It gives us the opportunity to consolidate items with other NEXT items in the customer’s order
and minimise costs.
It gives us end to end control and visibility of the delivery process so that we can monitor
quality of our service and rectify any errors.
It allows us to distribute these items through our store network.
It has yet to be seen what advantage we can achieve from this way of working and we will give a further
update at our Half Year Results.
32 Lipsy operates as an internal commission brand partner and its sales are included within commission brand sales.
33
Strategic ReportGovernanceFinancial StatementsShareholder Information
DEVELOPMENT OF OUR OVERSEAS BUSINESS
Analysis of Online Overseas Sales
Online Overseas continues to trade well. Full price sales for the year were up +22%. Total sales
(including markdown sales) were up +23%.
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. Like-for-like sales from partners that traded in
both years were up +57% and we ceased trading with three major partners during the last year (Tmall
in China, 3Suisse and, temporarily, Jabong in India).
Full price sales £m
nextdirect.com
Third Parties
New33
Continuous
Discontinued
Jan
2019
320.8
Jan
2018
259.3
0.7
25.2
7.2
-
16.0
14.6
Full price Overseas sales
353.9
289.9
+24%
-
+57%
- 51%
+22%
Online Overseas Profit History and Outlook
The table below sets out the last four years’ sales, profits and net margins in Pounds for Online
Overseas, along with an estimate for the year ahead.
£m
Total sales
Operating profit
Net margin
Operating profit including all central overheads
Net margin % including all central overheads
Jan
2016
197
31
16%
Jan
2017
234
46
20%
Jan
2018
295
65
22%
Jan
2019
363
68
19%
58
16%
Jan
2020 (e)
445
83
19%
72
16%
In the full year ending January 2019, Online Overseas profits have not grown as fast as sales for the
following reasons:
• The fastest growing regions have higher customer returns and lower operating profit by
around £4m.
• This year we incurred £1m of closure costs for our China operation.
• The prior year benefited from a one-off duty provision release of £4m.
In the year ahead, we expect full price sales to be up +22% and net margin (including an allowance for
central overheads) to be 16%.
33 Where we are trading in a new country with an established partner, we have classified the sales as ‘New’.
34
Developing our Overseas Business
The main drivers of overseas growth remain:
1) Organic growth as word of mouth increases awareness of the NEXT brand.
2) Investment in increased online digital marketing, which has helped deliver strong growth in
active customers in key territories.
3) Increased breadth of offer.
4) The roll out of UK web developments in our overseas territories and other systems
improvements.
Increased Marketing
Our Overseas active customer base has grown to 1.3m over the last twelve months, a growth of +25%.
Average active customers in the year were up +22%.
Last year was the first year we have succeeded in making a healthy return on the cash invested in
overseas marketing, with IRRs exceeding 300%. We intend to significantly increase investment in the
year ahead. The table below sets out the Overseas marketing spend for the last two years along with
our estimate for the year ahead.
£m
Overseas marketing
% variance on previous year
Jan
2018
6
Jan
2019
7
+13%
Jan
2020 (e)
12
+70%
Breadth of Offer
During the year we have significantly increased the number of options available on many of our
overseas sites. For example, in January 2019 we had 70% more options available to purchase on our
German website than at the same time in January 2018.
Increasing the breadth of our range may also have contributed to Overseas customers increasing the
type of products they are willing to buy from NEXT. In particular we are seeing encouraging sales of
Womenswear in a number of key territories where Childrenswear has traditionally dominated our
sales mix. This may also be as a result of world fashion markets becoming less geographically distinct.
Other Improvements to our Overseas Sites in the Year Ahead
There is still much to do to improve our Overseas website and customer experience. Amongst other
plans we intend to:
•
•
Launch Apps in some key territories.
Improve search and product recommendations.
• Personalise homepages in key territories.
•
Improve registration, navigation, product pages and checkout.
• Expand payment options and delivery services in some of our key countries.
As is the case in the UK, no one improvement is expected to deliver significant growth, but we believe
that the combination of these improvements will have a more meaningful impact on the growth of our
Overseas business.
35
Strategic ReportGovernanceFinancial StatementsShareholder Information
NEXT FINANCE
NEXT Finance ended the year with £1.2bn of outstanding consumer debt and contributed £121m of
profit to the Group.
NEXT FINANCE PROFIT AND LOSS
The performance of our Finance business is shown in the table below. A detailed explanation of each
line of the P&L is provided in Appendix 2.
£m
Note of nextpay credit sales
1) Interest income
2) Bad debt charge
3) Overheads
Profit before cost of funding
4) Cost of funding
Net profit35
5) Average debtor balance
6) ROCE (after cost of funding)
Jan 2019
1,688.8
250.3
(52.1)
(36.9)
161.3
(40.1)
121.2
£1,140m
10.6%
Jan 2018
1,562.6
223.2
(37.4)34
(33.3)
152.5
(40.6)
111.9
£1,014m
11.0%
+8.1%
+12.1%
+39.0%
+10.6%
+5.9%
- 1.1%
+8.4%
+12.5%
In the year ahead we are forecasting Finance profit of around £135m, a +12% increase on 2018/19.
Bad Debt History
The following chart shows the cost of bad debt, net of recoveries and VAT, as a percentage of our
average debtor balance, since the year ending January 2010.
Bad Debt as a % of Average Debtor Balance
8.5%
6.6%
4.5%
4.4%
3.7%
3.4%
3.3%
3.7%
3.3%
4.5%
4.2%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Jan
2010
Jan
2011
Jan
2012
Jan
2013
Jan
2014
Jan
2015
Jan
2016
Jan
2017
Jan
2018
Jan
2019
Jan
2020(e)
Last year we experienced an increase in bad debt costs of £15m. As a percentage of our average debtor
balance, bad debt was 4.5%, an increase of 1.2% on the prior year. This increase was due to a
combination of (1) macroeconomic factors (0.9%) and (2) internal credit decisions (0.3%), which we do
not expect to be repeated in the year ahead. Our central guidance assumes a bad debt rate of 4.2%.
34 See Note 12 of the financial statements.
35 In March 2018 we noted that the Finance business made c.£119m in the year to January 2018. As part of the reclassifications referred to in
Appendix 1, this figure is now £112m.
36
IFRS 9
This is the first year of reporting using the new IFRS 9 “Financial instruments” accounting standard (see
Appendix 1). We have not seen a material impact from the implementation of the new standard when
viewed on a like-for-like basis.
CREDIT CUSTOMER BASE
The chart below shows the annual change in active credit customers since January 2016. As at January
2019, active credit customers were up +1.3% on the previous year.
Annual Change in UK Active Credit Customers
Jan 2018
+0.6%
Jan 2019
+1.3%
Jan 2017
-0.8%
+2%
+1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
Jan 2016
-5.6%
The growth over recent years has been driven by an improvement in retention of customers. Customer
churn, which is the proportion of customers who are active at the beginning of the year but not at the
end of the year, has reduced from 19% in the year to January 2016, to 13% in the year to January 2019.
New Credit Products
During the year we introduced two new credit products:
• next3step, a credit account which allows customers to spread the cost of orders over 3 months
in three equal payments, without incurring an interest charge. We are recruiting around 2,000
new customers per week onto this credit product, with 50% of all new credit customers
choosing this option.
• nextpay App, a new smartphone App which allows credit customers to pay for goods in our
Retail stores in the same way as a physical payment card. On average, the App is downloaded
1,400 times per week, mainly by existing customers.
37
Strategic ReportGovernanceFinancial StatementsShareholder Information
OTHER BUSINESS ACTIVITY
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 reported through Online (LABEL) and Retail
respectively. Profits on these goods are divided on a 50:50 profit share basis between NEXT and Lipsy.
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
and operating profit.
£m
Sales through NEXT websites (reported in NEXT Online)
Jan 2019
121.9
Sales through NEXT stores (reported in NEXT Retail)
Sales reported through NEXT
Other sales (wholesale, franchise and 3rd party websites)
Total sales
Operating profit (excluding acquisition costs)
12.9
134.8
15.1
149.9
17.1
Jan 201836
84.4
14.6
99.0
15.9
114.9
11.2
+36%
+30%
+53%
Lipsy has continued to grow online sales of its own product as well as 3rd party brands. Third-party
branded sales account for 49% of sales compared to 44% in the prior year. Operating profit, including
acquisition costs, was £11m, +129% on last year.
In the year ahead, we are forecasting net operating profit of around £15m (including acquisition costs),
an increase of 40%.
INTERNATIONAL RETAIL AND FRANCHISE STORES
Our franchise partners currently operate 199 stores in 32 countries and we have six owned stores in
three countries (Czech Republic, Slovakia and Sweden). Revenue and profit are set out in the table
below.
£m
Franchise income37
Own store sales
Total revenue
Operating profit
Jan 2019
52.2
Jan 2018
55.7
10.0
62.2
6.2
11.5
67.2
7.7
Profit has reduced primarily due to a reduction in royalty income from our two largest franchise
partners.
36 January 2018 Lipsy sales have been restated to reclassify £8.2m of sales from lipsy.co.uk to NEXT Online.
37 Franchise income is a combination of royalties received or commission added to the cost of goods sold to franchise partners.
38
NEXT SOURCING
NEXT Sourcing is our internal sourcing agent, which procures around 40% of NEXT branded product.
Sales were up +0.7% in US Dollars as a result of the increase in NEXT branded product sales. Net margin
reduced by -0.6% to 5.4% mainly as a result of a prior year provision release.
The table below sets out the performance of the business in Pounds and in Dollars.
Sales
(mainly inter-company)
Operating profit
Net margin
Exchange rate
Jan 2019
£m
550.0
Jan 2018
£m
554.4
29.6
5.4%
1.33
33.0
6.0%
1.31
Jan 2019
USD m
731.5
Jan 2018
USD m
726.3
39.4
5.4%
43.2
6.0%
In the year ahead we expect sales and profit in NEXT Sourcing to be broadly flat on 2018/19.
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
Foreign exchange
Associates and joint venture
Total
Jan 2019
Jan 2018
(19.4)
(20.2)
6.7
1.4
0.1
3.6
(1.1)
1.0
(11.2)
(16.7)
The property management profit has increased by £3.1m due to one-off costs in the prior year, relating
to an increase in onerous lease provisions of £4m, mainly driven by two London stores. Foreign
exchange gains relate to gains made on derivatives for which we cannot apply hedge accounting.
PENSION SCHEME
On the IFRS accounting basis, our defined benefit schemes have moved from £106m surplus at January
2018 to £125m surplus at January 2019. This increase is primarily due to the change in the discount
rate assumption applied to the liabilities of the scheme.
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 £17m when rolled forward to 31 December 2018.
39
Strategic ReportGovernanceFinancial StatementsShareholder Information
COST INFLATION AND COST CONTROL
In the year ahead to January 2020, we anticipate offsetting cost increases of £25m with cost savings of
£29m. The tables below outline the main contributors to forecast cost increases and cost savings in
the 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.
FORECAST FOR THE YEAR ENDING JANUARY 2020
Cost increases
General wage inflation
Investment in systems
National Living Wage
Warehousing & distribution
Occupancy (rates and energy taxes)
Total cost increases
Cost savings and other income
Catalogues and Photography
Net interest income and lower default rates
Property savings including fully depreciated assets
Retail productivity and cost improvements
Gross margin and freight costs
Other
Total cost savings
£m (e)
11
6
4
3
1
25
£m (e)
12
6
4
3
2
2
29
40
CASH FLOW
Profit generation for the year before interest, tax, depreciation and amortisation was £884m. Cash
flow after non-discretionary outflows of taxation, interest and working capital was £669m. After
investing in capital expenditure and paying ordinary dividends, but before financing customer
receivables, the Group generated surplus cash of around £321m.
Total buybacks in the financial year to January 2019 were £325m; we purchased 6.3m shares at an
average price of £51.65, reducing our shares in issue at the start of the financial year by 4.3%.
The table below summarises our main cash flows in the year ended January 2019 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 2019
Trading Statement, we intend to return this £300m of surplus cash to shareholders through share
buybacks, subject to market conditions.
In the year ahead, our capital expenditure is forecast to increase by £21m (page 42) and our Online
debtor balance is expected to increase by £79m.
£m
Profit before Interest, Tax, Depreciation & Amortisation
Interest
Tax
Working capital and other
Discretionary cash flow
Capital expenditure
Investment in associate
Ordinary dividends
Surplus cash
Financing additional Online debt
Share buybacks
Movement in net debt
INTEREST AND TAXATION
Jan 2019
Central guidance
Jan 2020 (e)
884
(37)
(144)
(34)
669
(129)
(3)
(216)
321
(90)
(325)
(94)
881
(45)
(140)
(33)
663
(150)
-
(213)
300
(79)
(300)
(79)
Net interest charged in the Income Statement for the year was £39m, an increase of £5m on the
previous year as a result of higher net debt. As a result of payment timing differences, the interest
paid was £37m. In the year ahead we anticipate that our interest charge will increase to around £45m
as a result of higher interest rates and average net debt.
Our full year effective tax rate was 18.3%, a reduction of -0.2% on last year driven by the corresponding
reduction in UK corporation tax rate.
41
Strategic ReportGovernanceFinancial StatementsShareholder Information
CAPITAL EXPENDITURE
As set out in the table below, capital expenditure this year was £129m, £25m higher than last year.
This increase comes from investment in our Online warehouse capacity required to deliver future sales
growth. In the year ahead, we forecast total capital expenditure to be around £150m, driven by further
warehouse investment.
£m
Retail space expansion
Retail cosmetic/maintenance capex
Total capex on stores
Warehouse
Head Office infrastructure
Systems
Total capital expenditure
Jan 2020 (e)
33
Jan 2019
57
Jan 2018
56
15
48
85
6
11
150
12
69
52
4
4
129
22
78
11
6
9
104
In the year ending January 2019 Retail space remained our biggest investment at £69m. Warehouse
investment of £52m represents a £41m increase on last year and is part of a £200m programme of
warehouse expansion to increase capacities. Details of this expansion programme were given in our
Half Year Results; progress made to date is on schedule and will increase our Online units sales capacity
by 75%.
If our Online growth continues at current levels we will need to further expand our warehouse
infrastructure, with the possible addition of a third boxed warehouse in 2022. Early estimates suggest
this would cost c.£60m. However, we would expect by then to see a corresponding reduction in Retail
capital expenditure and therefore there would be no material change to the Group’s capital
expenditure.
Our latest five year forecast for capital expenditure is set out in the chart below. Our average annual
estimate for capital expenditure has increased by £5m to £125m. Within this, Warehouse spend during
the five-year period has increased by £60m to £300m and store spend has reduced by £50m to £260m.
Capital Expenditure by Category
Outlook
£150m
£100m
£50m
£0m
Average annual spend
£125m
5 Year
estimate at
Sept 2018
£610m
5 Year
estimate
March 2019
£625m
£240m
£300m
Warehouse
£60m
£65m
Head Office and Systems
£310m
£260m
Stores
Jan 2019
Jan 2020(e)
Jan 2021(e)
Jan 2022(e)
Jan 2023(e)
42
ORDINARY DIVIDENDS
The Board has proposed a final ordinary dividend of 110p, to be paid on 1 August 2019 and taking the
total ordinary dividends for the year to 165p, +4.4% on last year. This is subject to approval by
shareholders at the Annual General Meeting to be held on 16 May 2019. Shares will trade ex-dividend
from 4 July 2019 and the record date will be 5 July 2019.
NET DEBT AND FINANCING
Our year end net debt was £1,096m, which is £94m higher than last year due to the increase in sales
growth from credit customers.
The entire value of the Group’s net debt is more than matched by the value of our nextpay debtor
book, a financial asset worth £1,207m.
Net debt, which is forecast to peak in the year ahead at around £1.37bn, is securely financed through
a combination of bonds and committed bank facilities. At January 2019 our committed financing
amounted to £1.5bn and consists of £875m of bonds and £625m of committed bank facilities.
Financing (£m)
Peak
1.37bn(e)
Jan 2020
1.3bn(e)
Jan 2020
1.2bn(e)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Bank facility
625
Bonds
875
1.5bn
2019
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
forecast peak net debt is within that limit.
In the year ahead we expect to refinance our bank facilities and rebalance our long-term and short-
term financing.
43
Strategic ReportGovernanceFinancial StatementsShareholder Information
PART 5
OUTLOOK FOR SALES AND PROFIT
THE WIDER MARKET
Real Earnings and Employment
Whilst our relationship with the EU remains uncertain, other economic indicators for the consumer
look less worrying than at this point last year. Real Earnings in the UK have remained positive since
January 2018 and look like they are still gaining strength as we move into 2019. Employment rates are
also continuing to increase; people in work are earning more and more people are in work. Whilst
these increases remain modest, there is nothing to suggest that consumers will feel the need to
retrench in the year ahead, the prolonged period of real income squeeze appears to be coming to an
end.
Real Earnings Growth and Employment %
+3.0%
%
s
g
n
n
r
a
E
i
l
a
e
R
+2.0%
+1.0%
0%
-1.0%
Jan
2016
Employment %
Real earnings%
61.5%
61.0%
l
E
m
p
o
y
m
e
n
t
%
60.5%
Jul
2016
Jan
2017
Jul
2017
Jan
2018
Jul
2018
60.0%
Jan
2019
Sources:
Employment %: ONS A01. Labour Market Statistics (20th March 2019)
Real Earnings calculated as the difference between CPIH (ONS: 20th March 2019) and Average Weekly Earnings growth (ONS: 19th March 2019)
Uncertainty over The UK’s Future Relationship with the EU
There is still a great deal of uncertainty around the exact shape and form of the UK’s future relationship
with the EU. We can see no evidence that this uncertainty is affecting consumer behaviour in our
sector. Our feeling is that there is a level of fatigue around the subject that leaves consumers numb
to the daily swings in the political debate. It appears to us that consumer behaviour (in our sector) will
only be materially changed if the UK’s departure from the EU (or continued uncertainty around this
subject) begins to affect employment, prices or earnings. It does not seem to be having any adverse
effect on these variables at the present time.
NEXT’s Preparations for Possible Departure from the EU
As far as NEXT’s preparations for departing the EU are concerned, we have little to add to the detailed
paper we issued in September. We remain ready for all eventualities and have the systems and
administrative procedures in place to ensure a smooth transition to a new customs regime. We have
been encouraged by the temporary measures HMRC have announced to ensure our ports remain fully
functional during any transition. We currently have little reliance on Dover or Calais. Nonetheless we
have put in place contingency plans to route more stock through alternative, lower risk, ports of entry
if needed.
44
Potential Impact of Contingent Tariff Rates on NEXT’s Costs and Selling Prices
In terms of potential tariffs and their impact on our UK prices, the issuing of the Government’s
provisional tariff rates has been helpful. In the (seemingly unlikely) event that these provisional rates
are introduced in the near future, we estimate that there would be a net reduction in the tariffs we
pay of around £12m to £15m. This saving would arise because the proposed reductions in tariffs from
countries outside the EU would more than offset any increase in tariffs on goods we currently source
from the EU and Turkey.
In the medium term, our intention would be to pass on cost price improvements to customers, in the
form of better pricing. In the context of £1.7bn of stock purchases, the savings would be relatively
modest.
Changes to the UK tariff regime will not affect the prices of goods we sell into the EU or other overseas
territories.
SALES AND PROFIT GUIDANCE FOR THE YEAR
AHEAD
SALES OUTLOOK FOR THE YEAR AHEAD
Our central guidance is based on full price sales for the year ahead being up +1.7%. This is in line with
our performance in the second half of last year. The table below sets out our central guidance for full
price sales growth by major trading division, Retail, Online and Finance. For comparison, we give the
actual performance for last year.
Full price % variance on previous year
Retail sales (including sales from new space)
Online sales
Product full price sales
Finance interest income
Total full price sales including interest income
Central
guidance
2019/20 (e)
- 8.5%
+11.0%
Actual
performance in
2018/19
- 7.3%
+14.8%
+1.1%
+9.9%
+1.7%
+2.4%
+12.1%
+3.1%
PROFIT OUTLOOK FOR THE YEAR AHEAD
Although we anticipate that our total sales will grow in the year ahead, we are forecasting for profits
to marginally decline. We have talked before about the structural costs involved in business moving
from Retail to Online. The problem is that, in the short term, many of our Retail costs (such as rent)
remain fixed but increasing business Online generates additional variable costs required to handle
more deliveries and warehouse work. In addition, LABEL and NEXT Overseas both make lower net
margins than NEXT branded stock Online and these areas are our fastest growing businesses.
The next two sections outline how the structural change affected our profit and loss account last year
and how we expect these costs to develop in the year ahead.
45
Strategic ReportGovernanceFinancial StatementsShareholder Information
Impact of Structural Shift on Profits in 2018/19
The table below sets out the profit effect seen from the structural shift of sales in the last year as
business transfers from Retail to Online.
For each division we show the change in sales and marginal profits generated by that incremental
business. The profit given in the second column is the profit after all direct variable costs but before
any allocation of fixed costs. The aim is to show the change in profit resulting from the change in sales
in each business. For completeness, the cost increases and cost savings in the business are added
below to give the total change in the profits of all four divisions.
Full year to January 2019
Retail (including new space)
NEXT UK Online
Overseas
LABEL
Total Online (including Finance interest)
Total Brand full price sales and profit
Cost increases
Cost savings
Total
Full price sales
vs last year £m
Profit vs last
year £m
% Margin
before fixed
overheads
54%
48%
24%
26%
34%
- 137
+85
+64
+97
+246
+109
+109
- 74
+41
+16
+26
+83
+9
- 57
+45
- 3
Estimated Impact of Structural Shift on Profits in 2019/20
Based on our guidance, the figures below give estimates for the full price sales growth by division and
the respective impact those sales have on marginal profits. The structure of the table is identical to
the one above and shows similar numbers. The main difference is that we are expecting more growth
from our lower margin LABEL and Overseas business and less growth from our NEXT branded Online
business. So, the overall cost of structural shift is expected to be a little higher in the year ahead.
Full year forecast to January 2020
Retail (including new space)
NEXT UK Online
Overseas
LABEL
Total Online (including Finance interest)
Total Brand full price sales and profit
Cost increases
Cost savings
Total
Full price sales
vs last year £m
Profit vs last
year £m
% Margin
before fixed
overheads
54%
48%
24%
26%
32%
- 146
+64
+82
+63
+209
+63
+63
- 79
+31
+20
+16
+67
- 12
- 25
+29
- 8
46
OUTLOOK FOR PROFITS
We are maintaining the central guidance we issued for the full year in our January 2019 Trading
Statement. At our central guidance of full price sales growth of +1.7%, we estimate that Group profit
before tax would be around £715m, down -1.1% on last year. We expect EPS to be enhanced by +4.9%
as a result of the continuing distribution of surplus cash generation in the form of share buybacks. As
a result, EPS for the full year are expected to rise by +3.6%. Our central guidance for sales, profits and
EPS is set out in the table below.
Full year estimate to January 2020
Total full price sales versus 2018/19
Group profit before tax
Group profit before tax versus 2018/19
Earnings Per Share growth versus 2018/19
Central guidance
+1.7%
£715m
- 1.1%
+3.6%
ACTION PLAN FOR THE YEAR AHEAD
This has been a long document and looks further into the future than usual. The challenges facing the
business are complex but the actions that we are required to take remain simple. Our priorities for
the year ahead remain focussed on the following tasks:
• Delivering great product ranges – the most important task of all!
• Continued development of the operational capabilities of our distribution Platform –
warehousing, distribution and stores. The aim is to optimise the availability of our stock,
breadth of offer, quality of service and cost efficiency.
• Develop our third-party business through enhancing the range of products we offer and the
quality of service we provide to our partner brands.
• Continue to improve and invest in the functionality of our website, marketing, systems and
mobile applications.
• Maximise the opportunity for profitable growth overseas.
• Manage costs across the Group, with particular focus on managing Retail costs down with
falling like-for-like sales, whilst not allowing cost savings to undermine the quality of our
products or services.
• Maintain excellent financial discipline to ensure all parts of our business deliver sustainable
margins and healthy returns on capital.
FIRST QUARTER TRADING UPDATE
Our first quarter Trading Statement will cover the thirteen weeks to 27 April 2019 and is scheduled
for Wednesday 1 May 2019.
Lord Wolfson of Aspley Guise
Chief Executive
21 March 2019
47
Strategic ReportGovernanceFinancial StatementsShareholder Information
APPENDIX 1
Changes to the Presentation of Our Divisional Results
In our Half Year Results we explained a change in the way we presented the performance of the
individual divisions within NEXT. These Full Year results have been prepared on the same basis as Half
Year but, for clarity, these changes are explained again in detail below.
These changes relate to the reclassification of sales or profit between business divisions in the year
ending January 2018; overall Group sales and profit are unchanged. We have restated prior year
numbers in order to provide the appropriate comparative figures in this set of results.
The aim is to give a clearer picture of the underlying economics of the Group.
NEXT Finance and Online
In the past we have consolidated the Finance business into our Online business for reporting purposes.
In order to give further clarity on the underlying performance of the Group, we are now separately
reporting the Finance business. Finance revenue represents the interest charged to our customers on
their credit account balances. Finance profit includes all associated costs, including administrative
costs, financing and bad debt. The interest cost is calculated on the basis that the Group lends all funds
to NEXT Finance and charges an interest rate equivalent to the Group’s average cost of borrowing.
Lipsy.co.uk
In January 2018 the lipsy.co.uk website was closed and Lipsy online sales are now made through the
NEXT websites and reported in the Online business, under LABEL. We have reclassified sales of £8.2m
(including markdown sales) and profit of £1.1m from Lipsy to Online.
NEW ACCOUNTING STANDARDS
The Group has retrospectively applied the requirements of IFRS 15 “Revenue from contracts with
customers” to statutory revenue. This increased statutory revenue by £40.3m in 2018/19 and £35.2m
in 2017/18. There was no impact on Group profit or total sales in either years. For further details refer
to Note 1 of the financial statements.
This year the Group has applied the new accounting requirements of IFRS 9 “Financial instruments” for
the first time. There were no adjustments to prior year balances as a result of this transition. Refer to
Note 1 of the financial statements for further details.
48
APPENDIX 2
Finance Profit and Loss Explained
Term in P&L
Definition
Interest income
Line 1
Interest income is the gross interest billed to nextpay customers, before any
deduction for unpaid interest on bad debt. Interest income has grown broadly in line
with the average debtor balance (line 5).
Bad debt charge
Line 2
A charge is taken in relation to the performance of our debt book. This consists
predominantly of a charge on the debt owed by customers who have defaulted and
the cost of providing for future defaults.
The bad debt charge is determined by (a) the size of our outstanding debtor balance
and (b) the default rate we anticipate in any given year. So any one of the following
three factors will increase the bad debt charge:
(i) Growth in the closing balance driven by an increase in credit sales
(ii) Growth in the closing balance driven by an increase in payment days (the time
taken to pay down a balance)
(iii) Any change in the anticipated bad debt rate
The bad debt charge has increased by £15m in the year due to all three of these
factors. Credit sales have increased by +8%, payment days have risen by +3% and the
bad debt rate increased by +1.2% to 4.5% of the average debtor balance.
Covers all the administrative costs associated with operating the Finance business
including call centres and statements etc.
For the purpose of these accounts we have assumed that the entire debtor balance is
funded by the NEXT Group, as if there were an inter-company loan in place. The
interest charged to the Finance business has been calculated by applying the average
Group interest rate (i.e. the borrowing rate of the NEXT Group) to the average
outstanding debtor balance.
It is important to note that the Group’s debt is less than our total debtor balance and
this gap means that the Group earns a profit on some of the money it lends to the
Finance business.
The average Group interest rate this year is 3.5% compared with 4.0% last year. This
is due to a larger proportion of this year’s debt being on a floating interest rate.
Overheads
Line 3
Cost of funding
Line 4
Average debtor
balance
Line 5
The average amount of money owed by all nextpay customers less any provision for
bad debt (i.e. the sum total of balances we expect to be paid averaged across the
year).
Return on
Capital Employed
Line 6
The net profit divided by the average debtor balance (line 5).
49
Strategic ReportGovernanceFinancial StatementsShareholder Information
BUSINESS MODEL
NEXT offers exciting, beautifully designed, excellent quality clothing and homeware which meets and exceeds the aspirations of our
customers, at prices that are within the reach of most people.
The Group is primarily comprised of:
• NEXT Online, with over 5 million active customers globally and websites serving over 70 countries (see page 29).
• NEXT Retail, a chain of around 510 stores in the UK and Eire. The majority of our stores sell clothing, footwear, accessories and/or home
products; and we operate 37 large combined fashion and home stores. NEXT stores are an important part of our Online delivery service.
Currently nearly half of our UK Online orders (by number of orders) are fulfilled through our shops (see page 22).
• NEXT Finance currently provides £1.2bn of consumer credit for NEXT customers to purchase products online and in our stores through
nextpay and next3step (see page 36).
• NEXT International Retail, with around 200 mainly franchised stores in 35 countries (see page 38).
• Lipsy, which designs and sells its own branded and other branded products. It trades through NEXT Online, from around 50 NEXT stores,
and through wholesale and overseas franchise channels (see page 38).
• NEXT Sourcing, which designs and sources NEXT branded products. NEXT Sourcing (NS) is our Hong Kong based international sourcing
agent, competing for business with other suppliers (see page 39).
Why we are unique
The scale of our Online business and our store network in the UK has allowed NEXT to develop an
increasingly powerful platform for selling clothing and homeware in the UK and Eire. For details, see
page 10 in the Chief Executive’s Review.
In terms of the breadth of our product offer, the story goes beyond simply extending NEXT branded
product ranges. Over the last ten years, we have gradually transformed our website from a single
brand site to an online aggregator of clothing, footwear and home brands. This year we have sold
over £400m of other brands’ product through LABEL, a business that continues to grow and develop.
The NEXT Brand also continues to develop overseas through its presence online. Sales of NEXT
branded product continue to grow strongly, both through our own international websites and local
third-party aggregators. This year our Online Overseas sales reached over £350m.
2018/19 profit by segment
NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing
Other
48%
29%
16%
1%
4%
2%
What we do
Our approach is to build as much flexibility into our operations and cost base as possible in order to minimise the negative effects of falling Retail
sales and maximise opportunities for growth Online. This means a constant process of reinvention and experimentation within our business,
whilst preserving the integrity of our brand, the calibre of our people, the quality of our operations and the profitability of the Group.
Great products
1
Returning
value to
shareholders
5
2
Global
sourcing
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.
NEXT also sells around 500 third-party brands through
LABEL online.
A combination of NEXT and other branded product
provides customers with extensive product ranges, all as
part of a convenient shopping experience.
Outstanding
customer
experience
4
Efficient
supply chain
3
2 Global sourcing
NEXT sources over 200 million of its own branded
products globally from over 40 countries.
NEXT sourcing provides around 40% of NEXT branded
products from our global supplier base including 4 NEXT
owned factory sites.
3 Efficient supply chain
NEXT operates 8 UK warehouses, 7 UK depots and 3
international hubs providing cost effective and efficient
delivery to our Online and Retail customers.
Next-day delivery is standard for UK NEXT Online orders
placed before midnight.
4 Outstanding customer
experience
Outstanding customer experience
is a key focus,
regardless of whether our customers are using our online
websites, mobile apps or visiting our stores.
Customers can choose delivery services to suit them,
ordering online or instore for delivery to home or store.
During the year we launched a ‘Collect Today’ service on
certain items ordered online for same day collection
instore.
NEXT offers a credit facility for UK NEXT Online customers
called nextpay.
Our large number of stores, many with cafe and other
concessions, provide a convenient and exciting
shopping experience.
5 Returning value to
shareholders
NEXT is highly cash generative, allowing us to invest in the
business and deliver long term value to our shareholders
through a combination of growth in Earnings Per Share or
payment of cash dividends.
50
Our key resources and relationships
We depend on the following resources and relationships to create value and achieve our business objectives:
Key resources
and relationships
Customers
Suppliers
How we create value
• Providing our customers with great product ranges they want to buy
• Offering excellent customer experience, regardless of whether customers shop
online or instore
• Customers are at the heart of everything we do
Further details
are provided in
this report
Page 62
•
Sourcing globally to deliver quality and value for money products that are
responsibly sourced
• Working with third-party branded suppliers to provide an extensive range of
clothing and homeware products to our customers
Page 62
Workforce
• Attracting, retaining and developing the best talent at every level
Page 60
Buildings and
Infrastructure
throughout NEXT
• Creating an environment where all individuals feel welcomed, respected
and supported
• Providing robust, customer friendly websites which are continually reviewed and
Page 31
developed to ensure they are meeting our customers’ needs
• Building and operating warehouse and logistics operations that provide an
efficient and agile product distribution network
• Operating a predominantly leased store portfolio which is actively managed.
Opening, closure and refit decisions are based on store profitability and
payback criteria
Page 42
Page 23
Finance
• Managing financial resources effectively, including a strong focus on cost control
Page 40
and maximising shareholder returns
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 49,
which forms part of this Strategic Report
along with Key Performance Indicators (pages 52 and 53), Risks and Uncertainties (page 54), Employees (page 60), Social, Community and Human Rights (page 61) and Environmental
Matters (page 63).
Business strategies and objectives
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 170% and the Company’s share price has increased by over 330%. 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.
• Focusing on customer experience and satisfaction levels in both Retail stores and Online.
•
Increasing the number of profitable NEXT Online credit and cash 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.
• 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.
• Managing gross and net margins through efficient product sourcing, stock management and cost control.
• Maintaining the Group’s financial strength through an efficient balance sheet and secure financing structure.
• Generating and returning surplus cash to shareholders by way of share buybacks and/or special dividends.
Read about our action plan for the year ahead on page 47
Read about the outlook for sales and profit on page 44
51
Strategic ReportGovernanceFinancial StatementsShareholder Information
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 177 for
further details.
As noted on page 48 of the Chief Executive’s Review, we are now
separately reporting the Finance business. New KPIs have been
included which are specific to the NEXT Finance business.
Sales (%)
NEXT Brand full
price sales growth
NEXT Brand
total sales growth
+3.1%
+0.7%
+2.6%
-0.6%
Full price sales are VAT
exclusive sales of stock
items excluding items sold
in our mid-season, end-of-
season and Black Friday
Sale events and our
Clearance operations, and
includes interest income
on those sales.
full
sales
Total
are VAT
exclusive full price and
markdown sales including
the
of
commission based sales
and interest income (as
described in Note 1 of the
financial statements).
value
2019
2018
2019
2018
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)
+10.9%
+12.7%
+18.4%
+18.5%
722.9
726.1
507
528
7,989
8,029
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
* excluding NEXT Finance
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).
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. The above square
footage excludes 305K sq. ft. (2018: 242K sq. ft.) of space
occupied by concessions.
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.
-7.3%
-7.0%
-7.9%
-7.9%
-8.5%
-9.8%
-8.2%
-9.1%
2019
2018
2019
2018
2019
2018
2019
2018
52
NEXT Online
Sales performance
Full price
sales growth
Average active customers (000’s)
Total sales growth
Credit
Cash
Total
+14.8%
+11.2%
+14.7%
+9.2%
2,524
2,494
2,810
2,436
5,334
4,930
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 account, whereas
cash customers are those
who pay when ordering.
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
NEXT Finance
nextpay credit sales
(£m)
Interest income
(£m)
Average debtor
balance (£m)
Net profit (£m)
(after cost of funding)
Return on Capital Employed
(after cost of funding)
1,688.8
1,562.6
250.3
223.2
1,140.0
1,013.7
121.2
111.9
+10.6%
+11.0%
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Returns to shareholders (£m)
Earnings Per Share
Ordinary dividends
Special dividends
Share buybacks
Total
215.7
224.1
–
255.6
324.2
106.1
539.9
585.8
435.3p
416.7p
Credit sales are defined as VAT
exclusive sales from Online
credit customers who have
purchased using their Online
account,
inclusive of any
interest income charges and
delivery charges, and after
deducting
applicable
any
promotional discounts.
Return on Capital Employed is
defined as the NEXT Finance
net profit (after the interest
charge relating to the cost of
funding), divided by
the
average debtor balance.
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Based on dividends paid in the Cash Flow Statement.
Refer to Note 7 of the financial statements.
A total of 6,276,572 shares were
purchased in the financial year
(2018: 2,174,357) at an average
cost per share of £51.65
(2018: £48.81) including stamp
duty and associated costs.
The average price before costs
was £51.33 (2018: £48.51).
Buybacks represented 4.3%
(2018: 1.5%) of opening
share capital.
Refer to Note 8 of the financial statements.
53
Strategic ReportGovernanceFinancial StatementsShareholder Information
RISKS AND UNCERTAINTIES
Risk management and internal
control framework
The Board has overall responsibility for risk management and the
system of internal controls and for reviewing their effectiveness.
It operates a policy of continuous identification and review of principal
business risks. 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 senior management are delegated the task of
implementing processes to ensure that risks are managed appropriately.
Our approach to risk management is as follows:
• On a day-to-day basis, the risk management process is co-
ordinated by the corporate compliance team which reports to the
Audit Committee.
• Each business area is responsible for preparing and maintaining
operational risk registers and for 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.
•
Issues, incidents and mitigating activities are reported to the
corporate compliance team on a regular basis, including a half
yearly review of new risk factors. There is also an annual review
of operational risk registers which are approved by relevant senior
managers and operational directors. This is to ensure risks are
comprehensively covered and assessed consistently across the
business. Operational risk registers identify limited, though not
significant, control weaknesses and clear action plans are in place
to address these.
• A corporate risk register is maintained which reflects key risk factors
identified as part of the risk management process and forms the
basis of the principal risks and uncertainties disclosed in this Report.
The Audit Committee reviews and discusses these risks at least
twice each year, and the Board at least annually. The corporate risk
register includes key controls, mitigating activities and action plans
in respect of the principal risks.
• The work and findings of the corporate compliance team are
reviewed, discussed and agreed by the Audit Committee at least
twice each year. Any significant matters are communicated to
the Board.
•
Internal audit plans are agreed with the Audit Committee at least
annually and are focussed 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 have been operating effectively for the financial year
to January 2019 and up to and including the date of this report. Refer to
page 76 of the Corporate Governance Report for further details.
The Audit Committee requested and received specific presentations
from senior management in relation to other risk areas including data
security, cyber risk and warehouse capacity risks. Refer to page 81
of the Audit Committee Report for further details of the key Audit
Committee activities during the year.
No significant failings of internal control were identified during
these reviews.
Brexit
At the time of writing, the terms of the UK’s departure from the
EU (Brexit) remains uncertain. Brexit does not give rise to a new
principal risk for NEXT. However, it does have the potential to impact
a number of existing operational risks, e.g. product availability,
exchange rates, changes in tariffs and duties, regulatory changes and
economic uncertainty.
The half year results issued in September 2018, included an 11 page
Brexit Planning Statement (available on our corporate website nextplc.
co.uk), which provided a detailed analysis of the Brexit related risks
and operational challenges to our business and their potential impact.
Each of the risks were covered in turn and, where possible, the risks
were quantified together with the measures being taken to mitigate
the operational and financial challenges of a no-deal Brexit.
NEXT’s preparations for a no-deal Brexit are well advanced and include
a Brexit Steering Committee to oversee setting up the administrative,
legal and physical infrastructure that will be needed to operate
effectively if the UK leaves the EU without transition arrangements.
NEXT anticipate that we will have, at the time of the UK’s departure
from the EU, done all we can to ensure that the business is able to
carry on running as it does now. One of the biggest risks is that UK
ports are unable to cope with the additional volume of customs work
which would result in delays in goods passing through ports. As long
as ports and customs procedures are well prepared for the change
and tariff rates are adjusted to ensure no net increase in duty costs to
consumers, we believe we can manage the business without material
cost increases or serious operational impediments.
Progress in the Brexit negotiations will continue to be monitored
and the risks and uncertainties will be managed within the risk
management and control process described above.
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. Refer to the Corporate Governance section on
page 77 for further details. The principal risk areas remain the same as
reported last year. Those principal risks are described below together
with an explanation of how they are managed or mitigated.
Reputational risk is not in itself one of the principal risks detailed
below, however, it does have the potential to impact a number of
existing principal risks and is an important consideration. 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 59).
54
Link to strategy (refer to page 51)
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
Generating and returning surplus cash to shareholders
Managing margins
Trend direction from 2017/18: ↑ Limited increase ↔ Unchanged ↓ Limited decrease
Principal risk and description
Business strategy development and implementation
↔
If the Board adopts the wrong business strategy or does not implement
its strategies effectively, our business may suffer. The Board therefore
needs to understand and properly manage strategic risk, taking into
account specific retail sector risk factors, in order to deliver long term
growth for the benefit of NEXT’s stakeholders.
Management team
↔
Our success relies on the continued service of our senior management
and technical personnel, and on our ability to attract, motivate and
retain highly qualified employees.
How we manage or mitigate the risk
• The Board reviews business strategy on a regular basis to determine
how sales and profit can be maximised, and business operations
made more efficient.
• The Chief Executive provides updates at Board meetings regarding
key sales and development opportunities and progress of
agreed initiatives.
• The Group Finance Director provides updates at Board meetings
regarding actual sales and profit performance by business stream.
• 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 and the financial
structure of the Group.
• The Audit Committee monitors strategic and operational risk
regularly and any significant matters are reported to the Board.
Specific key activities during the year
•
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 scenarios for our Retail
business have been prepared and stress tested during the year
(see page 14). This process provides a mechanism for ensuring that
business profitability is maximised through efficient allocation of
resources and management of costs.
How we manage or mitigate the risk
• The Board considers the development of senior management
to ensure there are opportunities for career development and
promotion to important management positions.
• The Remuneration Committee reviews executive director and
senior management remuneration at least annually and formulates
packages to retain and motivate these employees, including long-
term incentive schemes. Remuneration policies are designed to
be simple, transparent and aligned to the business strategy of
delivering sustainable long-term shareholder value.
• The Nomination Committee considers and reviews the skills,
diversity, experience and succession planning of the Board
and senior management. This also
incorporates emergency
cover planning.
55
Strategic ReportGovernanceFinancial StatementsShareholder Information
RISKS AND UNCERTAINTIES
Principal risk and description
Product design and selection
↔
Our success depends on designing and selecting products that
customers want to buy, at appropriate price points and stocked in the
right quantities.
In the short term, a failure to manage this risk may result in surplus
stocks that cannot be sold and may have to be disposed of at a loss.
Over the longer term a failure to meet the design, quality and value
expectations of our customers will adversely affect the reputation of
the NEXT Brand.
Key suppliers and supply chain management
↔
Reliance on our supplier base to deliver products on time and to
quality standards is essential. 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 or undermine our reputation as a
responsible retailer.
How we manage or mitigate the risk
• Executive directors and senior management continually review the
design, selection and performance of NEXT product ranges and
those of other brands sold by NEXT. To some extent, product risk is
mitigated by the diversity of our ranges.
• 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.
• Senior product management approve quality standards, with
in-house quality control and testing teams in place across all
product areas.
• Senior management regularly review product recalls and product
safety related issues.
How we manage or mitigate the risk
• Stock availability is reviewed on an ongoing basis and appropriate
action taken where service or delivery to customers may be
negatively impacted.
• Management continually seek ways to develop our supplier base
to reduce over reliance on individual suppliers to maintain the
quality and competitiveness of our offer. The Group’s supplier risk
assessment procedures establish 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.
• Our in-house global Code of Practice team carry out regular
inspections of our product related suppliers’ operations to ensure
compliance with the standards set out in our Code. These standards
cover supplier production methods, employee working conditions,
quality control and inspection processes. Refer to further details
on page 62.
• We train relevant employees and communicate with suppliers
regarding our expectations in relation to responsible sourcing, anti-
bribery, human rights and modern slavery.
Specific key activities during the year
• The Audit Committee received Code of Practice and modern
slavery updates from senior management during the year.
• The Audit Committee received modern slavery and anti-bribery
training progress updates together with whistleblowing reports at
each meeting. Significant matters are reported to the Board.
56
Principal risk and description
Warehousing distribution
↑
Our warehousing and distribution operations provide fundamental
support to the running of the business. Risks include business
interruption due to physical damage, access restrictions, breakdowns,
capacity and resourcing shortages, IT systems failure, inefficient
processes and third-party failures.
The recent acceleration in our Online sales has taken some of our
warehouses closer to some of their capacity limits.
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,
a well organised and attractive store environment, effective call
centres, operating successful marketing strategies, and providing both
Retail and Online customers with service levels that meet or exceed
their expectations.
Retail store network
↑
NEXT Retail’s performance depends on profitably managing the
trading space of the store network, including lease portfolio and
refurbishment decisions.
Successful development of new stores depends on a number of factors
including identification of suitable properties, obtaining planning
permissions and the negotiation of acceptable lease terms.
How we manage or mitigate the risk
• 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 continually monitored to ensure goods are delivered to
our warehouses, Retail stores and Online customers in a timely and
cost efficient manner.
• Business continuity plans and insurance are in place to mitigate the
impact of business interruption.
Specific key activities during the year
• The Board approved a four year warehouse investment proposal
to accommodate further Online growth and transfer in customer
demand from Retail to Online. Refer to page 42 for further details.
• The Audit Committee requested and received an update of key
warehouse risks and mitigation plans from our Warehousing and
Logistics directors.
How we manage or mitigate the risk
• Continued investment in the development of NEXT’s UK and
overseas websites, with a particular focus on improving the online
customer experience.
• Continued investment in online marketing initiatives. Refer to
page 31 for further details.
• 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.
• Ongoing monitoring of website and call centre support operations,
including an online chat facility, to ensure sufficient capacity to
handle volumes and queries.
• Call centre employees receive comprehensive training on an
ongoing basis, to ensure they achieve the highest standards
of service.
How we manage or mitigate the risk
• Our predominantly leased store portfolio is actively managed by
senior management, with openings, refits and closures based on
strict store profitability and cash payback criteria. We will continue
to invest in new space where our financial criteria are met, and will
renew and refurbish our existing portfolio when appropriate.
• We undertake regular reviews of lease expiry and break-clauses to
identify opportunities for exit or renegotiation of commitments.
Leases will not be automatically renewed if acceptable terms are
not agreed.
• The Board regularly reviews our lease commitments, new store
openings and potential store closures.
Specific key activities during the year
• Senior management have undertaken regular reviews of our Retail
store cost base in order to identify key efficiency opportunities.
• Senior management undertake scenario stress testing of our
store portfolio to review and manage profitability. This includes
pessimistic long-term scenarios. Refer to page 14 for more details.
57
Strategic ReportGovernanceFinancial StatementsShareholder Information
RISKS AND UNCERTAINTIES
Principal risk and description
Information security, business continuity and cyber risk
↔
The continued availability and integrity of our IT systems is critical to
successful trading. Our systems must record and process substantial
volumes of data and conduct inventory management accurately
and quickly. Continuous enhancement and investment is required 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. Our brand reputation could be negatively impacted by
cyber security breaches.
Financial, treasury, liquidity and credit risks
↔
NEXT’s ability to meet its financial obligations and to support the
operations of the business is dependent on having sufficient funding
over the short, medium and long term.
NEXT is reliant on the availability of adequate financing from banks
and capital markets to meet its liquidity needs.
NEXT is exposed to foreign exchange risk and profits may be adversely
affected by unforeseen moves in foreign exchange rates.
NEXT might suffer financial loss if a counterparty with which it has
transacted fails and is unable to fulfil its contract.
NEXT is also exposed to credit risk, particularly in respect of our Online
customer receivables, which at £1.2bn represents the largest item on
the Group Balance Sheet.
58
How we manage or mitigate the risk
• The Information Security Steering Committee continues to be in
place. Main activities include agreement and monitoring of related
key risks, activities and incidents. The Committee is comprised of
two executive directors and relevant senior management.
• Significant investment in systems’ development and security
programmes has continued during the year, complemented by in-
house dedicated information security resources.
• Systems vulnerability and penetration testing is carried out
regularly by both internal and external resources to ensure that
data is protected from corruption or unauthorised access or use.
• Critical systems backup facilities and business continuity plans are
reviewed and updated regularly.
• Major incident simulations and business continuity tests are carried
•
out periodically.
IT risks are managed through the application of internal policies
and change management procedures, contractual service level
agreements with third-party suppliers, and IT capacity management.
Specific key activities during the year
• A Group wide GDPR awareness programme was undertaken
providing employee data security training, review and update
of data inventories, third party contract updates and third party
security audits.
• Ernst & Young LLP again undertook an independent Information
Security maturity assessment with results reported to the
Audit Committee.
• Each Audit Committee meeting in the year included Information
Security and cyber risk updates.
• The Audit Committee also received a Business Continuity update
during the year.
How we manage or mitigate the risk
• NEXT operate a centralised treasury function which is responsible
for managing liquidity, interest and foreign currency risks. It operates
under a Board approved Treasury policy. Approved counterparty and
other limits are in place to mitigate NEXT’s exposure to counterparty
failure. Further details of the Group’s treasury operations are given in
Note 27 of the financial statements.
• The Group’s debt position, available funding and cash flow
projections are regularly monitored and reported to the Board.
The Board will agree funding for the Group in advance of its
requirement to mitigate exposure to illiquid market conditions.
• NEXT has a Treasury Committee which includes the Group Finance
Director. The Treasury Committee usually meets weekly to
review the Group’s treasury and liquidity risks including foreign
exchange exposures.
• Rigorous procedures are in place with regards to our 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.
• Continual monitoring of our credit customers’ payment behaviours
and credit take up levels is in place.
Specific key activities during the year
• The Board and Audit Committee received regular updates
throughout the year regarding the customer credit business.
VIABILITY ASSESSMENT
Statement of Viability
Assessment of prospects
The directors have assessed the prospects of the Group by reference to its current financial position, its recent and historical financial
performance and forecasts, its business model (page 50), strategy (page 51) and the principal risks and mitigating factors (described on pages 54
to 58). 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 long track record of consistently generating profits and cash, which is expected to
continue over the long term. The directors review cash flow projections on a regular basis.
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
4 years
6 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
Warehousing and 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 over.
Assessment of viability
Viability has been assessed by:
•
‘top-down’ sensitivity and stress testing. 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. This was
both before and after anticipated shareholder distributions, and assuming that any bank facilities which expire and bonds which mature
during the period are not replaced. In addition, the financial covenants attached to the Group’s debt were stress tested.
• considering the likelihood and impact of severe but plausible scenarios in relation to each of the principal risks as described on pages 54 to 58.
These principal risks were assessed, 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 give rise to a trading deterioration of the magnitude indicated by the stress testing and to threaten the viability
of the business over the three year assessment period.
As detailed on page 54, in September 2018 we prepared a detailed analysis of the Brexit related risks and operational challenges to our business
and their potential impact. NEXT’s preparations for a no-deal Brexit are well advanced. NEXT anticipate that we will have, at the time of the UK’s
departure from the EU, done all we can to ensure that the business is able to carry on running as it does now.
Viability statement
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 the three year period.
59
Strategic ReportGovernanceFinancial StatementsShareholder Information NON-FINANCIAL INFORMATION STATEMENT
NEXT aims to comply with the new Non-Financial Reporting Directive requirements contained in sections 414CA and 414CB of the Companies
Act 2006. The table below sets out where relevant information can be found in this Annual Report together with an overview of our relevant
policies and standards.
Reporting requirement
Relevant information
Policies and Standards
1. Business model
• Business model - page 50
2. Principal risks and impact of
business activity
3. Employees
• Principal Risks - page 55
• Viability assessment - page 59
• Employees - page 60
• Diversity policy - page 79
• Health & Safety - page 62
4. Social matters
5. Human rights
• Supporting Charity and Community - page 62
• Human rights - page 61
• Suppliers - page 62
6. Anti-corruption and anti-bribery • Whistleblowing - page 83
7. Environmental matters
• Environmental matters - page 63
• Greenhouse gas emissions - page 63
• Waste diverted from landfill - page 63
• Energy use and emissions - page 63
• Staff Handbook
• Whistleblowing Policy*
• Group Health and Safety Policy*
• Human Rights and Modern Slavery Policy*
• Data Retention Policy
• Customer Data Privacy Policy*
• Employee Data Privacy Policy
• Staff Handbook
• Anti-Bribery Policy*
• Competition Law Policy
• Supplier Code of Practice Standards*
• Whistleblowing Policy*
• Five year environmental targets were set
in 2015
• New environmental targets are being
developed for introduction in the 2019/20
financial year
Further information regarding our employees, social, community, human rights and environmental matters is provided in our latest Corporate
Responsibility Report available on our corporate website at nextplc.co.uk.
* Our latest policies are available at nextplc.co.uk
Employees
NEXT’s employees are integral to achieving our business objectives and we aim to attract, retain and develop the best talent at every level
throughout NEXT. We are committed to creating an environment where all individuals feel welcomed, respected and supported. NEXT has
established policies for recruitment, training and development of personnel and is committed to achieving excellence in health, safety and welfare.
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 79.
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
Total employees
4
4
5
5
12
13
29
25
60
14,353
13,973
28,923
30,329
2019
2018
Male
Female
Male
Female
Gender pay
NEXT publishes its annual Gender Pay Report at nextplc.co.uk.
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 education programmes which contribute to the promotion prospects of employees.
Employee communication
Employees are kept informed of performance and strategy through regular updates from members of the Board. We also ensure that the
suggestions and views of employees are taken into account. NEXT have a number of effective workforce engagement mechanisms in place
across the Group. This includes an employee forum made up of elected representatives from Head Office who attend meetings at least twice a
year with directors and senior managers. These forums encourage open discussion on key business issues, policies and the working environment.
During 2019/20, we intend to supplement this employee engagement with a number of additional meetings with representatives of
our workforce. Each of these meetings will be attended by our Chief Executive, a non-executive director, our HR director and other
senior management.
Employee share ownership
Approximately 9,600 employees held options or awards in respect of 6.6m shares in NEXT at the end of January 2019, being 4.8% of the total
shares then in issue. NEXT’s 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 5.5m 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 19 of the
financial statements. At January 2019, there were 814 (2018: 878) active members in the defined benefit section of the 2013 NEXT Group
Pension Plan and 4,841 (2018: 2,977) UK active members of the defined contribution section. In addition, 13,118 employees (2018: 15,413)
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 nextplc.co.uk.
Social, Community and Human Rights
NEXT is committed to the principles of responsible business by addressing key business related social, ethical sustainability 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;
• delivering value to our customers; and
• delivering support through donations to charities and community organisations.
The Group’s Corporate Responsibility Report is published on our corporate website at 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 our operations.
We are committed to building knowledge and awareness and we have developed a range of training and awareness initiatives for our employees,
suppliers, business partners and service providers.
For further information, refer to the NEXT Human Rights and Modern Slavery Policy, the latest Corporate Responsibility Report and our Modern
Slavery Statement, all of which are published on our corporate website at nextplc.co.uk.
61
Strategic ReportGovernanceFinancial StatementsShareholder Information 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 around 1,400 direct
and indirect (i.e. sourced via agents) suppliers, with products manufactured in around 43 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 of our 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 deliver training to our product teams, other
relevant employees, to third parties providing NEXT product and to other third-party goods and services providers, ensuring they understand
the vital role they play in our ethical trading programme.
The COP team carried out over 2,000 factory audits in 2018/19 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 publish a list of those suppliers’ manufacturing sites producing
NEXT branded products at nextplc.co.uk.
The ‘Duty to report on payment practices and performance’ legislation under section 3 of the Small Business, Enterprise and Employment
Act 2015, came into effect for NEXT during this financial year. NEXT has calculated and uploaded relevant supplier KPIs onto the HMRC
government portal.
Customers and products
NEXT offers 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 believes it is important that the raw materials used in our products are sourced in a way which respects people, animals and the environment
within our supply chain and have set targets for our key raw materials to be responsibly sourced by 2025.
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 customers to resolve enquiries and issues. Together with telephone, postal and email communications, we also provide
an online chat facility for our customers to ask questions or provide their feedback. Findings are reviewed and the information is used by relevant
business areas 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.
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 (2018: £nil).
62
2019
£000
1,153
21
96
2019
£000
29
2,167
309
61
2018
£000
1,065
13
92
2018
£000
221
1,836
372
52
Environmental Matters
NEXT recognises that it has a responsibility to manage the impact of its business on the environment both now and in the future. For several
years we have measured and reported against environmental targets for NEXT in the UK and Eire. 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.
2018/19 progress
-48%* reduction in kg CO2e/m2.
95% of operational waste diverted
from landfill.
* a reduction of 33% is attributable to the improvement in the emission factor provided by BEIS.
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
2019
Tonnes
of CO2
equivalent
46,911
70,693
117,604
35.89
2018
Tonnes
of CO2
equivalent
48,157
89,687
137,844
33.48
Further information regarding environmental matters are published in our Corporate Responsibility Report which can be found on our website
at nextplc.co.uk/corporate-responsibility
Methodology
The methodology used to calculate our emissions is based on operational control compliance with WRI/WBCSD GHG Protocol Corporate
Accounting and Reporting Standards (Revised) and has been calculated using the revised carbon convention factors published by BEIS in June
2018. For International electricity, 2018 IEA Scope 2 factors have been used.
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 nextplc.co.uk.
On behalf of the Board
Amanda James
Director
21 March 2019
63
Strategic ReportGovernanceFinancial StatementsShareholder Information 64
GOVERNANCE
66
Directors’ Report including Annual
General Meeting & Other Matters
72 Directors’ Responsibilities Statement
73 Corporate Governance Report
79 Nomination Committee Report
80 Audit Committee Report
85 Remuneration Report
107 Independent Auditor’s Report
65
Strategic ReportGovernanceFinancial StatementsShareholder Information DIRECTORS’ REPORT
Directors and Officers
Michael Roney
CHAIRMAN
Lord Wolfson of Aspley Guise
CHIEF EXECUTIVE
Amanda James
GROUP FINANCE 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.
Executive Director
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.
Executive Director
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
COMMITTEE MEMBERSHIP
Remuneration and
Nomination (Chairman)
APPOINTED TO THE BOARD
February 1997
APPOINTED TO THE BOARD
April 2015
Jane Shields
GROUP SALES AND
MARKETING DIRECTOR
Richard Papp
GROUP MERCHANDISE
AND OPERATIONS DIRECTOR
Executive Director
Jane joined NEXT Retail in 1985 as a Sales
in one of our London stores.
Assistant
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.
joined NEXT
Executive Director
in 1991 as a
Richard
Merchandiser. Richard worked his way
through management, becoming Menswear
Product Director in 2001. In 2005 he gained
valuable experience in a similar role at another
retailer. Richard returned to NEXT in 2006 as
Group Merchandise Director, responsible
for NEXT’s Merchandising function, Product
Systems,
and
Clearance operations. On appointment
to the Board, Richard took on additional
responsibility for Warehousing, Logistics and
Systems within the Group.
International
Franchise,
APPOINTED TO THE BOARD
July 2013
APPOINTED TO THE BOARD
May 2018
66
Francis Salway
Jonathan Bewes
Senior Independent
Non-Executive Director
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.
Independent
Non-Executive Director
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
Banking.
Jonathan is a Fellow of the Institute of
Chartered Accountants of England and Wales.
Institutional
and
APPOINTED TO THE BOARD
June 2010
APPOINTED TO THE BOARD
October 2016
COMMITTEE MEMBERSHIP
Audit, Remuneration (Chairman)
and Nomination
COMMITTEE MEMBERSHIP
Audit (Chairman), Remuneration and
Nomination
Tristia Harrison
Dame Dianne Thompson
Independent
Non-Executive Director
Tristia is Chief Executive Officer of TalkTalk
Telecom Group PLC. Prior to this, she was the
Managing Director of TalkTalk’s consumer
business when it demerged from Carphone
Warehouse, whom she joined in 2002 and
held a number of senior management and
executive positions. Tristia is also a Trustee
at Comic Relief and the national charity
Ambitious about Autism.
Independent
Non-Executive Director
Dianne has significant senior management
experience
including 14 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. Dianne is also a non-
executive director and Chairman Designate of
Walker Greenbank PLC.
APPOINTED TO THE BOARD
September 2018
APPOINTED TO THE BOARD
January 2015
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
COMPANY SECRETARY
Seonna Anderson
Past Directors
Caroline Goodall
INDEPENDENT NON-EXECUTIVE DIRECTOR
APPOINTED TO THE BOARD
January 2013
RETIRED FROM THE BOARD
1 January 2019
Michael Law
GROUP OPERATIONS DIRECTOR
APPOINTED TO THE BOARD
July 2013
RETIRED FROM THE BOARD
17 May 2018
Board Committees
Audit Committee
Jonathan Bewes (Chairman)
Tristia Harrison
Francis Salway
Dame Dianne Thompson
Remuneration Committee
Francis Salway (Chairman)
Jonathan Bewes
Tristia Harrison
Michael Roney
Dame Dianne Thompson
Nomination Committee
Michael Roney (Chairman)
Jonathan Bewes
Tristia Harrison
Francis Salway
Dame Dianne Thompson
67
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 25 to 28 of the
financial statements.
ANNUAL GENERAL
MEETING & OTHER
MATTERS
Notice of the Annual General Meeting (AGM) is on pages 179 to 184
and includes the following business:
Dividends
The directors recommend that a final dividend of 110p per share be
paid on 1 August 2019 to shareholders on the register of members at
close of business on 5 July 2019. This resolution relates only to the final
dividend. If, in line with the Company’s policy of returning surplus cash
generated from operations to shareholders, the directors decide to
pay special dividends any such 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 ESOT has waived dividends paid in the year
on the shares held by it, refer to Note 24 of the financial statements.
Directors
Directors’ biographies are set out on pages 66 and 67.
In accordance with the UK Corporate Governance Code 2018 (the
“Code”) and in line with previous years, all directors will stand for
election or re-election, at this year’s AGM. Each of the directors
standing for election or re-election has undergone performance
evaluation. This individual performance evaluation was achieved
through a combination of an externally facilitated Board evaluation
(see page 76 for details) in addition to regular formal and informal
reviews carried out by the Chairman, Senior Independent Director
and Chief Executive. Each director has demonstrated that they remain
committed to their role (including making sufficient time available
for Board and Committee meetings and other duties) and that they
continue to be an effective and valuable member of the Board.
The Board is satisfied that each non-executive director offering
themselves for election or re-election is independent in both
character and judgement, and that their experience, knowledge and
other business interests enable them to contribute significantly to the
work and balance of the Board. A summary of the broad range of skills,
knowledge and experience of the directors is provided on page 79.
Francis Salway is the longest serving non-executive director, having
been appointed in June 2010. Francis is Chairman of the Remuneration
Committee and will play an important role during 2019 in ensuring an
appropriate element of continuity and experience in the review of the
Remuneration Policy ahead of the Board seeking shareholder approval
for a revised Remuneration Policy at the 2020 AGM. It is intended
that Francis will stand down from the Board immediately after the
May 2020 AGM, and a replacement non-executive director will be
appointed in due course.
Tristia Harrison was appointed as a non-executive director on
25 September 2018 and will be subject to election by shareholders at
the 2019 AGM. Tristia has wide ranging commercial experience from a
career in consumer companies. Further details about the appointment
of Tristia Harrison are provided in the Nomination Committee Report
on page 79.
The interests of the directors who held office at 26 January 2019 and
their connected persons are shown in the Remuneration Report on
page 94.
Auditor
PricewaterhouseCoopers LLP has expressed its willingness to continue
in office as auditor and resolution 13 proposes that it be re-appointed
at the 2019 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.
Renewal of the powers of the
Board to allot shares
This ordinary resolution 14(a)(i) seeks authority to allow the directors
to allot ordinary shares up to a maximum nominal amount of
£4,500,000, representing approximately one third of the Company’s
existing issued share capital as at 20 March 2019. In accordance with
institutional guidelines, resolution 14(a)(ii) 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
£9,100,000, representing approximately two thirds of the Company’s
existing issued share capital as at that date. As at 20 March 2019 (being
the latest practicable date prior to publication of this document) the
Company’s issued share capital amounted to £13,758,233 comprising
137,582,327 ordinary shares of 10 pence each, none of which are held
in treasury. The directors have no present intention of exercising this
authority, however, the Board wishes to ensure that the Company
has maximum flexibility in managing the Group’s capital resources.
The authority sought under this resolution will expire at the conclusion
of the AGM in 2020 or, if earlier, 16 August 2020.
Authority to disapply
pre-emption rights
In special resolution 15 the directors are seeking authority 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 £687,000, representing 5% of
the issued ordinary share capital of the Company as at 20 March 2019
(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.
68
Special resolution 16 seeks separate and additional authority to allot
up to an additional 5% of the issued ordinary share capital of the
Company on a non pre-emptive basis 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.
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 2020 or, if earlier,
16 August 2020.
The directors intend that this authority 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 24 of the financial statements).
On-market purchase of the
Company’s 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 20 March 2019, NEXT has
returned over £4.2bn to shareholders by way of share buybacks and
over £3.5bn in dividends, of which £0.9m 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 £760m in capital
expenditure to support and grow the business.
Special resolution 17 will renew the authority for the Company to
make market purchases of its ordinary shares provided that:
a. the aggregate number of ordinary shares authorised to be
purchased shall be the lesser of 20,637,000 ordinary shares of 10p
each (being less than 15% of the issued share capital at 20 March
2019) 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 2020 or, if earlier,
16 August 2020.
Off-market purchases of own shares
The directors consider that share buybacks are an important means of
returning value to shareholders and maximising sustainable long term
growth in Earnings Per Share. Contingent contracts for off-market
share purchases offer a number of additional benefits compared to
on-market share purchases:
• Contingent contracts allow the Company to purchase shares at a
discount to the market price prevailing at the date each contract is
entered into. No shares have been bought back under contingent
purchase contracts pursuant to the authority granted at the 2018
AGM up to 20 March 2019.
• 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.
69
Strategic ReportGovernanceFinancial StatementsShareholder Information DIRECTORS’ REPORT
Special resolution 18 will give the Company authority to enter
into contingent purchase contracts with any of Goldman Sachs
International, UBS AG London Branch, 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
In accordance with the Companies Act 2006 (the “2006 Act”), the
notice period for general meetings (other than an AGM) is 21 clear
days’ notice unless the Company:
(i) has gained shareholder approval for the holding of general
meetings on 14 clear days’ notice by passing a special resolution at
the most recent AGM; and
(ii) offers the facility for all shareholders to vote by electronic means.
The Company would like to preserve its ability to call general meetings
(other than an AGM) on 14 clear days’ notice. This shorter notice
period would not be used as a matter of routine, but only where the
flexibility is merited by the business of the meeting and is thought to
be in the interests of shareholders as a whole.
Resolution 19 seeks such approval and, should this resolution be
approved, it will be valid until the end of the next AGM. This is the
same authority that was sought and granted at last year’s AGM.
Recommendation
The Board are of the opinion that all resolutions which are to be
proposed at the 2019 AGM are in the best interests of its shareholders
as a whole and, accordingly, unanimously recommend that they vote
in favour of all the resolutions.
Share capital and major shareholders
Details of the Company’s share capital are shown in Note 21 of the financial statements.
The Company was authorised by its shareholders at the 2018 AGM to purchase its own shares. During the year the Company purchased and
cancelled 6,276,572 ordinary shares with a nominal value of 10p each (none of which were purchased off-market), at a cost of £324.2m and
representing 4.3% of its issued share capital at the start of the year.
At the financial year end 26 January 2019, the Company had 138,605,633 shares in issue. Subsequent to the end of the financial year and before
the start of the closed period, the Company purchased for cancellation 1,023,306 of its own shares at a cost of £50.2m. As at 20 March 2019 the
number of shares in issue was 137,582,327.
As at 26 January 2019, 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 26 January 2019
No. of voting
rights at date of
notification
15,333,588
15,449,829
13,738,106
4,484,874
% of voting rights at
date of notification
Nature of
holding
Date of
notification
10.97
9.97
9.76
3.05
Indirect interest
Indirect interest
Indirect interest
Direct interest
3 October 2018
8 January 2014
8 June 2018
8 May 2017
The following notification was received after 26 January 2019 up to 20 March 2019:
No. of voting
rights at date of
notification
15,074,200
% of voting rights at
date of notification
10.95
Nature of
holding
Indirect interest
Date of
notification
15 February 2019
FMR LLC (Fidelity)
70
Additional information
Shareholder and voting rights
All members who hold ordinary shares are entitled to attend and vote
at the AGM. Voting on all resolutions at the 2019 AGM will be by way
of a poll. On a poll, every member present in person or by proxy has
one vote for every ordinary share held or represented. The Notice
of Meeting on pages 179 to 184 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 Code, all
directors will stand for re-election at the 2019 AGM.
Change of control
The Company is not party to any significant agreements which take
effect, alter or terminate solely upon a change of control of the
Company. 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
Director waiver of emoluments
Shareholder waivers of dividends
In January 2019, NEXT published a Profit Before Tax (PBT) central guidance forecast for the year to
January 2019 of £723m. Actual PBT for the period was £723m.
Lord Wolfson waived his entitlement to part of his annual bonus payment (see page 85).
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
21 March 2019
71
Strategic ReportGovernanceFinancial StatementsShareholder Information DIRECTORS’ RESPONSIBILITIES STATEMENT
Directors’ Responsibilities
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the directors to prepare financial statements
for each financial 52 week period. Under that law the directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and Parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
“Reduced Disclosure Framework”, and applicable law).
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 Parent Company and of
the profit or loss of the Group and Parent Company for that period.
In preparing the financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS
101, have been followed for the company financial statements,
subject to any material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Parent Company
will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and Parent
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Parent Company and
enable them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets of the
Group and Parent Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Directors’ confirmations
The directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and Parent
Company’s position and performance, business model and strategy.
We confirm that to the best of our knowledge:
• the Parent Company financial statements, which have been
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the company;
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and
profit of the group; and
• the Directors’ Report includes a fair review of the development
and performance of the business and the position of the Group and
Parent Company, together with a description of the principal risks
and uncertainties that it faces.
In the case of each director in office at the date the Directors’ Report
is approved:
• so far as the director is aware, there is no relevant audit information
of which the Group and Parent Company’s auditors are unaware;
and
• they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit
information and to establish that the Group and Parent Company’s
auditors are aware of that information.
On behalf of the Board
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
21 March 2019
72
CORPORATE GOVERNANCE REPORT
Chairman’s Introduction
The retail environment has continued to be challenging during the
year, and looks set to remain so for the foreseeable future. In an ever
changing world, it is vital that our directors provide a balanced and
appropriately skilled Board who work together to ensure they are
focussed on achieving NEXT’s business objectives.
Changes to the Board
As disclosed in last year’s Annual Report, Michael Law, Group
Operations Director who had been with NEXT for 23 years, retired from
the Board at the AGM in May 2018. Richard Papp, Group Merchandise
Director with 25 years’ service at NEXT, succeeded Michael on the
Board as Group Merchandise and Operations Director.
In September 2018 we were pleased to appoint Tristia Harrison as
a non-executive director. Tristia brings a broad range of relevant
experience in consumer facing businesses and is a very good addition
to our Board. More details of Tristia’s appointment can be found on
page 79. In January 2019 Caroline Goodall stepped down from the
Board after serving 6 years as a non-executive director and latterly as
Chair of the Remuneration Committee. I would like to thank Caroline
for her contribution and commitment to NEXT.
Whilst there have been a number of Board changes over the year, the
Board has remained balanced and well-functioning.
Board effectiveness and culture
During the year the annual effectiveness review of our Board and
Committees was facilitated by an external third party. Details of
this review can be found on page 76. One of the observations from
the reviewer was that the NEXT culture is one of openness and
transparency, with a strong focus on high expectations and standards,
honesty and integrity. The executive directors set this tone from
the top by adopting a very hands-on approach to driving forward
operational business strategies. They work alongside their business
colleagues on a day-to-day basis and attend all of the key trading
and decision making meetings. This approach serves to align not only
our business culture but also our risk management framework and
risk appetite.
Compliance with 2016 UK
Corporate Governance Code
The Board considers that 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 2018/19 financial year, except for a period of 4 days in
respect of Provision B.1.2. Provision B.1.2 requires that at least half
of the Board, excluding the Chairman, should comprise non-executive
directors determined by the Board to be independent. For the 4 days
between the appointment of Richard Papp on 14 May 2018 and the
retirement of Michael Law on 17 May 2018, less than half of the Board
were independent non-executive directors.
Implementation of the new 2018
UK Corporate Governance Code
The Board is mindful of its governance responsibilities and welcomes
the new Financial Reporting Council’s 2018 Corporate Governance
Code. The Board and Committees have spent significant time during
2018/19 considering how to build upon and further strengthen our
existing good governance framework to meet the new requirements
of the Code.
Actions undertaken by the Board to ensure NEXT will be compliant
with the new Code include:
• Plans are well advanced to strengthen the Board’s direct
engagement with our workforce, who are central to the success
of NEXT. There are already a number of effective workforce
engagement mechanisms in place across the Group, including in
our overseas operations, which will be enhanced during 2019/20.
Meetings with employee representatives will be attended by our
Chief Executive, a non-executive director, the HR director and other
senior management.
• Feedback relating to workforce engagement and other key
information will be reported to the Board and Committees as part
of their responsibilities under the new Code.
• We have taken practical steps to embed considerations relating
to section 172 of the Companies Act 2006 in the decision making
throughout the Company. These steps include refresher training
sessions for the Board led by our external lawyers and Company
Secretary, reviewing the content of Board papers to ensure the
Board is getting the information it needs to discharge its section
172 duties, and consideration of our policies and processes below
Board level to ensure a consistent approach to support the Board’s
section 172 responsibilities.
• Our external Board appointments procedure now requires the
Board to give prior approval to new appointments, taking into
account other appointments and time commitments.
The Board maintains a strong commitment to its corporate governance
responsibilities. This commitment ensures the Board remains focussed
on the interests of stakeholders and the Group’s objectives of
delivering sustainable long term shareholder value.
Michael Roney
Chairman
21 March 2019
73
Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE GOVERNANCE REPORT
The following sections detail how the Company has complied with the
Code, which is available from the Financial Reporting Council website
at www.frc.org.uk.
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 70 and 71. Disclosures required by
DTR 7.2.8 relating to diversity policy are presented in the Nomination
Committee Report on page 79.
Directors’ biographies and membership of Board Committees are set
out on pages 66 and 67.
A. Leadership
A.1 Role of the Board
The Board has a formal schedule of matters reserved for it and holds
regular meetings where such matters are discussed and approved,
including investments, significant items of capital expenditure, share
buybacks, dividend and treasury policies. It is also responsible for:
• The long term success of the Company, setting and executing the
business strategy and overseeing delivery in a way that enables
sustainable long term growth.
• Providing effective leadership whilst delegating more detailed
matters to its Committees and officers including the Chief Executive.
• 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.
• Approving semi-annual Group budgets and subsequent regular
review of performance against budget including explanation of
significant variances. 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.
The structure of the Board is designed to ensure that it focuses on
Governance framework and culture
strategy together with the monitoring of performance, control and risk.
We believe our governance structure, as outlined below, facilitates the
operation of an open and straightforward culture, and is not burdened
by complex hierarchies and over delegation of responsibilities.
Overview of Governance structure
Shareholders
Chairman
Responsible for the leadership of the Board and ensuring that it operates effectively through a healthy culture of openness, challenge and scrutiny.
Responsible for providing effective leadership by setting business strategy and overseeing delivery in a way that delivers long-term growth for the benefit of NEXT’s shareholders.
The Board maintains a balanced approach to risk within a framework of effective controls and taking into account the interests of a diverse range of stakeholders.
Board of Directors
Board Committees
The terms of reference for each Committee are documented and agreed by the Board.
They are reviewed and updated and are available on the corporate website nextplc.co.uk. Their key
responsibilities are set out below.
Other Key Governance Steering Groups
These meetings have specific areas of responsibility. At least one or
more of the executive directors chair or attend these meetings.
Appropriate senior management also attend these meetings.
Nomination
Committee
● keep under review the
composition,size, structure
and diversity of the Board
and its Committees
● evaluate the balance of
skills, experience and
diversity of the Board
● provide succession
planning for the Board and
senior management
● lead the process for new
Board appointments
Audit
Committee
● review and monitor the
integrity of the Group’s
Financial Statements
● review and monitor
the adequacy and
effectiveness of the risk
management framework
and the systems of
internal controls
(including whistleblowing
procedures)
● review and monitor
the effectiveness
and independence
of the external and
internal auditors
Remuneration
Committee
● responsibility for setting
the remuneration Policy for
all executive directors and
the Chairman, including
pension rights and any
compensation payments
● recommend and monitor
the level and structure
of remuneration for
senior management
● review the ongoing
appropriateness
and relevance of the
remuneration Policy when
setting remuneration
Committee Report
on page 79
Committee Report
on pages 80 to 84
Committee Report
on pages 85 to 106
Each of the below Steering Groups held various meetings during the
year to review and monitor specific risks, activities and incidents:
Treasury - Group’s treasury policy, treasury operations and
funding activities
Information Security - Group’s information security and cyber
related activities
Health and Safety - Group’s health and safety activities
Brexit - Group’s plans and approach to manage the impact
Chief Executive
Responsible for the day-to-day running of the Group’s business and performance, and for the development and implementation of business strategy.
74
The Chief Executive has delegated authority for the day-to-
Management delegation
day management of the business to operational management
comprising other executive directors and 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 business areas in respect of the NEXT Brand,
including product, sales, customer experience, property and stores,
warehousing, systems and personnel. Key performance indicators are
monitored daily, weekly and monthly.
As detailed in the governance structure diagram on page 74 the
Board and Committees
Board has appointed Committees to carry out certain aspects of its
duties. Each is chaired by a different director and has written terms of
reference which are available on our corporate website nextplc.co.uk.
The table below shows the attendance at Board and Committee
meetings during the year to 26 January 2019. All of the non-executive
directors are members of the Nomination, Audit and Remuneration
Committees. We believe that this provides an important opportunity
for our non-executive directors to deepen their understanding of the
NEXT business, control and risk environment and provide them with
valuable information and insight. These factors positively contribute
to the value they add individually and collectively to the effective and
efficient running of the Board and its Committees.
Role
Current Directors
Number of meetings held in the year
Lord Wolfson
Amanda James1
Richard Papp2
Jane Shields
Michael Roney1
Francis Salway
Jonathan Bewes
Tristia Harrison3
Dame Dianne Thompson
Chief Executive
Group Finance Director
Group Operations & Merchandising Director
Group Sales & Marketing Director
Chairman
Senior Independent Director
Non-executive Director
Non-executive Director
Non-executive Director
Former Directors who served during 2018/19
Michael Law4
Caroline Goodall5
Group Operations Director
Non-executive Director
Board
8
8/8
8/8
6/6
8/8
8/8
8/8
8/8
2/2
8/8
2/2
6/7
Nomination
3
–
–
–
–
3/3
3/3
3/3
1/1
3/3
–
2/2
Audit
4
–
–
–
–
–
4/4
4/4
2/2
4/4
–
4/4
Remuneration
5
–
–
–
–
5/5
5/5
5/5
2/2
5/5
–
4/4
1. Michael Roney and Amanda James are not members of the Audit Committee, however they attended all Audit Committee meetings during the year by invitation
2. Richard Papp was appointed to the Board on 14 May 2018
3. Tristia Harrison was appointed to the Board on 25 September 2018
4. Michael Law retired from the Board on 17 May 2018
5. Caroline Goodall retired from the Board on 1 January 2019
Due to unavoidable circumstances Caroline Goodall was unable to attend the May 2018 Board meeting and AGM. In advance of the Board
meeting Caroline reviewed the meeting papers and communicated her comments to the Company Secretary and Chairman who ensured these
were considered at the meeting. Caroline was also provided with an update after the meeting.
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.
A.3 The Chairman
The Chairman, Michael Roney, sets the Board’s agenda and is also
responsible for promoting a healthy culture of openness, challenge and
scrutiny, and ensuring constructive relations between executive and
non-executive directors. Michael met the independence requirements
set out in the UK Corporate Governance Code on appointment in 2017.
Michael’s other significant commitments are noted on page 66, and
the Board considers that these are not a constraint on his agreed time
commitment to the Company.
The Board sets objectives and annual targets for the Chief Executive.
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.4 Non-executive directors
Francis Salway is our Senior Independent Director. The Chairman
held meetings with the non-executive directors without the
executives present.
75
Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE GOVERNANCE REPORT
B. Effectiveness
B.1 Composition of the Board
The Board currently includes four independent non-executive directors
(including the Senior Independent Director) and the Chairman who
all bring considerable knowledge, judgement and experience to
the Group. Refer to the current director skills matrix included in the
Nomination Committee Report on page 79. 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.
Details are provided in the Nomination Committee Report on page 79.
Francis Salway is our longest serving non-executive director, having
been appointed to the Board in June 2010 and 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, Senior Independent Director and Remuneration
Committee Chair. Following Caroline Goodall’s retirement from the
Board, Francis who has served as a member of the Remuneration
Committee since his appointment to the Board in 2010, took up the
position of Remuneration Committee Chair with effect from 1 January
2019, thereby providing continuity. It is intended that Francis will stand
down from the Board immediately after the May 2020 AGM, and a
replacement non-executive director will be appointed in due course.
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.
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 79.
B.3 Commitment
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. The induction programme includes:
• Visits to stores and warehouses
• Attendance at key operational meetings and our biannual Retail
stores conferences
• Meetings with senior managers, other colleagues and key external
parties including the external audit partner
• A briefing from the Company Secretary, the Group’s corporate
lawyers on the duties of a public
broker and external
company director
• Access to past Board and Committee papers
Individual training and development needs are reviewed as part of
the annual Board evaluation process and training is provided where
appropriate, 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 developments,
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 verbal 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.
We have an open culture and our non-executive directors meet on a
formal and informal basis with a broad range of NEXT management
and have unrestricted access to the business and its employees.
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 99.
B.6 Evaluation
During the year an external evaluation of the Board, its Committees
and directors was undertaken with the assistance of Belinda Hudson.
Belinda does not have any other connection with the Group or any
of its directors. The review covered all aspects of the effectiveness
of the Board and its Committees including composition, experience,
dynamics, the Chairman’s leadership, and the extent to which the
Board fulfils its role and responsibilities with particular regard to
strategy, oversight of risk and succession planning.
The evaluation process took place in the final quarter of the year.
Following a briefing provided by the Chairman and Company Secretary,
Belinda reviewed all Board and Committee papers produced during
the year, carried out interviews with each director, the external audit
partner and the Company Secretary, and observed the November
2018 Board and Audit Committee meetings.
The review highlighted that the Board is operating effectively, offering
good challenge and adding value. Examples of areas positively
reported included:
76
• The process and transition following the appointment of the
new Chairman in 2017 were described as ‘seamless’ with good
relationships based on mutual trust and respect being developed
with other Board members
• The Chief Executive is open and transparent and views the Board
as a positive asset with a strong focus on creating long-term
sustainable value
• Positive dynamics and relationships
• Committed non-executive directors who bring a broad range of
useful and relevant experience
The key areas identified as possible opportunities to develop the
Board’s effectiveness further include:
• Devoting more time at the Board level to broad ranging discussion
of the risk environment, acknowledging this does happen at Audit
Committee level, and developing a summary Group risk profile
• Reviewing certain topics where the Board could usefully
spend more time and benefit from additional information, e.g.
workforce strategy, culture and employee engagement
•
Introducing a greater degree of formality to the discussion of
matters such as succession planning and leadership development
The Chairman, Chief Executive and Company Secretary are putting in
place appropriate action plans in response to the evaluation findings
and will review progress during the course of 2019/20.
The Senior Independent Director leads the appraisal of the performance
of the Chairman through discussions with all the directors individually.
The Chairman and the Senior Independent Director appraise 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. The Chairman and Chief Executive provide
appropriate feedback.
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.
C. Accountability
C.1 Financial and business reporting
Please refer to:
• Page 72 for the Board’s statement on the Annual Report and
Accounts being fair, balanced and understandable;
• Page 113 for details of the Independent Auditor’s responsibilities;
and
• Pages 50 and 51 of the Strategic Report for an explanation of
the Company’s business model and strategy for delivering the
objectives of the Company.
The Group’s business activities, together with the factors likely to
Going concern and viability assessment
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 27 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 59.
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 54 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 55 to
58) 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 risk areas and business processes.
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
procedures 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 80 to 84.
77
Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE GOVERNANCE REPORT
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.
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 85 to 106.
E. Relations with shareholders
E.1 Dialogue with shareholders
Significant time and effort is invested in providing detailed and
transparent information to current and potential shareholders and in
maintaining regular and effective dialogue with them. Full year and
other public announcements are presented in a consistent format
with a particular focus on making the presentations as meaningful,
comparable as possible.
understandable,
Such information is also made publicly available via our corporate
website nextplc.co.uk.
transparent and
During the year, the Chief Executive and Group Finance Director
regularly held one-to-one meetings, calls, roadshows and conferences
with institutional investors.
There is also regular communication with institutional investors
by other Board members, the Company Secretary and senior
management. During 2018 we have engaged with investors on a range
of topics, including:
• Governance, including Board composition and
executive remuneration
• Human rights and the environment
• Sustainability
The Board receives regular information on investor views through a
number of different channels:
• The Company’s largest shareholders are invited to the annual
and half year results presentations, at which executive and non-
executive directors are present
• The Group’s corporate broker provides written feedback after full
and half year results announcements and investor roadshows
• Non-executive directors who have direct dialogue with shareholders
• Analyst reports
• Shareholder
feedback
reports 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 and
key stakeholders are also considered.
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 with directors after
the meeting.
78
NOMINATION COMMITTEE REPORT
Membership and meetings
During the year the Committee comprised the following independent
non-executive directors:
Member
Michael Roney (Committee Chairman)
Caroline Goodall (until January 2019)
Jonathan Bewes
Tristia Harrison (from September 2018)
Francis Salway
Dame Dianne Thompson
Refer to the Committee member attendance table shown on page 75.
Lord Wolfson also attends the Nomination Committee meetings by
invitation. In addition to formal meetings during the year, there were
regular informal discussions on succession plans and new appointments
to the Board.
The Committee’s roles and responsibilities are covered in its Terms of
Reference which are available on our corporate website nextplc.co.uk.
Annual evaluation of the Nomination Committee’s performance is
undertaken as part of the Board evaluation process. During 2018/19
this process was externally facilitated and further details are included
on page 76.
Committee activities in 2018/19
Succession planning
During the year the Committee considered the succession
arrangements for the Board. They reviewed a skills matrix which captures
the core skills, knowledge, experience and diversity represented by the
Board members. This provides a framework for considering the skills the
Committee may want to focus on when preparing role specifications
and evaluating potential new Board candidates.
Our current Board members each bring a broad range of individual
skills, knowledge and experience. A summary of the skills of our
directors is shown below.
Number of directors
Skills and experience
Retail/Commercial/Operational
Cyber risk/Digital
Brand/Marketing
Former/Current CEO
Property
Listed market experience
and governance
Finance/Accounting
Board appointments
The Committee adopts a formal and transparent procedure for the
appointment of new directors to the Board.
External consultants are 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.
Board appointments in the year
In February 2018, the Company announced that Michael Law would
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 was elected at the
2018 AGM as Group Merchandise and Operations Director.
In September 2018, the Company announced that Caroline Goodall
would step down from her non-executive director position on the
Board at the beginning of January 2019. At the same time, we also
announced that Tristia Harrison had been appointed as a non-
executive director.
An external search firm, Heidrick & Struggles/JCA Group (JCA),
was engaged to assist and advise the Committee on the search and
appointment process. In consultation with the Committee Chairman
and Company Secretary, JCA designed a comprehensive specification
for the desired candidate. The role brief was aligned to the desired
Board and Committee composition, with reference to the skills matrix.
Detailed candidate profiles were prepared by JCA for consideration
and to agree a list of the strongest candidates. The Chairman,
Michael Roney, and Senior Independent Director, Francis Salway,
met and interviewed six short-listed candidates and agreed on two
short-listed candidates. An interview process was used to assess the
candidates together with meetings held with the executive directors.
Following consideration of interview and meeting feedback it became
clear that Tristia Harrison was the most suitable candidate and her
experience and attributes made her an excellent candidate. A due
diligence and referencing process was completed satisfactorily and
the Nomination Committee recommended to the Board that Tristia be
appointed as a non-executive director of NEXT.
The Board approved the appointment of Tristia and she joined the
Board and all of the Board Committees.
Crisis situation succession
During the year the Committee also considered crisis situation
succession arrangements in the event of sudden changes in the
availability of executives and key operational director personnel.
The business has historically successfully promoted from within the
business to both operational director and executive director positions
and the Committee was able to clearly identify potential candidates to
immediately cover for key personnel should the need arise.
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. NEXT was ranked first for the second
consecutive year in the 2018 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 60.
79
Strategic ReportGovernanceFinancial StatementsShareholder Information
AUDIT COMMITTEE REPORT
Chairman’s Introduction
On behalf of the Board, I am pleased to present the Audit Committee’s report for the year ended January 2019.
During the year the Committee has, amongst other matters, continued its increased focus on data and cyber security risks, with one or more
of these subjects considered at each of our meetings in the year. Good progress continues to be made in identifying and managing these risks,
although we recognise that there must never be complacency in this fast moving and increasingly sophisticated technological environment.
The Committee has also 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.
New accounting standards which are applicable to NEXT for the first time this year, IFRS 9 “Financial instruments” and IFRS 15 “Revenue from
contracts with customers”, have been successfully implemented, with the Committee receiving regular progress updates during the year.
With regards to IFRS 16 “Leases”, effective for the year ending January 2020 onwards, we have quantified and disclosed the impact in relation to
our current year financial statements as detailed on page 129.
I would like to thank the management team at NEXT and all Committee members for their valuable contribution and support during the year.
Jonathan Bewes
Chairman of the Audit Committee
21 March 2019
Membership and meetings
During the year the Committee comprised the following independent non-executive directors:
Member
Jonathan Bewes (Committee Chairman)
Caroline Goodall (until January 2019)
Tristia Harrison (from September 2018)
Francis Salway
Dame Dianne Thompson
Refer to the Committee member attendance table shown on page 75.
The Committee’s wide range of financial and commercial skills and experience serves to provide the necessary knowledge and ability to work as
an effective committee and to robustly challenge the Board and senior management as and when appropriate. 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’s roles and responsibilities are covered in its Terms of Reference which are available on our corporate website nextplc.co.uk.
The Committee holds regular meetings and consults with external auditors and senior management, including internal audit. In addition, the
Group Finance Director and Chairman attended all of this year’s meetings. The Committee frequently requests that executive directors and
senior managers attend Committee meetings in order to reinforce a strong culture of risk management and to keep the Committee up to date
with events in the business.
Annual evaluation of the Audit Committee’s performance is undertaken as part of the Board evaluation process; during 2018/19 this process was
externally facilitated. Further details are included on page 76.
80
AUDIT COMMITTEE REPORT
Committee activities during 2018/19
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 the external auditor. The key matters of focus were:
Area of focus
Background and details
1. Online customer receivables and
related allowance for expected
credit losses
2. Hedge accounting
Represents the largest asset class on the Group’s Balance Sheet
(2019: Gross value £1.4bn and allowance for expected credit losses of £166m).
Based on detailed reports and through discussions with management and the
external auditor, the Committee reviewed and assessed the basis and level of
provisions under the new IFRS 9 “Financial instruments” standard methodology
(see ‘New accounting standards’ table below) and their sensitivity and is
satisfied that the judgements made were reasonable and appropriate. The
prior year balances were prepared in accordance with IAS 39.
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 with greater
certainty. Interest rate swaps are used to manage the Group’s exposure to
changes in interest rates.
The Committee discussed the methodology used in the valuation and
accounting treatment of derivative 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.
Reference to
financial statements
Note 12
Notes 26 and 27
3. Pension scheme funding
and accounting
The Group’s Balance Sheet shows a funding surplus of £125.0m (2018:
£106.2m), comprised of £893.7m assets and £768.7m defined benefit pension
schemes obligation.
Note 19
Pension scheme funding, accounting and actuarial reports have been prepared
in accordance with International Accounting Standards.
The Committee reviewed the actuarial assumptions underlying the calculations
and was satisfied that they are reasonable. The scheme’s funding position
is highly sensitive to small changes in discount and inflation rates, and the
funding position reported in the Group Balance Sheet does not reflect the full
cost of the pension scheme on a buyout basis.
4. Inventory valuation
The Group Balance Sheet shows a net valuation of £502.8m.
Page 117
5. Accounting for leases
The Committee reviewed and agreed the methodology for calculating the net
realisable values of inventories, which has been applied consistently with the
previous year.
The Group is retrospectively applying IFRS 16 “Leases” with effect from the
2019/20 financial year and the expected impact on the Income Statement and
Balance Sheet has been disclosed in the Group Accounting Policies section of
the financial statements. The work to collect the relevant data, implement a
new accounting system and agree the appropriate accounting policies has been
significant. During the year the Committee regularly reviewed progress on all
aspects of the IFRS 16 adoption project and is satisfied that the methodology
used and the judgements and assumptions applied are reasonable.
Page 131
81
Strategic ReportGovernanceFinancial StatementsShareholder Information AUDIT COMMITTEE REPORT
New accounting standards
During the year the Committee considered and agreed the approach and impact on the Group’s financial statements of three new
accounting standards:
New accounting
standard
When effective for
NEXT?
1. IFRS 15 “Revenue
2018/19 onwards
from contracts with
customers”
2. IFRS 9 “Financial
instruments”
2018/19 onwards
Background and details
The majority of the Group’s sales are for products made direct to
customers either in-store or online. Estimates were previously made
of anticipated returns and orders awaiting delivery to the customer.
Certain income streams totalling £40.3m previously netted off costs
have now been 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.
The main impact relates to the impairment assessment
methodology used to value our Online customer receivables. The
impact of the application of IFRS 9 was not material to the net
assets or profit for 2018/19 or 2017/18. The prior year balances
have therefore not been restated. See further details in the Group
Accounting Policies section of the financial statements.
Reference to
financial statements
Page 128
Page 129
3. IFRS 16 “Leases”
2019/20 onwards
On the adoption of IFRS 16, lease agreements give rise to both a
right of use asset and a lease liability for future lease payables.
Page 131
The Group will adopt the fully retrospective approach on transition
and will restate prior year comparatives. See further details in the
Group Accounting Policies section of the financial statements.
82
Viability statement and going concern
The Committee performed a detailed review of the Group’s projected
cash flows, borrowing capacity and the covenants within its borrowing
facilities over a three year period (our viability assessment period).
The approach was discussed and agreed by the Committee in
November 2018 and followed up in March 2019 by reviewing the
Group’s financial position and performance, budgets for 2019/20
and three year cash projections which were stress tested under
different scenarios having regard to the principal risks faced by the
business. Further details of this review are on page 59. In addition, the
Committee reported to the Board that, in its view, the going concern
assumption remains appropriate.
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 54.
During the year the Committee:
Internal audit
• Reviewed the level of internal audit resource, experience and
expertise. It is satisfied that it is adequate for the size, structure and
business risks of the Group and is supplemented with appropriate
external resources where needed.
• Reviewed and approved the scope of the internal audit work plan.
It is satisfied that it is aligned to the key risks of the business.
• Received an update at each Committee meeting from the Head of
Internal Audit of internal audit work performed and the results.
• Met the Head of Internal Audit without management present
to discuss the internal audit charter, resources, audit plans
and effectiveness.
During the year the Head of Internal Audit:
• Attended all Audit Committee meetings and provided reports and
verbal updates to the Committee.
• Had direct access to all Committee members and met the
Committee Chairman and Committee members separately.
• Met with the Audit Committee Chairman 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.
The operations of the Group are highly reliant on its IT systems.
IT systems and cyber security
The Committee asked for updates from the IT and operations teams
covering various aspects of IT and cyber security at each meeting
during the year. Significant resources continue to be devoted to
the development and security of the Group’s IT systems. Ernst &
Young LLP again performed an independent cyber security maturity
assessment which was discussed at Audit Committee meetings during
the year, reporting that good progress had continued to be made in
the year. Please refer to page 54 of the principal risks section of the
Strategic Report.
The operations of the Group are also reliant on an effective and
Warehousing and Logistics
efficient warehousing and logistics function. The shift in customer
spending from Retail stores to Online requires our warehouses to be
set up and organised to respond to the increasing Online customer
demand. Nearly half of Online customer orders (by number) are
collected in our stores and over 75% of returns (by number) are made
through our stores. Speed and efficiency in delivering and returning
goods, whilst seeking to grow Online sales, is therefore essential in
order to maximise the customer experience.
During the year the Committee requested and received an update
from our warehousing and logistics directors covering current and
anticipated risks together with corresponding mitigating actions.
In addition, the Board received two related presentations in the year
from the Group Merchandise and Operations Director. A significant
four year warehouse expansion and reorganisation project has been
approved and commenced during the year to mitigate these key
business risks. Please refer to page 54 of the principal risks section and
page 42 of the Chief Executive’s Review in the Strategic Report.
During the year the Committee also received reports and presentations
Other activities
from relevant senior management on other significant activities and
key control functions of the Group including:
• Anti Money Laundering
• Business continuity
• Code of Practice supplier audits (including ethical compliance)
• Corporate governance (including review of the 2018 Corporate
Governance Code, applicable to NEXT for the first time from
February 2019)
• Consumer
credit
business
(including
customer
debt
and provisioning)
• GDPR
• Health and safety
• Human rights and modern slavery
•
IT systems - key projects, activities and resourcing
• Regulatory compliance and developments in relation to our
consumer credit business, an FCA regulated activity
• Risk management
• Taxation
The Company’s whistleblowing procedures ensure that arrangements
Whistleblowing
are in place to enable employees, suppliers and other third parties
to raise concerns about possible improprieties on a confidential
basis. During the year, the Committee received updates of reported
issues, investigation details and follow up actions. The Committee
also received updates in relation to anti-bribery and modern slavery
training and awareness programmes.
83
Strategic ReportGovernanceFinancial StatementsShareholder Information AUDIT COMMITTEE REPORT
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. In line with EU audit reform
regulations, 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.
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 £0.7m and its 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.
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 26 January 2019.
External auditor
The Audit Committee is responsible for recommending to the Board
Appointment
the appointment, re-appointment and removal of the external auditor.
A resolution to propose the re-appointment of PwC was approved by
shareholders at the 2018 AGM.
The Committee had discussions with the external auditor on audit
Effectiveness
planning, audit quality, 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). In addition, the
Chairman of the Audit Committee regularly engages with the Audit
Partner, Andrew Lyon, outside formal meetings.
As required by the regulatory guidance, we formally reviewed the
2018/19 audit and found it to be satisfactory. Separately, the Financial
Reporting Council’s Audit Quality Review team also completed a
review of the 2017/18 audit as part of their routine sampling activity
and concluded that “limited improvements” were required in only
four specific areas. A summary of their recommendations and the
actions that PwC has agreed to take as a result were discussed by the
Committee in March 2019, and the Committee agreed that none of
the findings were significant.
The Committee is satisfied that PwC possesses the skills and experience
required to fulfil its duties effectively and efficiently and that the audit
was effective.
PwC has reported to the Committee that, in its professional judgement,
Independence and objectivity
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.
In order to ensure the continued independence and objectivity of the
Non-audit work carried out by the external auditor
Group’s external auditor, the Board has strict policies regarding the
provision of non-audit services by the external auditor. The Committee
reviews audit and non-audit fees twice a year.
84
REMUNERATION REPORT
Contents
Part 1: Annual Statement from the Remuneration Committee Chairman
Part 2: Annual Remuneration Report
Part 3: Directors’ Remuneration Policy Extract
page 85
page 88
page 101
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
2018/19.
Pay and performance outcome for 2018/19
Total remuneration
The Company remains focused on building shareholder value through delivery of long term sustainable growth in EPS and payment of dividends.
Against an exceptionally challenging retail sector backdrop, during 2018/19 the executive directors helped to deliver positive growth in EPS
after a two year period of decline. This improved performance was reflected in the 2018/19 annual bonus awards and Long Term Incentive Plan
vesting rates (detailed below), neither of which were paid to executive directors in 2017/18.
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.
The Committee set realistic but stretching performance targets for the 2018/19 annual bonus, reflecting the prospects of the business in a UK
retail market which was expected to remain volatile and subject to powerful structural and cyclical changes. Details of those targets are on
page 89.
The growth in pre-tax EPS in the year was above the threshold level set. In accordance with the bonus formula, a bonus of 40% of maximum was
earned (resulting in a bonus of 40% of salary for the other executive directors and 60% for Lord Wolfson). In light of the challenges being faced
by our Retail staff and store managers, Lord Wolfson made a personal decision to waive his entitlement to part of his bonus and will therefore
receive a bonus of 20% of salary only (13% of the maximum). No annual bonus was earned by the executive directors for either of the previous
two financial years (i.e. since 2015/16).
The Committee considered the above payments to be appropriate and approved them without the exercise of any discretionary adjustment.
Long Term Incentive Plan (LTIP)
LTIP awards are granted twice a year (each at 100% of base salary for executive directors and so totalling 200% for the year) and during the year
the Committee approved two grants.
Two LTIP awards reached the end of their three year performance period. Of these, the first vested at 20% as NEXT’s Total Shareholder Return
(TSR) ranked eleventh (i.e. the median and threshold level of vesting) out of 21 companies in the comparator group. The Committee concluded,
after considering the economic underpin test, that the indicative formulaic level of vesting was appropriate and allowed such vesting without
adjustment. Details of the economic underpin test are provided on page 91 and the comparator group is set out on page 96. The second LTIP
award which reached the end of its performance period in the year did not pay out as NEXT’s TSR ranked below median in the comparator group.
The two LTIP awards which reached the end of their performance periods during the previous financial year also did not pay out.
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.
85
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Key remuneration decisions
The Committee has addressed the following matters this year:
Remuneration Policy and 2018 Corporate Governance Code
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.
Key details of the Remuneration Policy can be found on pages 101 to 106 and full Policy details are in our January 2017 Annual Report and
Accounts which is available on our website.
During the year the Committee reviewed latest best practice guidance and the impact of the new 2018 Corporate Governance Code.
The Committee will give further consideration to these matters during the course of the year ahead, as part of the planned process for seeking
shareholder approval of a renewal of the Directors’ Remuneration Policy at the 2020 AGM.
Annual base salary review for 2019/20
In the last three years’ Annual Statements from the NEXT Remuneration Committee Chair, we have detailed our long-standing plans and
approach in relation to specific executive director salaries. In those Statements, we set out the Committee’s typical approach to salary
progression for those executive directors who are appointed to the Board from an internal senior managerial position. This approach is to award
salary increases which are stepped and timed to reflect performance and contribution at Board level, rather than automatically awarding a
salary increase immediately on promotion. Salary progression is therefore usually phased over a period of approximately one to four years after
promotion to the Board, subject to proven performance and development during that period.
The Committee is very mindful that the NEXT approach to salary progression does mean that there are significant pay rises awarded to executives
in the first few years following their promotion to an executive director. However, our policy is a prudent one and delaying increases in salary
to those internally promoted executives is in the interests of shareholders as it saves money on salary as well as bonus and LTIP grants, which
are correspondingly less for the executive directors in those first few years following promotion. Furthermore, if the transition to the executive
director role proves to be unsuccessful, any exit terms would be based on a correspondingly lower salary.
As noted in the Remuneration Committee Chair’s Annual Statement for the 2016/17 year, in light of the lower than expected 2016/17 profit
and EPS outcome, the Committee decided to defer its planned significant increases in the base salaries of Michael Law (now retired from the
Company) and Jane Shields. These increases would have represented the final stage in setting their pay levels at an appropriate level following
their internal promotion to the Board in July 2013. The Committee also decided to moderate a further interim increase in the base salary of
Amanda James who was promoted to the Board in April 2015. Therefore, the Committee decided to increase the base salaries of Jane Shields
and Michael Law by 1% (taking their salaries to £416,200), in line with the wider Company pay award with effect from February 2017. In the case
of Amanda James, the Committee agreed a base salary increase of 16% (also taking her base salary to £416,200).
With regard to the salary review for 2018/19, given the continuing challenges in the fashion retailing sector, the Committee also considered it
appropriate to again defer the planned phased salary increases and the base salary of the executive directors was increased by 2% in February
2018, in line with the wider Company award. However, it was noted in the 2017/18 Remuneration Committee Chair’s Statement that, as the
salaries of Jane Shields, Amanda James and Richard Papp (promoted to the Board in May 2018) remained below the planned level for someone
of their experience and the benchmark median, the Committee would further review their salaries during 2018/19 with a view to implementing
the planned final instalments of their increases.
Accordingly, that review was undertaken by the Remuneration Committee during the year. While the Committee considered external market
data for reference, it only formed one part of a broader review which also considered the performance of the individuals, internal relativities and
pay and employment conditions throughout the Company. The matters considered by the Committee when reviewing the relevant executive’s
performance included:
• the significant broadening of the roles of each of the directors and their performance in delivering the Company’s strategy. Amanda James
has grown fully into her role of Group Finance Director. This has been demonstrated by, for example, establishing credibility and high regard
amongst the investment community, successfully leading several debt financing projects and, with the support from the Board, continuing
a strong focus on capital allocation and the creation of long term sustainable shareholder value. In respect of Jane Shields and Richard Papp,
they have led many of the initiatives that have been implemented in response to the profound and rapid structural change in the retail sector,
with ever increasing volumes of sales transferring online. These include the investment and innovation to accelerate the growth of the Online
business through new digital marketing, website enhancements, delivery services, improvements to the integration of our Retail and Online
businesses and development of the Platform for our customers and third-party brand partners. The success of these initiatives has helped
NEXT to deliver resilient performance in a very challenging trading environment.
• their contribution at Board level. In all cases, the executive’s in-depth knowledge of the business, positive demeanour, strong competence
and constructive approach enable them to make a very good and strategic contribution to Board proceedings.
To support their assessment of performance, the Committee members drew upon the information they receive on a regular basis through a
number of different channels, including verbatim feedback from investors provided by the Company’s corporate sponsor, analysts’ reports,
attendance at the half year and full year results announcements, feedback from the external audit partner, and the output of the 2018/19
external Board evaluation. The non-executive directors also meet on a formal and informal basis with a broad range of NEXT management and
have unrestricted access to the business and its employees.
86
During December 2018, the Committee consulted with NEXT’s principal institutional shareholders and representative bodies concerning
proposed changes to NEXT’s executive director salary levels. This dialogue was positive and no concerns regarding the proposals were raised.
Taking account of the matters considered in their review, shareholder feedback, previous decisions to defer planned salary increases, and the
improvement during 2018/19 in EPS after a two year period of decline, the Committee decided to implement the changes set out to shareholders
during the consultation:
• Lord Wolfson (Chief Executive Officer) – base salary increased in February 2019 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.
• Amanda James (Group Finance Director) – base salary increase of circa 15% effective from February 2019, taking her salary to £490,000.
• Richard Papp (Group Merchandise and Operations Director) and Jane Shields (Group Sales and Marketing Director) – base salary increase
for each of circa 12% effective from February 2019, taking their salaries to £475,000.
Even after the salary increases noted above, the executive directors will continue to be positioned below the median of comparable roles in
other FTSE 100 companies in general and other FTSE 100 retailers more specifically. For Amanda James, Richard Papp and Jane Shields, their
salaries are below those of predecessor executive directors in equivalent or broadly equivalent roles who left in 2014 and 2015.
The Committee is very mindful of its responsibilities in this area. After much consideration, it believes these pay increases, while material, are in
line with its overall conservative approach to remuneration and it was appropriate to implement the planned final instalments of the increases
for the three executives promoted to the Board (recognising that this is arguably a year earlier for Richard Papp than others because of his greater
pre-Board experience, responsibilities and performance).
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;
• 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. 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 2018/19
Further information about the work of the Committee can be found on page 99.
Shareholder engagement
As noted above, during the year the Committee consulted with our largest shareholders and their representative bodies on our proposed changes
to executive director salaries. We were pleased by the level of engagement and the support we received for our proposals. The Committee
genuinely values feedback from shareholders and this was an opportunity to maintain our dialogue with our principal shareholders. We will
engage with those shareholders (and their representative bodies) again at appropriate stages of the policy renewal process.
For further details regarding the feedback to the Board on shareholder views, please see page 78.
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.
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.
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.
87
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Wider employee considerations
The Remuneration Committee is mindful about remuneration arrangements across the Group, and pay and employment conditions elsewhere
in the Group are considered to ensure that differences for executive directors are justified. This includes performance-related pay which is
designed to ensure that all employees have the potential to benefit from the success of NEXT. The Committee is responsible for approving the
remuneration of the Group’s senior executives (consistent with the new 2018 Corporate Governance Code). 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.
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 1,400 middle management in our Head Office, call centres and warehouses, as well as senior store staff.
Participation in our Sharesave scheme is open to all of our UK and Eire employees. Around 9,500 employees (circa 25% of our total UK and Eire
employees) held options or awards in respect of 6.6 million shares in NEXT at the financial year end.
2019 AGM
In line with UK reporting regulation, the Annual Report on Remuneration will be put to an advisory vote at our AGM on 16 May 2019. As noted
above, the Remuneration Policy was last approved by shareholders at the 2017 AGM and will, therefore, not be submitted for approval this year.
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. We hope that this report provides clear insight into the Committee’s decisions and look forward to receiving your support
at the AGM.
Lastly, I would like to thank my predecessor as Remuneration Committee Chair, Caroline Goodall, for all her work in developing remuneration
policies which are simple, aligned to business strategy and have been supported by our shareholders. I hope that my tenure on the Board and as
a member of the Remuneration Committee will help ensure an appropriate element of continuity.
Francis Salway
Chairman of the Remuneration Committee
21 March 2019
Part 2: Annual Remuneration Report
This Annual Remuneration Report comprises a number of sections:
Implementation of Remuneration Policy
page 89
Payments to past directors
Single total figure of remuneration
page 90
Payments for loss of office
Total remuneration opportunity
page 92
Performance and CEO remuneration comparison
Executive directors’ external appointments
page 93
Change in remuneration of Chief Executive
Pension entitlements
page 93
Relative importance of spend on pay
Directors’ shareholding and share interests
page 94
Dilution of share capital by employee share plans
Scheme interests awarded during the financial year
page 96
Remuneration Committee
Deferred bonus
page 97
Voting outcomes at General Meetings
Performance targets for outstanding awards
page 97
Service contracts
page 97
page 97
page 97
page 98
page 98
page 99
page 99
page 99
page 100
88
Annual Remuneration Report
The Remuneration Committee presents the Annual Remuneration Report, which, together with the Chairman’s introduction on pages 85 to 106,
will be put to shareholders as an advisory (non-binding) vote at the Annual General Meeting to be held on 16 May 2019. Sections which have
been subject to audit are noted accordingly.
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 2018/19 and any significant changes in the way the policy will be
implemented in 2019/20.
Element of remuneration
Base salary
Policy implemented during 2018/19 and changes in 2019/20
The base salary of Lord Wolfson was increased by 2% in February 2019, in line with the wider Company award.
For details about the base salary increases for the other executive directors please refer to page 101. The base
salaries for the executive directors from February 2019 are:
£000
Lord Wolfson
Amanda James
Richard Papp
Jane Shields
2019/20
805
490
475
475
2018/19
789
425
n/a*
425
* Richard was appointed to the Board on 14 May 2018.
No changes to the bonus structure were made. The Committee ensures that a mechanism exists so 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.
For the year to January 2019, performance targets were set requiring pre-tax EPS growth of at least 1.4%
on the prior year, adjusted for special dividends and excluding exceptional gains, before any bonus became
payable (being pre-tax EPS of 518.5p). 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 10.6% (being pre-tax EPS of
565.5p).
Pre-tax EPS growth achieved in the year was 4.2% resulting in EPS of 532.9p. In accordance with the bonus
formula, a bonus of 40% of the maximum was earned which the Committee considered to be appropriate and
approved without adjustment. Lord Wolfson waived part of his entitlement to his annual bonus, see page 98
for details.
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.
No change in 2018/19. 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 in accordance with market practice more generally.
Grants in 2019/20 will be otherwise made on the same basis to the 2018/19 grants (with any changes to the
TSR comparator group considered 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 fees of the Chairman and non-executive directors were increased by 2% in February 2019, in line with the
wider Company award. The Chairman, Michael Roney, will be paid an annual fee of £338,130 (2018/19 annual
fee as Chairman: £331,500). The basic non-executive director fee for 2019/20 is £57,971 (2018/19: £56,834),
with a further £11,594 (2018/19: £11,367) paid to the Chairman of each of the Audit and Remuneration
Committees respectively, and to the Senior Independent Director.
No change.
No change.
No change.
Annual bonus
LTIP
Recovery and withholding
provisions
Chairman and
non-executive director
fees
Pension
Other benefits
Save As You Earn scheme
(Sharesave)
89
Strategic ReportGovernanceFinancial StatementsShareholder Information n
o
ti
a
r
e
n
u
m
e
r
l
a
t
o
T
l
a
t
o
t
b
u
S
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
e
v
a
s
e
r
a
h
S
y
a
p
d
e
t
a
l
e
r
-
e
c
n
a
m
r
o
f
r
e
P
5
P
I
T
L
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
y
8
a
1
/
p
7
1
d
0
2
e
x
9
i
1
F
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
4
s
u
n
o
b
l
a
u
n
n
A
l
a
t
o
t
b
u
S
l
3
t
n
e
m
e
p
p
u
s
y
r
a
l
a
S
2
n
o
i
s
n
e
P
1
s
t
fi
e
n
e
B
s
e
e
f
/
y
r
a
l
a
S
0
0
0
£
)
n
o
i
t
a
m
r
o
f
n
i
d
e
t
i
d
u
a
(
n
o
i
t
a
r
e
n
u
m
e
r
f
o
e
r
u
g
i
f
l
a
t
o
t
e
l
g
n
i
S
n
o
i
t
a
r
e
n
u
m
e
r
’
s
r
o
t
c
e
r
i
D
T
R
O
P
E
R
N
O
I
T
A
R
E
N
U
M
E
R
90
7
3
2
2
3
3
3
5
1
1
,
7
2
3
,
1
5
7
4
1
0
5
a
/
n
5
1
5
4
6
a
/
n
7
6
7
6
6
5
8
9
6
2
9
2
5
6
5
7
5
7
8
6
0
2
3
6
9
6
7
5
5
3
1
3
,
8
4
2
,
4
–
–
–
–
a
/
n
–
–
–
–
–
–
–
–
8
6
2
4
1
2
9
3
1
8
2
2
9
2
2
–
–
–
–
–
8
7
0
,
1
–
–
–
–
a
/
n
–
–
–
–
–
–
–
–
2
1
–
–
1
–
–
–
–
–
4
–
–
–
–
a
/
n
–
–
–
–
–
–
–
–
3
4
5
5
8
5
8
5
8
0
1
–
–
–
–
–
2
2
3
–
–
–
–
a
/
n
–
–
–
–
–
–
–
–
7
3
2
2
3
3
–
–
–
–
–
8
5
1
0
7
1
4
8
0
7
1
0
7
1
–
–
–
–
–
5
7
4
1
0
5
a
/
n
5
1
5
4
6
a
/
n
7
6
7
6
6
5
4
8
4
3
5
1
7
3
3
8
2
5
8
6
0
2
3
6
9
6
7
5
3
5
1
1
,
9
5
0
,
1
6
1
1
4
1
2
6
a
/
n
2
6
–
–
–
–
–
6
1
9
1
5
1
4
6
–
–
–
–
–
7
–
a
/
n
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
8
1
1
5
2
2
8
0
1
9
3
8
3
3
2
a
/
n
7
3
–
–
–
–
–
–
4
4
8
3
7
6
1
9
3
–
–
–
–
–
7
3
2
2
3
3
3
7
7
6
1
4
6
1
4
a
/
n
6
1
4
4
6
a
/
n
7
6
7
6
6
5
9
8
7
5
2
4
7
2
1
6
0
3
5
2
4
8
6
0
2
3
6
9
6
7
5
2
5
7
5
3
1
3
,
0
7
1
,
3
4
5
2
2
3
2
2
3
2
3
1
1
7
3
1
4
4
1
2
1
5
2
,
1
8
6
,
2
s
r
o
t
c
e
r
i
d
e
v
ti
u
c
e
x
E
s
e
m
a
J
a
d
n
a
m
A
8
,
2
w
a
L
l
e
a
h
c
i
M
3
p
p
a
P
d
r
a
h
c
i
R
n
o
s
f
l
o
W
d
r
o
L
1
y
e
n
o
R
l
e
a
h
c
i
M
n
a
m
r
i
a
h
C
l
i
8
s
d
e
h
S
e
n
a
J
s
r
o
t
c
e
r
i
d
e
v
ti
u
c
e
x
e
-
n
o
N
4
s
e
w
e
B
n
a
h
t
a
n
o
J
5
n
o
s
i
r
r
a
H
a
ti
s
i
r
T
6
l
l
a
d
o
o
G
e
n
i
l
o
r
a
C
l
7
y
a
w
a
S
s
i
c
n
a
r
F
i
e
n
n
a
D
e
m
a
D
n
o
s
p
m
o
h
T
l
a
u
n
n
a
n
a
d
a
p
s
a
w
i
l
e
a
h
c
i
.
M
7
1
0
2
t
s
u
g
u
A
1
n
o
d
e
r
i
t
e
r
e
h
n
e
h
w
n
a
m
r
i
a
h
C
s
a
n
o
t
r
a
B
n
h
o
J
d
e
d
e
e
c
c
u
s
l
e
a
h
c
i
.
M
7
1
0
2
y
r
a
u
r
b
e
F
4
1
m
o
r
f
t
c
e
f
f
e
h
t
i
w
e
t
a
n
g
i
s
e
D
n
a
m
r
i
a
h
C
d
n
a
n
a
m
r
i
a
h
C
y
t
u
p
e
D
,
r
o
t
c
e
r
i
d
e
v
i
t
u
c
e
x
e
-
n
o
n
t
n
e
d
n
e
p
e
d
n
i
i
n
a
s
a
d
e
t
n
o
p
p
a
s
a
w
y
e
n
o
R
l
e
a
h
c
i
M
e
h
l
i
t
n
u
p
u
d
o
i
r
e
p
e
h
t
o
t
l
l
s
e
t
a
e
r
y
a
p
d
e
t
a
e
r
-
e
c
n
a
m
r
o
f
r
e
p
e
h
T
.
i
d
r
a
o
B
e
h
t
n
o
d
e
n
a
m
e
r
e
h
d
o
i
r
e
p
e
h
t
r
o
f
y
l
n
o
n
o
i
t
a
r
e
n
u
m
e
r
d
e
x
i
f
s
i
h
s
w
o
h
s
e
b
a
t
e
h
T
.
l
8
1
0
2
y
l
u
J
7
2
n
o
s
s
e
n
i
s
u
b
e
h
t
m
o
r
f
d
e
r
i
t
e
r
d
n
a
8
1
0
2
y
a
M
7
1
n
o
d
r
a
o
B
e
h
t
m
o
r
f
n
w
o
d
d
e
p
p
e
t
s
w
a
L
l
e
a
h
c
i
M
,
.
0
0
0
5
2
3
£
f
o
e
e
f
l
i
a
u
n
n
a
n
a
d
a
p
s
a
w
e
h
r
e
t
f
a
e
r
e
h
t
,
7
1
0
2
y
l
u
J
1
3
l
i
t
n
u
p
u
0
0
5
2
6
1
£
f
o
e
e
f
,
.
i
i
m
h
o
t
d
a
p
s
a
w
e
c
i
f
f
o
f
o
s
s
o
l
r
o
f
n
o
i
t
a
s
n
e
p
m
o
c
o
N
.
s
s
e
n
i
s
u
b
e
h
t
m
o
r
f
d
e
r
i
t
e
r
e
h
e
r
o
f
e
b
d
o
i
r
e
p
e
h
t
o
t
g
n
i
t
a
e
r
y
a
p
s
e
d
u
l
c
n
l
i
n
o
i
t
a
r
e
n
u
m
e
r
d
e
t
a
e
r
-
e
c
n
a
m
r
o
f
r
e
P
l
i
.
r
a
e
y
e
h
t
g
n
i
r
u
d
p
h
s
r
o
t
c
e
r
i
d
e
v
i
t
u
c
e
x
e
s
i
h
f
o
d
o
i
r
e
p
e
h
t
o
t
y
l
n
o
e
t
a
e
r
n
o
i
s
n
e
p
d
n
a
s
t
i
f
e
n
e
b
l
l
,
y
r
a
a
s
9
1
/
8
1
0
2
r
o
f
d
e
s
o
l
c
s
i
d
s
e
u
a
V
l
.
8
1
0
2
y
a
M
4
1
n
o
d
r
a
o
B
e
h
t
d
e
n
o
i
j
p
p
a
P
d
r
a
h
c
i
R
i
i
.
t
n
e
m
t
n
o
p
p
a
s
i
h
r
e
t
f
a
d
a
p
t
u
b
r
o
t
c
e
r
i
d
e
v
i
t
u
c
e
x
e
n
a
e
m
a
c
e
b
.
r
e
b
r
a
B
e
v
e
t
S
f
o
d
r
a
o
B
e
h
t
m
o
r
f
t
n
e
m
e
r
i
t
e
r
e
h
t
g
n
w
o
i
l
l
o
f
,
7
1
0
2
y
a
M
8
1
n
o
e
e
t
t
i
m
m
o
C
t
i
d
u
A
e
h
t
f
o
n
a
m
r
i
a
h
C
e
m
a
c
e
b
d
n
a
6
1
0
2
r
e
b
o
t
c
O
n
i
d
r
a
o
B
e
h
t
d
e
n
o
i
j
s
e
w
e
B
n
a
h
t
a
n
o
J
e
h
t
l
f
o
e
o
h
w
e
h
t
r
o
f
e
m
e
h
c
s
a
f
o
r
e
b
m
e
m
d
e
r
r
e
f
e
d
a
s
a
w
r
o
t
c
e
r
i
d
e
h
t
f
i
d
e
r
i
u
q
e
r
t
o
n
e
r
a
s
e
m
e
h
c
s
n
o
i
s
n
e
p
t
i
f
e
n
e
b
d
e
n
i
f
e
d
g
n
d
r
a
g
e
r
i
s
e
r
u
s
o
l
c
s
i
d
’
s
r
o
t
c
e
r
i
d
t
a
h
t
d
e
t
h
g
i
l
i
h
g
h
y
e
h
T
.
e
m
e
h
c
s
n
o
i
s
n
e
p
e
h
t
r
o
f
y
r
a
u
t
c
A
w
e
n
a
d
e
t
n
o
p
p
a
y
n
a
p
m
o
C
e
h
t
i
r
a
e
y
e
h
t
g
n
i
r
u
D
.
l
l
a
d
o
o
G
e
n
i
l
o
r
a
C
f
o
d
r
a
o
B
e
h
t
m
o
r
f
t
n
e
m
e
r
i
t
e
r
e
h
t
g
n
w
o
i
l
l
o
f
,
9
1
0
2
y
r
a
u
n
a
J
n
i
e
e
t
t
i
m
m
o
C
n
o
i
t
a
r
e
n
u
m
e
R
e
h
t
f
o
n
a
m
r
i
a
h
C
e
m
a
c
e
b
y
a
w
a
S
s
i
c
n
a
r
F
l
i
.
r
e
h
o
t
d
a
p
s
a
w
e
c
i
f
f
o
f
o
s
s
o
l
r
o
f
n
o
i
t
a
s
n
e
p
m
o
c
o
N
.
9
1
0
2
y
r
a
u
n
a
J
1
n
o
d
r
a
o
B
e
h
t
m
o
r
f
n
w
o
d
d
e
p
p
e
t
s
l
l
a
d
o
o
G
e
n
i
l
o
r
a
C
.
8
1
0
2
r
e
b
m
e
t
p
e
S
5
2
n
o
d
r
a
o
B
e
h
t
d
e
n
o
i
j
n
o
s
i
r
r
a
H
a
i
t
s
i
r
T
1
2
3
4
5
6
7
8
p
u
o
r
G
T
X
E
N
3
1
0
2
e
h
t
f
o
s
r
e
b
m
e
m
d
e
r
r
e
f
e
d
e
r
e
w
s
d
e
h
S
e
n
a
J
d
n
a
w
a
L
l
i
l
e
a
h
c
i
M
.
l
e
v
e
l
y
r
o
t
u
t
a
t
s
e
h
t
t
a
s
i
n
o
i
s
n
e
p
d
e
r
r
e
f
e
d
e
h
t
n
o
n
o
i
t
a
u
a
v
e
r
f
i
l
d
n
a
)
r
a
e
y
e
h
t
g
n
i
r
u
d
t
n
e
m
e
r
i
t
e
r
k
o
o
t
n
e
h
t
d
n
a
r
e
n
o
i
s
n
e
p
d
e
r
r
e
f
e
d
a
s
a
r
a
e
y
e
h
t
f
f
o
d
e
t
r
a
t
s
y
e
h
t
f
i
r
o
(
n
o
i
t
s
e
u
q
n
i
r
a
e
y
.
o
r
e
z
o
t
d
e
t
a
t
s
e
r
n
e
e
b
e
v
a
h
s
r
o
t
c
e
r
i
d
o
w
t
e
s
e
h
t
r
o
f
l
s
e
u
a
v
n
o
i
s
n
e
p
8
1
/
7
1
0
2
e
h
T
.
8
1
/
7
1
0
2
g
n
i
r
u
d
o
s
l
a
d
n
a
r
a
e
y
9
1
/
8
1
0
2
e
h
t
g
n
i
r
u
d
n
a
P
n
o
i
s
n
e
P
l
,
,
,
.
)
0
0
0
9
5
0
3
£
:
8
1
0
2
(
0
0
0
9
0
8
3
£
e
r
e
w
9
1
0
2
y
r
a
u
n
a
J
o
t
,
r
a
e
y
e
h
t
r
o
f
)
s
u
n
o
b
l
a
u
n
n
a
d
n
a
s
t
n
e
m
e
p
p
u
s
y
r
a
a
s
,
s
t
i
f
e
n
e
b
l
l
,
s
e
e
f
/
y
r
a
a
s
(
l
i
s
r
o
t
c
e
r
i
d
o
t
d
a
p
s
t
n
e
m
u
o
m
e
l
l
a
t
o
T
e
m
a
c
e
b
s
r
o
t
c
e
r
i
d
e
h
t
r
e
t
f
a
n
o
i
s
i
v
o
r
p
n
o
i
s
n
e
p
f
o
u
e
i
l
n
i
i
d
a
p
e
r
a
y
r
a
a
s
l
e
s
a
b
f
o
%
5
1
f
o
s
t
n
e
m
e
p
p
u
S
l
d
e
v
i
e
c
e
r
l
s
a
h
s
d
e
h
S
e
n
a
J
i
.
l
n
a
P
n
o
i
s
n
e
P
p
u
o
r
G
T
X
E
N
3
1
0
2
e
h
t
f
o
n
o
i
t
c
e
s
B
D
e
h
t
f
o
s
r
e
b
m
e
m
d
e
r
r
e
f
e
d
d
e
r
r
e
f
e
d
a
s
i
p
p
a
P
d
r
a
h
c
i
R
.
2
1
0
2
m
o
r
f
n
o
s
f
l
o
W
d
r
o
L
d
n
a
w
a
L
l
e
a
h
c
i
M
d
n
a
,
1
1
0
2
m
o
r
f
l
t
n
e
m
e
p
p
u
s
s
i
h
t
l
d
n
a
n
a
P
n
o
i
s
n
e
P
p
u
o
r
G
T
X
E
N
3
1
0
2
e
h
t
f
o
s
n
o
i
t
c
e
s
n
o
i
t
u
b
i
r
t
n
o
c
d
n
a
t
i
f
e
n
e
b
d
e
n
i
f
e
d
e
h
t
f
o
r
e
b
m
e
m
.
s
e
m
a
J
a
d
n
a
m
A
g
n
d
r
a
g
e
r
n
o
i
t
a
m
r
o
f
n
i
l
i
r
o
f
e
v
o
b
a
2
e
t
o
N
e
e
S
.
y
r
a
a
s
e
s
a
b
f
o
%
5
f
o
t
n
e
m
e
p
p
u
s
a
s
e
v
i
e
c
e
r
l
s
u
n
o
b
l
a
u
n
n
A
:
4
e
t
o
N
y
r
a
u
n
a
J
o
t
r
a
e
y
e
h
t
r
o
F
.
9
8
e
g
a
p
n
o
t
u
o
t
e
s
e
r
a
s
u
n
o
b
l
a
u
n
n
a
e
h
t
r
o
f
s
t
e
g
r
a
t
e
c
n
a
m
r
o
f
r
e
p
e
h
t
f
o
s
l
i
a
t
e
D
n
o
s
f
l
o
W
d
r
o
L
.
d
e
n
r
a
e
s
a
w
m
u
m
i
x
a
m
e
h
t
f
o
%
0
4
f
o
s
u
n
o
b
a
,
a
u
m
r
o
f
s
u
n
o
b
e
h
t
h
t
i
l
w
e
c
n
a
d
r
o
c
c
a
n
i
,
9
1
0
2
.
s
l
i
a
t
e
d
r
o
f
8
9
e
g
a
p
e
e
s
,
s
u
n
o
b
l
a
u
n
n
a
s
i
h
f
o
e
m
o
s
o
t
t
n
e
m
e
l
t
i
t
n
e
s
i
h
d
e
v
i
a
w
l
a
t
o
T
e
c
n
a
w
o
l
l
a
l
e
u
F
e
c
n
a
w
o
l
l
a
h
s
a
c
&
e
c
n
a
r
u
s
n
i
l
a
c
i
d
e
M
i
g
n
h
t
o
l
c
T
X
E
N
/
s
e
g
r
a
h
c
r
u
e
f
f
u
a
h
c
/
r
a
C
9
3
8
3
3
2
a
/
n
7
3
4
4
8
3
7
6
1
9
3
3
3
3
3
a
/
n
3
2
1
2
3
2
8
-
7
a
/
n
3
8
-
-
8
0
0
0
£
0
0
0
£
0
0
0
£
0
0
0
£
0
0
0
£
0
0
0
£
0
0
0
£
4
3
7
2
0
2
a
/
n
7
2
8
3
8
2
6
4
1
8
2
0
0
0
£
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
8
1
/
7
1
0
2
9
1
/
8
1
0
2
s
e
m
a
J
a
d
n
a
m
A
n
o
s
f
l
o
W
d
r
o
L
w
a
L
l
e
a
h
c
i
M
p
p
a
P
d
r
a
h
c
i
R
l
i
s
d
e
h
S
e
n
a
J
n
o
i
s
n
e
p
f
o
u
e
i
l
n
i
t
n
e
m
e
l
p
p
u
s
y
r
a
l
a
S
:
3
e
t
o
N
s
t
i
f
e
n
e
B
:
1
e
t
o
N
%
0
0
1
f
o
s
s
e
c
x
e
n
i
s
u
n
o
b
l
a
u
n
n
a
y
n
a
,
e
v
i
t
u
c
e
x
E
f
e
h
C
e
h
t
i
f
o
e
s
a
c
e
h
t
n
i
l
t
n
e
m
e
e
n
o
i
t
n
e
t
e
r
a
e
d
i
v
o
r
p
o
T
e
h
f
i
e
r
u
t
i
e
f
r
o
f
o
t
j
t
c
e
b
u
s
d
n
a
s
r
a
e
y
o
w
t
f
o
d
o
i
r
e
p
a
r
o
f
d
e
r
r
e
f
e
d
,
s
e
r
a
h
s
n
i
l
e
b
a
y
a
p
s
i
y
r
a
a
s
l
e
s
a
b
f
o
.
d
o
i
r
e
p
t
a
h
t
f
o
d
n
e
e
h
t
o
t
r
o
i
r
p
s
n
g
i
s
e
r
y
l
i
r
a
t
n
u
o
v
l
T
X
E
N
3
1
0
2
e
h
t
f
o
n
o
i
t
c
e
s
t
i
f
e
n
e
b
d
e
n
i
f
e
d
e
h
t
r
e
d
n
u
e
c
i
v
r
e
s
l
e
b
a
n
o
i
s
n
e
p
i
g
n
u
r
c
c
a
s
i
n
o
s
f
l
o
W
d
r
o
L
n
o
i
s
n
e
P
:
2
e
t
o
N
.
3
0
1
e
g
a
p
n
o
t
u
o
t
e
s
e
r
a
P
I
T
L
e
h
t
r
o
f
s
t
e
g
r
a
t
e
c
n
a
m
r
o
f
r
e
P
t
a
d
e
u
r
c
c
a
n
o
i
s
n
e
p
l
a
t
o
t
e
h
t
.
e
.
i
l
,
s
n
o
i
t
a
u
g
e
r
n
o
i
t
a
r
e
n
u
m
e
r
y
b
d
e
r
i
u
q
e
r
d
o
h
t
e
m
e
h
t
g
n
i
s
u
d
e
t
a
u
c
l
a
c
l
d
n
a
n
o
i
t
a
l
f
n
i
j
r
o
f
d
e
t
s
u
d
a
,
r
a
e
y
s
u
o
i
v
e
r
p
e
h
t
f
o
d
n
e
e
h
t
t
a
d
e
u
r
c
c
a
n
o
i
s
n
e
p
l
a
t
o
t
e
h
t
s
s
e
l
9
1
0
2
y
r
a
u
n
a
J
P
I
T
L
:
5
e
t
o
N
e
r
a
e
v
o
b
a
l
s
e
u
a
v
n
o
i
s
n
e
p
)
B
D
(
t
i
f
e
n
e
b
d
e
n
i
f
e
D
.
)
s
l
i
a
t
e
d
r
e
h
t
r
u
f
r
o
f
3
9
l
e
g
a
p
e
e
s
(
n
a
P
n
o
i
s
n
e
P
p
u
o
r
G
1
2
f
o
p
u
o
r
g
r
o
t
a
r
a
p
m
o
c
e
h
t
n
i
1
1
r
e
b
m
u
n
d
e
k
n
a
r
R
S
T
s
’
T
X
E
N
,
8
1
0
2
y
l
u
J
o
t
d
o
i
r
e
p
r
a
e
y
e
e
r
h
t
e
h
t
r
o
F
t
n
e
s
e
r
p
e
r
y
l
i
r
a
s
s
e
c
e
n
t
o
n
s
e
o
d
t
I
.
n
o
i
t
u
b
i
r
t
n
o
c
n
w
o
s
’
r
o
t
c
e
r
i
d
e
h
t
s
s
e
l
,
0
2
f
o
r
o
t
c
a
f
a
y
b
d
e
i
l
p
i
t
l
u
m
e
h
t
d
e
w
e
i
v
e
r
e
e
t
t
i
m
m
o
C
e
h
T
.
g
n
i
t
s
e
v
5
1
0
2
f
o
f
l
a
h
d
n
o
c
e
s
e
h
t
n
i
e
d
a
m
t
n
a
r
g
e
h
t
f
o
%
0
2
n
i
g
n
i
t
l
u
s
e
r
c
i
m
o
n
o
c
e
‘
e
h
t
(
s
n
o
i
t
i
d
n
o
c
r
e
h
t
o
d
n
a
c
i
m
o
n
o
c
e
g
n
i
y
l
r
e
d
n
u
t
s
n
a
g
a
i
e
c
n
a
m
r
o
f
r
e
p
l
a
i
c
n
a
n
i
f
s
’
y
n
a
p
m
o
C
e
h
t
o
t
e
b
a
l
l
i
a
v
a
y
l
e
t
a
d
e
m
m
i
i
t
o
n
s
i
t
i
f
e
n
e
b
s
i
h
t
d
n
a
d
e
u
r
c
c
a
s
t
h
g
i
r
n
o
i
s
n
e
p
e
h
t
l
f
o
e
u
a
v
c
i
m
o
n
o
c
e
e
h
t
l
B
D
r
o
f
n
e
z
o
r
f
s
a
w
y
r
a
a
s
s
’
n
o
s
f
l
o
W
d
r
o
L
,
s
n
a
p
e
h
t
n
l
i
g
n
i
t
a
p
i
c
i
t
r
a
p
f
f
a
t
s
r
e
h
t
o
h
t
i
w
t
n
e
t
s
i
s
n
o
C
.
r
o
t
c
e
r
i
d
d
n
u
o
p
m
o
c
s
’
y
n
a
p
m
o
C
e
h
t
,
s
r
e
l
i
a
t
e
r
r
o
f
d
o
i
r
e
p
g
n
g
n
e
i
l
l
a
h
c
y
r
e
v
s
i
h
t
g
n
i
r
u
d
,
t
a
h
t
d
e
t
o
n
d
n
a
)
’
n
p
r
e
d
n
u
i
.
e
c
i
v
r
e
s
e
u
r
c
c
a
o
t
s
e
u
n
i
t
n
o
c
e
h
h
g
u
o
h
t
l
a
2
1
0
2
r
e
b
o
t
c
O
t
a
s
e
s
o
p
r
u
p
n
o
i
s
n
e
p
f
o
s
r
a
e
y
3
e
h
t
r
e
v
o
n
o
i
t
c
u
d
e
r
a
h
t
i
w
l
l
l
e
w
y
l
e
v
i
t
a
e
r
p
u
d
e
h
d
a
h
S
P
E
l
g
n
i
y
l
r
e
d
n
u
c
i
s
a
b
l
a
u
n
n
a
e
g
a
r
e
v
a
%
1
1
.
y
b
n
w
o
r
g
d
a
h
s
d
n
e
d
i
v
i
d
y
r
a
n
d
r
O
i
.
%
3
3
-
.
y
b
d
e
c
u
d
e
r
d
a
h
t
i
f
o
r
p
g
n
i
y
l
r
e
d
n
u
x
a
t
-
e
r
p
d
n
a
%
6
0
-
.
d
n
a
s
k
c
a
b
y
u
b
a
i
v
l
s
r
e
d
o
h
e
r
a
h
s
o
t
d
e
n
r
u
t
e
r
o
s
l
a
s
a
w
n
b
2
1
£
.
e
m
o
s
d
n
a
d
o
i
r
e
p
r
a
e
y
e
e
r
h
t
e
h
t
r
e
v
o
y
l
b
a
r
u
o
v
a
f
d
e
r
a
p
m
o
c
o
s
l
a
e
c
n
a
m
r
o
f
r
e
p
s
’
y
n
a
p
m
o
C
e
h
T
.
w
o
l
f
h
s
a
c
l
s
u
p
r
u
s
m
o
r
f
s
d
n
e
d
i
v
i
d
l
a
i
c
e
p
s
c
i
m
o
n
o
c
e
e
h
t
g
n
i
r
e
d
i
s
n
o
c
r
e
t
f
a
,
d
e
d
u
l
c
n
o
c
e
e
t
t
i
m
m
o
C
e
h
T
.
s
r
o
t
i
t
e
p
m
o
c
l
i
a
t
e
r
l
a
p
i
c
n
i
r
p
s
t
i
i
t
s
n
a
g
a
g
n
i
t
s
e
v
h
c
u
s
d
e
w
o
l
l
a
d
n
a
e
t
a
i
r
p
o
r
p
p
a
s
a
w
g
n
i
t
s
e
v
f
o
l
e
v
e
l
l
c
i
a
u
m
r
o
f
e
v
i
t
a
c
i
d
n
i
e
h
t
t
a
h
t
i
,
t
s
e
t
n
p
r
e
d
n
u
.
t
n
e
m
j
t
s
u
d
a
t
u
o
h
t
i
w
T
X
E
N
3
1
0
2
e
h
t
f
o
n
o
i
t
c
e
s
B
D
e
h
t
f
o
r
e
b
m
e
m
a
s
a
n
o
s
f
l
o
W
d
r
o
L
f
o
t
n
e
m
e
l
t
i
t
n
e
n
o
i
s
n
e
p
e
h
t
,
y
r
a
m
m
u
s
n
I
:
s
w
o
l
l
o
f
s
a
s
i
r
a
e
y
e
h
t
g
n
i
r
u
d
n
a
P
n
o
i
s
n
e
P
p
u
o
r
G
l
7
0
0
0
£
n
o
i
s
n
e
p
l
a
u
n
n
a
n
o
i
t
a
l
f
n
i
f
o
t
e
n
d
e
u
r
c
c
a
n
i
e
g
n
a
h
C
d
e
u
r
c
c
a
n
i
e
g
n
a
h
C
l
a
u
n
n
a
d
e
u
r
c
c
A
f
o
s
r
a
e
Y
n
o
i
s
n
e
p
l
a
u
n
n
a
n
o
i
s
n
e
p
l
e
b
a
n
o
i
s
n
e
p
t
a
e
g
A
7
1
0
0
0
£
0
0
0
£
4
0
4
4
2
e
c
i
v
r
e
s
1
5
9
1
0
2
y
r
a
u
n
a
J
n
o
s
f
l
o
W
d
r
o
L
f
o
p
u
o
r
g
r
o
t
a
r
a
p
m
o
c
e
h
t
n
i
2
1
r
e
b
m
u
n
d
e
k
n
a
r
R
S
T
s
’
T
X
E
N
,
9
1
0
2
y
r
a
u
n
a
J
o
t
d
o
i
r
e
p
r
a
e
y
e
e
r
h
t
e
h
t
r
o
F
.
d
e
t
s
e
v
6
1
0
2
y
r
a
u
n
a
J
n
i
d
e
t
n
a
r
g
d
r
a
w
a
e
h
t
f
o
e
n
o
n
e
r
o
f
e
r
e
h
t
d
n
a
1
2
l
n
o
s
e
e
y
o
p
m
e
r
e
h
t
o
s
a
n
o
i
t
c
u
d
e
r
l
a
i
r
a
u
t
c
a
e
m
a
s
e
h
t
o
t
j
t
c
e
b
u
s
e
r
a
s
t
n
e
m
e
g
n
a
r
r
a
n
o
i
s
n
e
p
’
s
r
o
t
c
e
r
i
D
.
l
n
a
P
n
o
i
s
n
e
P
p
u
o
r
G
T
X
E
N
3
1
0
2
e
h
t
f
o
n
o
i
t
c
e
s
n
o
i
t
u
b
i
r
t
n
o
c
d
e
n
i
f
e
d
e
h
t
f
o
r
e
b
m
e
m
a
s
i
s
e
m
a
J
a
d
n
a
m
A
.
t
n
e
m
e
r
i
t
e
r
y
l
r
a
e
r
o
n
o
i
t
a
n
m
r
e
t
i
i
l
l
n
a
p
n
o
i
s
n
e
p
r
e
h
o
t
n
y
r
a
a
s
r
e
h
f
o
%
5
o
t
l
a
u
q
e
n
o
i
t
u
b
i
r
t
n
o
c
a
e
d
a
m
a
d
n
a
m
A
r
a
e
y
e
h
t
f
o
s
h
t
n
o
m
e
e
r
h
t
r
o
F
e
h
t
i
f
o
r
e
d
n
a
m
e
r
e
h
t
r
o
F
.
)
r
a
e
y
t
a
h
t
f
o
s
h
t
n
o
m
r
u
o
f
r
o
f
:
8
1
/
7
1
0
2
(
y
n
a
p
m
o
C
e
h
t
y
b
d
e
h
c
t
a
m
s
a
w
h
c
i
h
w
s
n
o
i
t
u
b
i
r
t
n
o
c
f
o
t
n
u
o
m
a
l
a
t
o
t
e
h
t
.
e
.
i
(
t
i
m
i
l
e
c
n
a
w
o
l
l
a
n
o
i
s
n
e
p
l
a
u
n
n
a
e
h
t
d
e
h
c
a
e
r
d
a
h
a
d
n
a
m
A
s
a
,
r
a
e
y
n
a
c
t
a
h
t
s
t
i
f
e
n
e
b
f
o
t
n
u
o
m
a
l
a
t
o
t
e
h
t
d
n
a
s
e
m
e
h
c
s
n
o
i
s
n
e
p
n
o
i
t
u
b
i
r
t
n
o
c
d
e
n
i
f
e
d
o
t
d
a
p
e
b
n
a
c
i
t
a
h
t
d
e
t
p
o
e
h
s
,
)
s
e
s
o
p
r
u
p
f
e
i
l
e
r
x
a
t
e
m
o
c
n
i
K
U
r
o
f
,
r
a
e
y
h
c
a
e
s
e
m
e
h
c
s
n
o
i
s
n
e
p
t
i
f
e
n
e
b
d
e
n
i
f
e
d
n
i
p
u
d
l
i
u
b
h
t
i
w
t
n
e
t
s
i
s
n
o
c
s
i
s
i
h
T
.
n
o
i
t
u
b
i
r
t
n
o
c
y
n
a
p
m
o
C
s
i
h
t
f
o
u
e
i
l
n
i
l
t
n
e
m
e
p
p
u
s
h
s
a
c
t
n
e
a
v
i
u
q
e
n
a
e
v
i
e
c
e
r
o
t
l
s
r
e
b
m
e
m
r
e
h
t
o
o
t
e
b
a
l
l
i
a
v
a
s
e
v
i
t
a
n
r
e
t
l
a
d
n
a
n
o
i
s
i
v
o
r
p
n
o
i
s
n
e
p
e
h
t
h
t
i
w
d
n
a
y
c
i
l
o
P
n
o
i
t
a
r
e
n
u
m
e
R
e
h
t
.
n
o
i
t
c
e
s
n
o
i
t
u
b
i
r
t
n
o
c
d
e
n
i
f
e
d
e
h
t
f
o
91
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 equivalently sized FTSE 100 companies and the maximum remuneration indicated in
the charts below reflects the Committee’s conservative approach to executive pay which it considers is appropriate.
The charts below indicate the level of remuneration that could be received by each director in accordance with the directors’ Remuneration
Policy at different levels of performance.
Lord Wolfson (Chief Executive)
Fixed
100%
Total £1,077k
Fixed pay
Annual bonus
LTIP (multiple period)
Additional LTIP 50% increase in
Share Price
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
54%
28%
23%
30%
16%
Total £2,003k
31%
26%
41%
34%
Total £3,894k
17%
Total £4,699k
0
1,000
2,000
AMOUNT £000
3,000
4,000
5,000
Amanda James (Group Finance Director)
Fixed
100%
Total £553k
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
56%
27%
23%
24%
20%
Total £994k
24%
19%
0
500
1,000
AMOUNT £000
49%
39%
1,500
Total £2,023k
19%
Total £2,513k
2,000
2,500
Jane Shields (Group Sales and Marketing Director)
Fixed
100%
Total £585k
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
58%
29%
24%
23%
19%
Total £1,013k
24%
19%
47%
38%
Total £2,010k
19%
Total £2,485k
0
500
1,000
AMOUNT £000
1,500
2,000
2,500
Richard Papp (Group Merchandise and Operations Director)
Fixed
100%
Total £522k
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
55%
27%
21%
25%
20%
Total £949k
24%
20%
0
500
1,000
AMOUNT £000
49%
39%
1,500
Total £1,947k
20%
Total £2,422k
2,000
2,500
92
In the above charts, the following assumptions have been made:
Fixed/minimum
Base salaries and salary supplement values as at 2019/20, pension and benefits values as shown in 2018/19 single
figure of remuneration.
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 50% across the relevant
performance period to reflect possible share price appreciation. Consistent with the new regulations, this does
not separately include the impact of dividend accrual.
Maximum inc. 50%
growth in share
price across relevant
performance period
Executive directors’ external appointments
No current executive director holds any non-executive directorships outside the Group.
Pension entitlements (audited information)
Executive directors are members of the 2013 Plan which has been approved by HMRC and consists of defined benefit and defined contribution
sections. Lord Wolfson is an active member and Jane Shields, Michael Law and Richard Papp are deferred members of the defined benefit
section. Amanda James is an active member and Richard Papp is a deferred member of the defined contribution section. Further information on
the Group’s pension arrangements is given in Note 19 of the financial statements.
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
defined benefit pensions for Jane Shields, Michael Law and Richard Papp 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, while the Company makes contributions at the rate of 31.3%. 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).
93
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:
Lord Wolfson
Jonathan Bewes
Caroline Goodall4
Tristia Harrison
Amanda James
Michael Law5
Richard Papp
Michael Roney
Francis Salway
Jane Shields
Dame Dianne Thompson
Ordinary shares
Deferred Bonus
Shares1
LTIP2
Sharesave3
2019
1,528,639
1,750
450
nil
18,772
30,209
28,627
38,275
9,040
59,769
nil
2018
1,527,204
1,750
450
n/a
18,076
29,648
n/a
24,079
9,040
58,894
nil
2019
–
–
–
–
–
–
–
–
–
–
–
2018
–
–
–
–
–
–
–
–
–
–
–
2019
91,316
–
–
–
47,426
–
49,137
–
–
49,137
–
2018
81,968
–
–
–
39,522
44,108
n/a
–
–
44,108
–
2019
344
–
–
–
357
–
392
–
–
352
–
2018
364
–
–
–
372
163
n/a
–
–
369
–
1.
Full details of the basis of allocation and terms of the deferred bonus are set out on page 102.
2. The LTIP amounts above are the maximum potential awards that may vest subject to performance conditions described on page 103.
3. Executive directors can participate in the Company’s Sharesave scheme (see details on page 104) and the amounts above are the options which will become exercisable at maturity.
4. Caroline Goodall stepped down from the Board in January 2019.
5. Michael Law stepped down from the Board in May 2018.
Amanda James purchased a further 1,013 shares on 8 February 2019. There have been no other changes to the directors’ interests in the shares
of the Company from the end of the financial year to 20 March 2019. 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 five years from the date of their
appointment to the Board to acquire the minimum shareholding. As at the 2018/19 financial year end, the value of shareholdings of all of the
executives were as follows:
Lord Wolfson
Amanda James
Richard Papp
Jane Shields
Date of appointment
to Board
February 1997
April 2015
May 2018
July 2013
Shareholding
% of base salary as at
Feb 2019
9,071%
183%1
262%
445%
Shareholding
guidelines achieved
100%
92%1
100%
100%
1. At January 2018 Amanda James had achieved the minimum shareholding, however based on her increased February 2019 salary, her shareholding had fallen to 92% of the
shareholding guidelines. During February 2019, Amanda purchased a further 1,013 shares. When valued as at March 2019, her shareholding exceeds the shareholding guidelines.
94
The table below shows share awards held by directors and movements during the year:
Lord Wolfson
LTIP
Sharesave
Amanda James
LTIP
Sharesave
Michael Law4
LTIP
Date of award
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Oct 2013
Oct 2018
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Oct 2013
Oct 2016
Oct 2018
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Sharesave
Oct 2014
Richard Papp
LTIP
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Sharesave
Oct 2016
Maximum
receivable
at start of
financial
year
11,263
10,106
10,3602
14,790
16,552
18,897
–
–
81,968
364
–
364
4,545
4,079
4,8702
6,952
8,907
10,169
–
–
39,522
264
108
–
372
6,061
5,438
5,5752
7,958
8,907
10,169
44,108
163
6,061
5,438
5,5752
7,958
8,907
10,169
–
–
44,108
392
Awarded
during the
year
Shares
vested/
exercised in
the year
–
–
–
–
–
–
17,245
13,472
–
2,0212
–
–
–
–
–
–
Options
lapsed
11,263
8,0852
–
–
–
–
–
–
–
344
364
–
–
–
–
–
–
–
–
–
9,279
7,249
–
–
249
–
8162
–
–
–
–
–
–
264
–
–
4,545
3,2632
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,0272
–
–
–
–
6,061
4,4112
5,575
7,958
8,907
10,169
–
163
–
–
10,360
14,790
16,552
18,897
17,245
13,472
91,316
–
344
344
–
–
4,870
6,952
8,907
10,169
9,279
7,249
47,426
–
108
249
357
–
–
–
–
–
–
–
–
Maximum
receivable
at end of
financial
year
Market
price at
award date
£
Option
price
£
66.66
74.29
73.92
51.78
46.73
40.93
45.753
58.563
nil
nil
nil
nil
nil
nil
nil
nil
Market
price on
date of
vesting/
exercise
£
–
53.32
–
–
–
–
–
–
Vesting date/
exercisable dates1
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
–
–
41.12
43.48
45.75 Dec 2018 – Jun 2019
– Dec 2023 – Jun 2024
66.66
74.29
73.92
51.78
46.73
40.93
45.753
58.563
nil
nil
nil
nil
nil
nil
nil
nil
–
53.32
–
–
–
–
–
–
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
–
–
–
41.12
38.25
43.48
48.57 Dec 2018 – Jun 2019
– Dec 2021 – Jun 2022
– Dec 2023 – Jun 2024
66.66
74.29
73.92
51.78
46.73
40.93
nil
nil
nil
nil
nil
nil
–
53.32
–
–
–
–
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
–
54.92
– Dec 2017 – Jun 2018
–
–
–
–
–
–
9,279
7,249
–
1,0882
–
–
–
–
–
–
6,061
4,3502
–
–
–
–
–
–
–
–
–
–
–
5,575
7,958
8,907
10,169
9,279
7,249
49,137
392
66.66
74.29
73.92
51.78
46.73
40.93
45.753
58.563
nil
nil
nil
nil
nil
nil
nil
nil
–
53.32
–
–
–
–
–
–
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
–
38.25
– Dec 2021 – Jun 2022
95
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Jane Shields
LTIP
Sharesave
Maximum
receivable
at start of
financial
year
Awarded
during the
year
Shares
vested/
exercised in
the year
6,061
5,438
5,5752
7,958
8,907
10,169
–
–
44,108
299
70
–
369
–
–
–
–
–
–
9,279
7,249
–
–
282
–
1,0882
–
–
–
–
–
–
299
–
–
Date of award
Mar 2015
Sept 2015
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Oct 2013
Oct 2016
Oct 2018
Options
lapsed
6,061
4,3502
–
–
–
–
–
–
–
–
–
Maximum
receivable
at end of
financial
year
Market
price at
award date
£
Option
price
£
66.66
74.29
73.92
51.78
46.73
40.93
45.753
58.563
nil
nil
nil
nil
nil
nil
nil
nil
–
–
5,575
7,958
8,907
10,169
9,279
7,249
49,137
–
70
282
352
Market
price on
date of
vesting/
exercise
£
–
53.32
–
–
–
–
–
–
Vesting date/
exercisable dates1
Jan 2018
Jul 2018
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
–
–
–
41.12
38.25
43.48
48.57 Dec 2018 – Jun 2019
– Dec 2021 – Jun 2022
– Dec 2023 – Jun 2024
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 91 for details of the performance conditions and vesting levels applicable to the LTIP schemes with performance periods ending in the financial year 2018/19.
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. Michael Law stepped down as Group Operations Director with effect from 17 May 2018. He remained an employee of the Company until 27 July. Michael’s outstanding awards
under the LTIP were treated in accordance with the rules of the Plan and awards made in March and September 2016 and 2017 lapsed on the leaving date. Michael’s other LTIP
award (i.e. made in September 2015) vested on its original vesting date. As a ‘good leaver’, his entitlement was time pro-rated proportionately to his actual period of service.
Michael did not receive any LTIP awards in 2018/19.
5. Within the above table, all awards are subject to performance conditions except for Sharesave options. 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 Sharesave scheme and the LTIP that vested in the 2018/19
year totalled £328,000 (2017/18: £874,000).
Scheme interests awarded during the financial year ended
January 2019 (audited information)
LTIP
Face value
In respect of the LTIP conditional share awards granted during the year 2018/19, 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
Richard Papp
Jane Shields
Mar 2018
£000
789
424
424
424
Sep 2018
£000
789
424
424
424
Total
£000
1,578
848
848
848
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 2018 grant: three years to January 2021.
September 2018 grant: three years to July 2021.
The LTIP performance measures are detailed on page 103. 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
Burberry
Carpetright
Halfords
J Sainsbury
Marks & Spencer
Morrisons
Mothercare
Superdry
Ted Baker
Tesco
Debenhams
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).
W H Smith
JD Sports
N Brown
Dividend roll-up
96
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. The 2018/19 annual
bonus for Lord Wolfson was 20%, so none is payable in shares.
Performance targets for outstanding LTIP awards
The maximum potential of awards granted to executive directors for outstanding performance periods is 100% of base salary as at the date of
the grant.
Details of the comparator group for the LTIP three year performance periods commencing February 2018 and August 2018 are shown above.
The comparator group for the performance periods commencing in August 2016, February 2017 and August 2018 is the same. The comparator
group for the performance periods commencing in August 2015 and February 2016 is the same as above with the exception of Home Retail
Group and Poundland which were included, and Pets at Home and B&M European Value Retail which 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 continued 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 replaced that of Poundland.
Payments to past directors (audited information)
Michael Law stepped down as Group Operations Director with effect from 17 May 2018. He remained an employee of the Company until
27 July 2018. Michael’s outstanding awards under the LTIP were treated in accordance with the rules of the Plan and awards made in March and
September 2016 and 2017 lapsed on the leaving date. Michael’s other LTIP award (i.e. made in September 2015) vested on its original vesting
date. As a ‘good leaver’, his entitlement was time pro-rated proportionately to his actual period of service. The value of this LTIP is provided in
the single figure of remuneration on page 90, together with the annual bonus he earned for the period up until he retired from the business.
Payments for loss of office (audited information)
There were no payments made to any director in respect of loss of office during the 2018/19 financial year.
Performance and CEO remuneration comparison
Performance graph
The graph below illustrates the 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 ten year period ended January 2019.
NEXT plc performance chart 2009-2019 Total Shareholder Return
820
740
660
580
500
420
340
260
180
100
20
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
NEXT
FTSE All Share
FTSE General Retailers
Re-based to 31 January 2009 = 100
97
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Analysis of Chief Executive’s pay over 10 years
The table below sets out the remuneration for Lord Wolfson who has been the Chief Executive throughout this period.
Financial year
to January
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Single figure of total
remuneration £000
Annual bonus pay-out
against maximum
opportunity1
100%
100%
2,833
3,010
4,106
4,630
4,646
4,660
4,295
1,831
1,153
1,327
LTIP pay-out against
maximum opportunity2
100%
SMP pay-out against
maximum opportunity
n/a
65%
100%
72% Two semi-annual awards vested at 100% and 83%,
however total value capped at £2.5m
99% 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
Two semi-annual awards vested at 100% each,
however total value capped at £2.5m
Two semi-annual awards vested at 76% and 77%
45%
100%
n/a
n/a
Entitlement waived3
Entitlement waived3
Did not participate in
2012-15 SMP
100%
0%
0%
Two semi-annual awards vested at 61% and 20%
Two semi-annual awards vested at nil
13%4
Two semi-annual awards vested at 20% and nil
n/a
n/a
n/a
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.
4. Lord Wolfson waived his entitlement to a portion of his annual bonus. Had he not done so, his bonus pay-out against maximum opportunity would have been 40% and his total
remuneration would have been £1,642k for the financial year to January 2019.
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 2017/18
and 2018/19 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 85% of the Group’s workforce.
Lord Wolfson
UK/Eire Employees (average per FTE)
* Lord Wolfson received no annual bonus during the year to January 2018 and 20% in the year to January 2019.
Salary
% change
2.0%
3.7%
Annual
bonus
% change
*see below
-3.0%
Taxable
benefits
% change
11.3%
4.3%
Relative importance of spend on pay
The graph below illustrates for the years 2017/18 and 2018/19 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
£594.1m
£586.1m
2018/19
2017/18
£215.7m
£224.1m
£324.2m
£361.7m
£324.2m
Buybacks
£255.6m
Special
dividends
£106.1m
Buybacks
Total wages and salaries
Buybacks and special dividends
Ordinary dividends
98
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 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 24 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:
Member
Caroline Goodall (Committee Chairman until January 2019)
Francis Salway (Committee member throughout the year and Committee Chairman from January 2019)
Jonathan Bewes
Tristia Harrison (from September 2018)
Michael Roney
Dame Dianne Thompson
Refer to the Committee member attendance table shown on page 75.
Role and work of Remuneration Committee
The Committee determines the remuneration of the Group’s Chairman and executive directors, and approves that of senior executives
(consistent with the new 2018 Corporate Governance Code). 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 (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. The Committee engaged Aon
Hewitt Ltd, FIT Remuneration Consultants LLP (FIT) and Deloitte LLP to provide 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. Deloitte LLP provided
independent verification services of total shareholder returns for NEXT and the comparator group of companies under the LTIP. Deloitte provide
other consultancy services to the Group on an ad hoc basis.
During the year FIT was paid circa £20k, and Deloitte and Aon Hewitt were each paid less than £8k for the services described above, charged
at their standard hourly rates. All three 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. Based on the nature of the
advice, and the relatively small fees, the Committee was satisfied that the advice received was objective and independent.
Voting outcomes at General Meetings
To approve the Remuneration Policy
To approve the 2017/18
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)
AGM
2017
Votes for
107,107,291
%
for
98.6
Votes
against
1,471,317
%
against Total votes cast
108,578,608
1.4
% of shares
on register
73.8
Votes
withheld
900,892
2018
101,160,713
99.3
763,682
0.7
101,924,395
72.1 1,110,044
2017
108,796,669
99.4
665,001
0.6
109,461,670
74.4
17,832
99
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
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 105. 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
Richard Papp
Jane Shields
Non-executive directors
Jonathan Bewes
Tristia Harrison
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
14 May 2018
1 July 2013
3 October 2016
25 September 2018
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
100
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 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
nextplc.co.uk.
A shareholder vote on Remuneration Policy is not required in 2019.
On behalf of the Board
Francis Salway
Chairman of the Remuneration Committee
21 March 2019
Remuneration Policy table, as approved in 2017. For clarity, where the policy table includes page cross references, these references have been
updated to this year’s Remuneration Report.
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.
101
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
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 92, 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 of bonus
outcomes if considered appropriate by 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.
The basis of performance measurement incorporates an 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.
102
Maximum opportunity
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
three years.
is measured over a period of
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.
Long Term Incentive Plan (LTIP)
Purpose and link to strategy
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.
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 93. 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.
103
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
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.
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.
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.
Performance measures and targets
Not applicable.
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.
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.
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
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.
104
Termination payments
Purpose and link to strategy
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.
Maximum opportunity
Each of the executive directors has a rolling service contract. Dates of appointment and notice
periods are disclosed on page 100. 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.
105
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
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.
Maximum opportunity
Not applicable.
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.
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).
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).
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.
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.
Key changes to last approved policy
No material changes.
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).
106
INDEPENDENT AUDITOR’S REPORT
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 26 January 2019 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 International Financial Reporting Standards (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 26 January 2019; the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income, the Consolidated Cash Flow Statement and the Consolidated and Parent Company Statements of Changes in Equity 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 Auditor’s 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 28 January 2018 to 26 January 2019.
Our audit approach
Overview
• Overall Group materiality: £36.0m (2018: £36.0m), based on 5% of profit before tax.
• Overall Parent Company materiality: £30.0m (2018: £25.0m), based on 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.
Audit scope
• Our scoping resulted in coverage of 94% of revenue, 99% of profit before tax and 98% of total assets.
• Recoverability of customer receivables (Group).
•
Inventory being in excess of net realisable value (Group).
Key audit
matters
• Valuation of financial instruments (Group and Parent Company).
• Accounting for defined benefit pension arrangements (Group).
• Presentation and disclosure of the expected impact of IFRS 16 (Group).
107
Strategic ReportGovernanceFinancial StatementsShareholder Information
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NEXT PLC
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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of environmental regulations and unethical and prohibited business practices (see page 63 of the Annual Report), and we
considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and
regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006, the Listing Rules, Pension
Legislation, UK tax legislation and the Financial Conduct Authority’s hand book with respect to credit related regulated activity. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls),
and determined that the principal risks were related to fraudulent transactions to increase the share price that would result in overstating
profits, therefore raising shareholder expectations and director incentives payments. The Group engagement team shared this risk assessment
with the component auditor so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures
performed by the Group engagement team and/or component auditor included:
•
Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by
senior management
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to
recoverability of customer receivables (see related key audit matter below)
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. Also, 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.
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
Group
Recoverability of customer receivables
Refer to the Audit Committee Report on page 81, the Major Sources of Estimation
Uncertainty within the Group Accounting Policies and Note 12 for Customer and
Other Receivables.
An allowance of £165.5m is recognised against customer receivables of
£1,372.7m.
NEXT has adopted IFRS 9 in the year and has revised its approach to provisioning
accordingly. No prior year restatement of brought forward reserves has been
required as the impact of adoption has not been material.
NEXT’s provisioning methodology uses historical loss experience to quantify, on
a discounted and probability weighted basis, the cash shortfalls expected to be
incurred in various default scenarios for prescribed future periods. A number of
manual overlays are then applied to address areas of identified risk which are
not fully captured by the historical information. In arriving at these overlays
management has considered both the current macro-economic environment and
the Bank of England’s ongoing concern – both as Central Bank and as Regulator –
regarding increasing consumer debt levels and affordability.
How our audit addressed the key audit matter
We performed controls testing on the origination and servicing of
the underlying customer receivables and related IT systems and have
substantively tested the year end receivables balance to which management
have applied their provision methodology, as well as testing the integrity of
the provisioning model.
We used financial services specialists and actuarial experts to critically assess
management’s approach against the requirements of IFRS 9.
We tested historical default experience, payment history, recoveries and
the stratification of the year end book by arrears position, customer credit
ratings and expected month of default on a sample basis - being the key
drivers to the provision calculated by management.
We tested, on a sample basis, the appropriateness of management’s
assumptions, based on NEXT’s historical book experience and expected
levels of future default. This included critically assessing NEXT’s manual
overlays based on our knowledge of the underlying book (and other books
of a similar kind), expected future customer payment assumptions and wider
macro-economic factors.
We tested, on a sample basis, whether the performing customer receivables
were genuinely performing, in order to obtain evidence that receivables are
appropriately recorded.
We developed our own independent expectation of the allowance amount
and concluded that the position taken by management was reasonable.
108
Key audit matter
Group
Inventory being in excess of net realisable value
Refer to the Audit Committee Report on page 81 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 for shrinkage and faulty inventory which
require an estimate of expected inventory losses and realisable amounts.
Group and parent
Valuation of financial instruments
Refer to the Audit Committee Report on page 81 and Notes 26 and 27 for
financial instruments.
The Group is exposed to fair value and interest rate movements on debt
instruments that it holds. Additionally, the nature of the Group’s operations
means that it is exposed to fluctuations in foreign exchange rates on purchases
and sales. As such, the Group holds a number of interest rate and foreign
exchange derivatives which are held at fair value within the financial statements.
These are valued on a discounted cash flow basis with reference to market inputs,
rather than the valuation being taken directly from an observable market value.
Group
Accounting for defined benefit pension arrangements
Refer to the Audit Committee Report on page 81, the Major Sources of
Estimation Uncertainty within the Group Accounting Policies and Note 19 for
pension benefits.
The defined benefit pension schemes obligation of £768.7 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.
Presentation and disclosure of the expected impact of
Group
IFRS 16
Refer to the Audit Committee Report on pages 81 and 82 and the Adoption
of new accounting standards, interpretations and amendments in the Group
Accounting Policies.
The Group is retrospectively applying IFRS 16 from 27 January 2019 so the
expected impact on the financial statements has to be disclosed this year in line
with IAS 8.
The Group has implemented a new IT system to calculate these numbers.
In addition judgements have been taken by the Group, including the discount
rate to be applied.
How our audit addressed the key audit matter
We evaluated the forecasted sell through and cash recovery rates by
corroborating historical rates and assessing management’s judgement
regarding 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
not inconsistent with the key assumptions used in the inventory provision
model at the year end.
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.
We have tested a sample of inputs into the IT system and agreed them back
to the underlying lease agreements. We have recalculated the accounting
entries for a sample of leases and confirmed the IT system is performing this
calculation accurately.
We are comfortable with the methodology applied to calculate the discount
rate using an incremental borrowing rate specific to the Group. We have
considered the other assumptions to be appropriate including ensuring all
the leases meet the definition of a lease under IFRS 16 and that the lease
term is accurate.
We have reviewed the workings for calculating the dilapidations provision
and agree with the methodology applied.
Having reviewed the disclosures in the financial statements, we are satisfied
that they are compliant with IAS 8.
109
Strategic ReportGovernanceFinancial StatementsShareholder Information INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NEXT PLC
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 seven
segments with our audit work focussed on the NEXT Retail, NEXT Online, NEXT Finance, 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, NEXT Online and NEXT
Finance 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:
• 94% of revenue;
• 99% 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 at the local closing meeting with management. Their workpapers were also subject to review by the
Group Engagement Team including the Group Engagement Leader.
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
How we determined it
Rationale for benchmark applied
Group financial statements
£36.0m (2018: £36.0m).
Parent Company financial statements
£30.0m (2018: £25.0m).
5% of profit before tax.
1% of total assets.
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 does not trade with
its main operations being 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 £7.0 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 £1.8m (Group audit)
(2018: £1.8m) and £1.5m (Parent Company audit) (2018: £1.3m) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
110
Going concern
In accordance with ISAs (UK) we report as follows:
We are required to report if we have anything material to add or draw
Reporting obligation
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.
We have nothing material to add or to draw attention to.
Outcome
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. For example, the
terms on which the United Kingdom may withdraw from the European
Union, which is currently due to occur on 29 March 2019, are not clear,
and it is difficult to evaluate all of the potential implications on the
company’s trade, customers, suppliers and the wider economy.
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 auditor’s 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, Directors’ Report and Corporate Governance Statement, 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 26 January 2019 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)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (Corporate
Governance) about internal controls and risk management systems in relation to financial reporting processes and about share capital structures
in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) 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 this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (Corporate
Governance) with respect to the Parent Company’s corporate governance code and practices and about its administrative, management and
supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the Parent
Company. (CA06)
111
Strategic ReportGovernanceFinancial StatementsShareholder Information INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NEXT PLC
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 54 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 59 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 72, 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 page 81 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)
112
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 72, 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.
Auditor’s 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 auditor’s 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 auditor’s report.
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. The period of total uninterrupted engagement is 2 years, covering the
years ended 27 January 2018 to 26 January 2019.
Andrew Lyon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
East Midlands
21 March 2019
113
Strategic ReportGovernanceFinancial StatementsShareholder Information GROUP
FINANCIAL
STATEMENTS
115 Consolidated Income Statement
116 Consolidated Statement of Comprehensive Income
117 Consolidated Balance Sheet
118 Consolidated Statement of Changes in Equity
119 Consolidated Cash Flow Statement
120 Group Accounting Policies
132 Notes to the Consolidated Financial Statements
114
CONSOLIDATED INCOME STATEMENT
Continuing operations
Revenue
Credit account interest
Total revenue (including credit account interest)
Cost of sales
Impairment losses on customer and other receivables
Gross profit
Distribution costs
Administrative expenses
Other gains/(losses)
Trading profit
Share of results of associates 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 31 are an integral part of these consolidated financial statements.
52 weeks to
26 January
2019
Notes
£m
52 weeks to
27 January
2018
Restated
£m
3,917.1
250.3
4,167.4
(2,640.5)
(52.7)
1,474.2
(458.3)
(255.4)
1.4
761.9
0.1
762.0
0.4
(39.5)
722.9
(132.5)
590.4
3,867.5
223.2
4,090.7
(2,668.6)
(24.3)
1,397.8
(399.7)
(238.1)
(1.1)
758.9
1.0
759.9
1.3
(35.1)
726.1
(134.3)
591.8
435.3p
433.0p
416.7p
415.7p
1, 2
12
3
3
5
5
6
8
8
115
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany 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 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
Cost of hedging
– 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 income/(expense) for the year
Total comprehensive income for the year
52 weeks to
26 January
2019
£m
590.4
52 weeks to
27 January
2018
£m
591.8
Notes
19
6
18.6
(3.2)
15.4
43.4
(7.4)
36.0
(5.3)
7.8
73.2
(2.6)
(18.4)
0.5
–
–
(9.0)
38.4
53.8
644.2
(79.8)
(12.3)
8.8
–
–
–
14.2
(61.3)
(25.3)
566.5
6
116
CONSOLIDATED BALANCE SHEET
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Associates, joint venture and other investment
Defined benefit pension asset
Other financial assets
Deferred tax assets
Current assets
Inventories
Customer and other receivables
Right of return asset
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
26 January
2019
£m
Notes
27 January
2018
Restated
£m
9
10
11
19
13
6
12
13
14
15
16
17
18
20
17
16
6
564.9
42.6
5.1
125.0
41.5
–
779.1
502.8
1,339.8
23.4
9.9
156.3
2,032.2
2,811.3
(377.3)
(640.7)
(9.4)
(85.1)
(1,112.5)
(905.2)
(10.3)
(9.2)
(217.5)
(2.8)
(1,145.0)
(2,257.5)
553.8
553.8
558.9
42.9
2.1
106.2
48.1
5.8
764.0
466.7
1,248.2
23.4
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)
(2,078.9)
482.6
482.6
The financial statements were approved by the Board of directors and authorised for issue on 21 March 2019. They were signed on its behalf by:
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
117
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
Share
premium
account
£m
0.9
–
Capital
redemption
reserve
£m
15.2
–
Share
capital
£m
14.7
–
ESOT
reserve
£m
(215.4)
–
Cash flow
hedge
reserve
£m
26.2
–
Foreign
currency
translation
£m
(4.5)
–
Cost of
hedging
reserve
£m
–
–
Other
reserves
(Note 22)
£m
(1,443.8)
–
Retained
earnings
£m
2,117.2
591.8
Total
equity
£m
510.5
591.8
–
–
(0.2)
–
–
–
–
–
–
14.5
–
–
–
(0.6)
–
–
–
–
–
13.9
–
–
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
(37.0)
20.8
–
–
–
–
15.4
–
–
–
(231.6)
–
–
–
0.6
–
–
–
–
–
–
(61.9)
21.9
–
–
–
0.9
–
–
16.0
–
–
(271.6)
(69.1)
(69.1)
–
–
–
–
–
–
–
(42.9)
–
43.3
43.3
–
–
–
–
–
–
0.4
7.8
7.8
–
–
–
–
–
–
–
3.3
–
(5.3)
(5.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
0.4
–
–
–
–
–
–
–
–
–
–
–
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)
–
–
(1,443.8)
–
4.4
(479.7)
2,166.8
590.4
4.4
(479.7)
482.6
590.4
–
–
–
–
–
–
15.4
53.8
605.8
644.2
(324.2)
(324.2)
–
(6.6)
13.8
(61.9)
15.3
13.8
(0.3)
(215.7)
553.8
–
–
(2.0)
–
–
0.4
–
–
(1,443.8)
(0.3)
(215.7)
2,239.6
At 28 January 2017
Profit for the year
Other comprehensive
(expense)/income for the year
Total comprehensive
(expense)/income for the year
Share buybacks and
commitments (Note 21)
ESOT share purchases and
commitments (Note 24)
Shares issued by ESOT
Share option charge
Acquisition of minority interest
in subsidiary
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
At 27 January 2018
Profit for the year
Other comprehensive
(expense)/income for the year
Total comprehensive
(expense)/income for the year
Share buybacks and
commitments (Note 21)
ESOT share purchases and
commitments (Note 24)
Shares issued by ESOT
Share option charge
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
At 26 January 2019
118
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 in inventories and right of return asset
Increase in customer and other receivables
Increase/(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
Purchase of shares in associate
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 unsecured bank loans
Interest paid
Interest received
Dividends paid (Note 7)
Net cash from financing activities
Net increase/(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 29)
52 weeks to
26 January
2019
£m
52 weeks to
27 January
2018
£m
762.0
122.3
0.3
13.8
(4.3)
(36.1)
(96.2)
36.9
(0.2)
798.5
(144.2)
654.3
(128.6)
5.4
(123.2)
0.3
(3.0)
–
(125.9)
(325.0)
(61.9)
15.8
120.0
(37.3)
0.2
(215.7)
(503.9)
24.5
8.5
1.0
34.0
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
119
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
General Information
NEXT plc and its subsidiaries (the “Group”) is a UK based retailer which offers exciting, beautifully designed, excellent 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 26 January 2019 (last year 52 weeks to 27 January 2018).
The Group applies for the first time IFRS 15 “Revenue from contracts with customers” and IFRS 9 “Financial instruments”. Refer to page 128 for
details of the impact on transition to these standards.
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. Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the investee. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Associates and joint ventures are all entities over which the Group has significant influence but not control. Significant influence is the power to
participate in the financial and operating policy decisions of the investee, but is not control of those policies. 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.
Fair Value Measurement
The Group measures financial instruments such as derivatives and non-listed equity investments at fair value at each Balance Sheet date.
The fair value is the price that would have been received to seal an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy described in Note 26.
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.
Revenue is recognised when control of the goods or services are transferred to the customer i.e. when the customer accepts delivery of
those goods.
It is the Group’s policy to sell its products to the retail customer with a right to return within 14 days. The Group uses the expected value method
to estimate the value of goods that will be returned because this method best predicts the amounts of variable consideration to which the Group
will be entitled. A separate right of return asset is recognised on the face of the Balance Sheet which represents the right to recover product from
the customer. The refund liability due to customers on return of their goods is recognised either as a component of trade payables and other
liabilities (for cash payments) or as a deduction from customer receivables (for purchases using the nextpay credit facility).
120
The Group does not operate any loyalty programmes. Deferred income in relation to gift card redemptions is estimated on the basis of historical
redemption rates.
Online credit account interest is accrued on a time basis by reference to the principal outstanding, the provision held (where credit impaired)
and the effective interest rate.
Royalty income is received from franchisees and is recognised on an accruals basis in accordance with the substance of the relevant agreements.
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.
Dividend Income
Dividend income is recognised when the right to receive payment is established.
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
50 years
Plant and equipment
6 – 25 years
Leasehold improvements
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 tested 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) are stated at cost, subject to review for impairment.
Impairment – non-financial assets
The carrying values of non-financial assets (excluding goodwill) are reviewed monthly 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. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less
costs of disposal and its value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the
current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent
market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
121
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
GROUP ACCOUNTING POLICIES
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.
Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity.
Financial assets
Financial assets are classified at initial recognition, and subsequently measured at amortised cost, Fair Value through Other Comprehensive
Initial recognition and measurement
Income (FVOCI) or Fair Value through Profit or Loss (FVPL). The classification is based on two criteria:
• the Group’s business model for managing the assets; and
• whether the instruments’ contractual cash flows represent “Solely Payments of Principal and Interest” on the principal amount outstanding
(the “SPPI criterion”).
A summary of the Group’s financial assets is as follows:
Financial assets
Derivatives not designated as hedging instruments
Derivatives designated as hedging instruments
Customer and other receivables
Cash and short term deposits
Non-listed equity instruments
Classification under IFRS 9
Fair value through profit or loss
Fair value – hedging instrument
Amortised cost – hold to collect business model and SPPI met
Amortised cost
Fair value through OCI
Under IFRS 9 the Group initially measures a financial asset at its fair value plus directly attributable transaction costs, unless the asset is classified
as FVPL. Transactional costs of financial assets carried at FVPL are expensed in the Income Statement. Further details on the accounting for
customer and other receivables is included on page 129.
For details on hedge accounting refer to page 130.
A summary of the subsequent measurement of financial assets is set out below.
Subsequent measurement
Financial assets at FVPL
Subsequently measured at fair value. Net gains and losses, including any interest or
dividend income, are recognised in profit or loss.
Financial assets at amortised cost
Equity instruments at FVOCI
Subsequently measured at amortised cost using the effective interest rate (EIR)
method. The amortised cost is reduced by impairment losses. Interest income,
impairment or gain or loss on derecognition are recognised in profit or loss.
These assets are subsequently measured at fair value. Dividends are recognised as
income in profit or loss unless the dividend clearly represents recovery of part of the
cost of investment, in which case they are recognised in OCI. Other net gains and
losses are recognised in OCI and never reclassified to profit or loss.
The Group has designated its non-listed equity investments as held at fair value through OCI because these are investments that the Group
intends to hold for long term strategic purposes.
A financial asset is derecognised primarily when:
Derecognition
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third-party under a “pass-through” arrangement; and either a) the Group has transferred substantially all the
risks and rewards of the asset, or b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
122
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at FVPL. The most significant financial
Impairment – financial assets
assets of the Group are its trade receivables, which are referred to as “customer and other receivables”. ECLs are based on the difference
between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at
an approximation of the original effective interest rate. For further details on the accounting for ECLs on customer and other receivables refer
to page 164.
Financial liabilities
The Group has classified its financial liabilities as follows:
Initial recognition and measurement
Financial liabilities
Derivatives not designated as hedging instruments
Derivatives designated as hedging instruments
Interest-bearing loans and borrowings:
Corporate bonds
Bank loans and overdrafts
Trade and other payables
Classification under IFRS 9
Fair value through profit or loss
Fair value – hedging instrument
Amortised cost – designated in hedge relationships
Amortised cost
Amortised cost
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable
transaction costs.
A summary of the subsequent measurement of financial liabilities is set out below.
Subsequent measurement
Financial liabilities at FVPL
Subsequently measured at fair value. Gains and losses are recognised in the Income Statement.
Loans and borrowings
Corporate bonds
Subsequently measured at amortised cost using the EIR method. The EIR amortisation is included in finance
costs in the Income Statement.
Subsequently measured at amortised cost and adjusted where hedge accounting applies (see interest rate
derivatives on page 125). Accrued interest is included within other creditors and accruals.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability
Derecognition
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognised in the Income Statement.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable
legal right to offset the recognised amounts and there is an intention and ability to settle on a net basis, to realise the assets and settle the
liabilities simultaneously.
Customer and Other Receivables
Customer receivables represent outstanding customer balances less an allowance for impairment. Customer receivables are recognised when
the Group becomes party to the contract which happens when the goods are despatched. They are derecognised when the rights to receive
the cash flows have expired e.g. due to the settlement of the outstanding amount or where the Group has transferred substantially all the risks
and rewards associated with that contract. Other trade receivables are stated at invoice value less an allowance for impairment. Customer and
other receivables are subsequently measured at amortised cost as the business model is to collect contractual cash flows and the debt meets
the Solely Payment of Principal and Interest (SPPI) criterion.
Impairment
In accordance with the accounting policy for impairment – financial assets, the Group recognises an allowance for Expected Credit Losses (ECLs)
for customer and other receivables. IFRS 9 requires an impairment provision to be recognised on origination of a customer advance, based on
its ECL.
123
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
Customer and Other Receivables
Impairment
(continued)
The directors have taken the simplification available under IFRS 9 5.5.15 which allows the loss amount in relation to a trade receivable to
be measured at initial recognition and throughout its life at an amount equal to lifetime ECL. This simplification is permitted where there is
either no significant financing component (such as customer receivables where the customer is expected to repay the balance in full prior to
interest accruing) or where there is a significant financing component (such as where the customer expects to repay only the minimum amount
each month), but the directors make an accounting policy choice to adopt the simplification. Adoption of this approach means that Significant
Increase in Credit Risk (SICR) and Date of Initial Recognition (DOIR) concepts are not applicable to the Group’s ECL calculations.
(continued)
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
ECL is the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted at the original Effective
Interest Rate (EIR). The assessment of credit risk and the estimation of ECL are required to be unbiased, probability-weighted and should
incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable
and supportable forecasts of economic conditions at the reporting date. The forward-looking aspect of IFRS 9 requires considerable judgement
as to how changes in economic factors affect ECLs.
IFRS 9 “Financial instruments” paragraph 5.5.20 ordinarily requires an entity to not only consider a loan, but also the undrawn commitment and
the ECL in respect of the undrawn commitment, where its ability to cancel or demand repayment of the facility does not limit its exposure to the
credit risk of the undrawn element. However, the guidance in IFRS 9 on commitments relates only to commitments to provide a loan (that is, a
commitment to provide financial assets, such as cash) and excludes from its scope rights and obligations from the delivery of goods as a result
of a contract with a customer within the scope of IFRS 15 “Revenue from contracts with customers” (that is, a sales commitment). Thus, the sales
commitment (unlike a loan commitment) is not a financial instrument, and therefore the impairment requirements in IFRS 9 do not apply until
delivery has occurred and a receivable has been recognised.
Impairment charges in respect of customer receivables are recognised in the Income Statement within cost of sales.
Delinquency is taken as being in arrears and credit impaired is taken as being the loan has defaulted, which is considered to be the point at which
the debt is passed to an internal or external Debt Collection Agency (DCA) and a default registered to a Credit Reference Agency (CRA), or any
debt 90 days past due. Delinquency and default are relevant for the estimation of ECL, which segments the book by credit score, banded into
very low risk, low risk, medium risk and high risk, by arrears stage.
Financial assets are written off when there is no reasonable expectation of recovery, such as a customer failing to engage in a repayment plan
with the Group. Where receivables have been written off, if recoveries are subsequently made, they are recognised in profit or loss.
The key assumptions in the ECL calculation are:
PD:
EAD:
LGD:
The “Probability of Default” is an estimate of the likelihood of default over the expected lifetime of the debt. NEXT has assessed the
expected lifetime of customer receivables and other trade receivables to be no more than 36 months, based on historical payment
practices. The debt is segmented by arrears stage, Experian’s Consumer Indebtedness Index (a measure of consumers’ affordability) and
expected time of default.
The “Exposure at Default” is an estimate of the exposure at that future default date, taking into account expected changes in the
exposure after the reporting date, i.e. repayments of principal and interest, whether scheduled by the contract or otherwise and accrued
interest from missed payments. This is stratified by arrears stage, Experian’s Consumer Indebtedness Index and expected time of default.
The “Loss Given Default” is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference
between the contractual cash flows due and those that NEXT would expect to receive, discounted at the original EIR. It is usually
expressed as a percentage of the EAD. NEXT includes all cash collected over five years from the point of default.
The Group uses probability weighted economic scenarios, in order to evaluate a range of possible outcomes as is required by IFRS 9, that
are integrated into the model. The inputs and models used for the ECLs may not always capture all characteristics of the market at the
Balance Sheet date. To reflect this, qualitative adjustments or overlays are made, based on external data, historical performance and future
expected performance.
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, overseas sales 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.
124
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).
Hedge documentation
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the hedge.
Before 28 January 2018 (i.e. under IAS 39 “Financial instruments: recognition and measurement”), the document included identification of the
hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the effectiveness of
changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable
to the hedged risk. Such hedges were expected to be highly effective in achieving offsetting changes in fair value or cash flows and were
assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which
they were designated.
Beginning 28 January 2018 (i.e. under IFRS 9 “Financial instruments”), the documentation includes identification of the hedging instrument, the
hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness
requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined).
A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
• There is an “economic relationship” between the hedged item and the hedging instrument.
• The effect of the credit risk does not “dominate the value changes” that result from the economic relationship.
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged items that the Group actually hedges
and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of the hedged item.
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.
For fair value hedges relating to items carried at amortised cost, any adjustment to the carrying value is amortised through profit or loss over the
remaining term of the hedge using the EIR method. The EIR amortisation may begin as soon as an adjustment exists and no later than when the
hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss.
Foreign currency derivatives – cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective
portion is recognised immediately in the Income Statement. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss
on the hedging instrument and the cumulative change in fair value of the hedged item.
The Group uses forward currency and option contracts as hedges of its exposure to foreign currency risk in forecast transactions and firm
commitments. Where forward contracts are used to hedge forecast transactions, the Group designates the change in fair value relating to both
the spot and forward components as the hedging instrument. The ineffective portion relating to foreign currency contracts is recognised as
other gains/losses in the Income Statement.
The fair value of option contracts are divided into two portions:
• the intrinsic value - which is determined by the difference between the strike price and the current market price of the underlying; and
• the time value - which is the remaining value of the option which reflects the volatility of the price of the underlying and the time remaining
to maturity.
Prior to 28 January 2018 (i.e. under IAS 39 “Financial instruments: recognition and measurement”), the Group designated all of the contracts as
the hedging instrument. Any gains or losses arising from changes in the fair value of derivatives were taken directly to profit or loss, except for
the effective portion of cash flow hedges, which were recognised in OCI and later reclassified to profit or loss when the hedged item affects
profit or loss.
125
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
Foreign currency derivatives – cash flow hedges
Beginning 28 January 2018 (i.e. under IFRS 9 “Financial instruments”), the Group is now designating the intrinsic value of foreign currency options
as hedging instruments for hedging relationships entered into from 28 January 2018. The intrinsic value is determined with reference to the
relevant spot market exchange rate. Changes in the time value of the options that relate to the hedged item are deferred in the cost of hedging
reserve and recognised against the related hedge transaction when it occurs.
(continued)
The amounts accumulated in OCI are accounted for depending on the nature of the underlying hedged transaction. If the hedged transaction
subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the separate component of
equity and included in the initial cost for the carrying amount of the hedged asset or liability. The deferred amounts are ultimately recognised in
profit or loss as the hedged item affects profit or loss (e.g. when inventory impacts cost of sales). This is not a reclassification adjustment and will
not be recognised in OCI for the period. This also applies where the hedged forecast transaction of a non-financial asset or non-financial liability
subsequently becomes a firm commitment for which fair value hedge accounting is applied.
For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as a reclassification adjustment in the same period
or periods during which the hedged cash flows affect profit or loss.
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 29 of
the financial statements.
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 Payments
The fair value of employee share options is calculated when they are granted using a Black-Scholes model and the fair value of equity-settled
LTIP awards is calculated at grant using a Monte Carlo model. The resulting cost is charged in the Income Statement, as an employee benefit
expense, over the vesting period of the option or award together with a corresponding increase in equity. The cumulative expense recognised
is the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Income Statement for a
period represents the movement in cumulative expense recognised as at the beginning and end of that period.
Service and non-service performance conditions are not taken into account when determining the grant date fair value of awards, but the
likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately
vest. Market performance conditions are reflected within the grant date fair value.
No expense is recognised for awards that do not ultimately vest because of non-market performance and/or service conditions that have not
been met. When awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or
non-vesting condition is satisfied, provided that all other performance and/or service conditions are met.
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.
126
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 on temporary differences between the tax bases of assets and liabilities
and their carrying amounts. It 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.
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. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
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 present obligation (legal or constructive) 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. When discounting is used, the increase in the provision due to the passage of time is recognised a finance cost.
Leasing Commitments
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the
lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset (or assets) and the
arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement.
The Group has only operating leases, which are leases where the risks and rewards of ownership are not transferred to the Group. 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 and Judgment
The preparation of the financial statements requires estimations and assumptions to be made that affect the reported values of assets,
liabilities, revenues and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the year in which the estimate is revised and in any future years affected.
In applying the Group’s accounting policies described above, the directors have identified that the following areas are the key estimates that have
a significant risk of resulting in a material adjustment to the carrying value of assets and liabilities in the next financial year.
127
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
Major Sources of Estimation Uncertainty and Judgment
Expected credit losses on Online customer and other receivables
The provision for the allowance for expected credit losses (refer to Note 12) is calculated using a combination of internally and externally sourced
information, including future default levels (derived from historical defaults overlaid by macro-economic assumptions), future cash collection
levels (derived from past trends), arrears stage and credit rating and other credit data.
(continued)
Once a customer receivable has defaulted, there is limited sensitivity associated with credit risk. Prior to default, the greatest sensitivity relates
to the ability of customers to afford their payments (impacting the Probability of Default (PD) and the Exposure at Default (EAD)) and to the
expected level of cash collectable following default (impacting the Loss Given Default (LGD)).
Deterioration in the ability of customers to afford their payments will cause an increase in PD and EAD. Management have sensitised the impact
of a change in customer affordability on the PD and EAD by using a 10% deterioration and 10% improvement of Experian’s average Customer
Indebtedness Index. This results in a £10m increase and £10m decrease, respectively, in the allowance for Expected Credit Losses (ECL).
A 2% movement upwards (or downwards) in the expected rate of cash collectable following default reduces (or increases) the allowance for ECL
by £2m.
In the five weeks following the year end date, £0.2bn of the £1.2bn NEXT customer and other trade receivables has been recovered.
Management estimate that a further £0.1bn will be recovered by the date of signing of these financial statements.
Net realisable value of inventories
The selling prices of inventory are estimated to determine the net realisable value of inventory. 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 circa £4m. A 2% change in the level of markdown applied to the selling price would impact the value of inventories going to clearance
by circa £6m.
Defined benefit pension valuation
The assumptions applied in determining the defined benefit pension obligation (Note 19), 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 19. 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.
Significant judgments
In the course of preparing the financial statements, no significant judgments have been made in the process of applying the Group’s accounting
policies, other than those involving estimations that have had a significant effect on the amounts recognised in the financial statements.
Adoption of new accounting standards, interpretations
and amendments
For the financial period ended 26 January 2019 the Group has adopted IFRS 15 “Revenue from contracts with customers” and IFRS 9 “Financial
instruments” for the first time. The nature and effect of these changes are disclosed below. Several other amendments and interpretations
apply for the first time in 2019, but do not have an impact on the financial statements of the Group. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is not effective.
IFRS 15 “Revenue from contracts with customers”
IFRS 15 supersedes IAS 11 “Construction contracts”, IAS 8 “Revenue” and related interpretations and it applies to all revenue arising from
contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account
for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which
an entity expects to be entitled in exchange for transferring goods or services to a customer.
The Group has adopted IFRS 15 using the fully retrospective method of adoption, thereby restating comparatives, and did not apply any optional
practical expedients. The key considerations along with the impact of adopting IFRS 15 are described below. There was no impact on profit after
tax or retained earnings on the adoption of IFRS 15.
The Group’s contracts with customers for the sale of product generally include one performance obligation. The Group has concluded that
Sale of goods
revenue from the sale of product should be recognised at the point in time when control of the asset is transferred to the customer i.e. on the
delivery of the product. This does not represent a change to the Group’s accounting policy and therefore, the adoption of IFRS 15 does not have
an impact on the timing of revenue recognition.
128
IFRS 15 “Revenue from contracts with customers”
Product sales provide customers with a right of return within a specified period and are therefore deemed to be variable under IFRS 15.
Variable consideration
Under IFRS 15, the Group uses the expected value method to estimate the value of goods that will be returned because this method best predicts
the amounts of variable consideration to which the Group will be entitled. Under the old standard, IAS 8, expected returns were estimated using
a similar approach and therefore no adjustment to the value of variable consideration was required on transition to IFRS 15.
(continued)
In terms of presentation, prior to the adoption of IFRS 15, the amount of revenue relating to expected returns was deferred and recognised in
the Balance Sheet within customer receivables (for purchased on credit) or current trade payables and other liabilities, with a corresponding
adjustment to cost of sales. The initial carrying amount of goods expected to be returned was included within inventories.
Under IFRS 15 the Group presents a separate right of return asset on the face of the Balance Sheet, which represents an asset for the right to
recover product from the customer. This was reclassified from inventories. Presented as a separate component of trade payables and other
liabilities is the refund liability due to customers on the return of their goods (refer to Note 16). The refund liability relating to sales through the
nextpay credit offer continues to be presented as part of customer receivables (refer to Note 12) as it is settled net.
In summary the adjustments to the Balance Sheet were as follows:
Non-current assets
Current assets
Inventories
Customer and other receivables
Right of return asset
Other current assets
Total current assets
Current liabilities
Non-current liabilities
Net assets
27 January 2018
As previously
reported
£m
764.0
490.1
1,248.2
–
59.2
1,797.5
(914.8)
(1,164.1)
482.6
Adjustments
£m
–
(23.4)
–
23.4
–
–
–
–
–
27 January 2018
Restated
£m
764.0
466.7
1,248.2
23.4
59.2
1,797.5
(914.8)
(1,164.1)
482.6
Under IFRS 15 certain income streams were reclassified to reflect the nature of the control of the goods before they were transferred to
Principal versus agent considerations
customers. In the majority of cases the Group was considered the principal in the transaction under IFRS 15 and recognised the full sale within
revenue, rather than netted off costs. The resulting adjustments increased revenue by £40.3m (2018: £35.2m) with £nil impact on profit
(2018: £nil). Refer to Note 1 for further details on the impact of these adjustments.
IFRS 9 “Financial instruments”
IFRS 9 replaces IAS 39 “Financial instruments: recognition and measurement” for annual periods beginning on or after 1 January 2018, which
covers the accounting for financial instruments: classification and measurement, impairment and hedge accounting. The Group applied IFRS 9
retrospectively, except for the hedge accounting requirements which were applied prospectively. The impact of the application of IFRS 9 was
not material to the net assets or profit for the period or prior period. Prior year balances have not been restated for IFRS 9. Revised accounting
policies for IFRS 9 are detailed below.
The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class
Classification and measurement
of the Group’s financial assets and liabilities as at 28 January 2018. There were no changes to the carrying amounts of these assets and liabilities
on transition to IFRS 9.
129
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
Adoption of new accounting standards, interpretations and
amendments
IFRS 9 “Financial instruments”
(continued)
(continued)
Classification and measurement (continued)
Financial assets
Derivatives not designated as hedging instruments Fair value through profit or loss
Fair value – hedging instrument
Derivatives designated as hedging instruments
Loans and receivables
Customer and other receivables*
Loans and receivables
Cash and short term deposits
Available-for-sale investments
Non-listed equity instruments
Original classification under IAS 39 New classification under IFRS 9
Fair value through profit or loss
Fair value – hedging instrument
Amortised cost
Amortised cost
Fair value through OCI
Carrying
amount
under IAS 39
and IFRS 9
£m
2.4
51.4
1,153.0
53.5
1.0
Carrying
amount
under IAS 39
and IFRS 9
£m
(4.2)
(67.5)
Financial liabilities
Derivatives not designated as hedging instruments Fair value through profit or loss
Derivatives designated as hedging instruments
Fair value – hedging instrument
Interest-bearing loans and borrowings:
Corporate bonds
Loans and borrowings
Original classification under IAS 39 New classification under IFRS 9
Fair value through profit or loss
Fair value – hedging instrument
Bank loans and overdrafts
Trade and other payables at amortised cost**
Loans and borrowings
Other financial liabilities
Amortised cost – designated in
hedge relationships
Amortised cost
Amortised cost
(908.5)
(180.0)
(395.2)
* Prepayments of £94.2m and other debtors of £1.0m do not meet the definition of a financial instrument.
** Other taxation and social security payables of £62.4m, deferred income of £78.1m, property lease incentives of £250.7m, share-based payment liabilities of £1.5m and other
creditors of £25.1m do not meet the definition of a financial instrument.
The adoption of IFRS 9 has changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss
Impairment
approach with a forward-looking expected credit loss (ECL) approach. Further details of this ECL approach are included on page 164. The new
methodology adopted by NEXT has not had a material impact on the level of provision held for impairment losses. As a retailer, NEXT is not
required to provide against undrawn credit under the ECL model as the Group is selling product (is a “Merchant of Goods”) rather than a provider
of financial instruments.
The Group applied the IFRS 9 hedge accounting model prospectively. IFRS 9 requires that hedge accounting relationships are aligned with the risk
Hedge accounting
management objectives and strategy of the Group and applies a more qualitative and forward-looking approach to assessing hedge effectiveness.
At the date of initial application of IFRS 9, all of the Group’s existing hedging relationships were eligible to be treated as continuing hedge
relationships. Consistent with prior periods, the Group has continued to designate the change in fair value of the entire forward contract in the
Group’s cash flow hedge relationship and, as such, the adoption of the hedge accounting requirements of IFRS 9 had not had a significant impact
on the Group’s financial statements.
Prior to 28 January 2018, the Group classified foreign currency options as held-for-trading derivatives and accounted for them as Fair Value
through Profit or Loss. The fair value of options are divided into two portions:
• the intrinsic value – which is determined by the difference between the strike price and the current market price of the underlying; and
• the time value – which is the remaining value of the option which reflects the volatility of the price of the underlying and the time remaining
to maturity.
Following the adoption of IFRS 9, the Group is now designating the intrinsic value of foreign currency options as hedging instruments. The intrinsic
value is determined with reference to the relevant spot market exchange rate. Changes in the time value of the options that relate to the hedged
item are deferred in the cost of hedging reserve and recognised against the related hedge transaction when it occurs.
130
IFRS 16 “Leases”
IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019. For NEXT the first reported accounting period under IFRS 16
will be the 2019/20 financial year.
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.
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 30: £1,678.7m (to lease end this is £1,826.1m).
The adoption of IFRS 16 has no effect on how the business is run, nor on the overall cash flows for the Group.
As previously disclosed, the Group has decided to adopt the fully retrospective transition approach, restating prior year comparatives. The Group
Transition
will apply the practical expedient to grandfather the definition of a lease on transition and apply the recognition exemption for both short term
and low value assets.
NEXT has established a working group to ensure we take all necessary steps to comply with the requirements of IFRS 16, reporting regularly to
the Audit Committee. Significant work has been completed, including collection of relevant data, changes to IT systems and processes, and the
determination of relevant accounting policies.
At January 2018 the weighted average discount rate, based on incremental borrowing rates, across the Group lease portfolio was 5.0%.
The discount rate for each lease is dependent on lease start date and term.
Restating the 2018/19 financial statements upon transition, NEXT will recognise (after including adjustments for working capital which exist
Impact to financial statements
under IAS 17) an opening right of use asset in the region of £1.0bn and a lease liability in the region of £1.4bn. The deferred tax asset would
increase by £0.1bn in the restated financial statements. The retained earnings in the subsidiaries of the Group on transition will reduce by circa
£0.2bn. This adjustment will not cause any hindrance to the distribution of dividends to shareholders.
The most significant lease liabilities relate to property. The liability is lower than that shown in the current Note 30 due to discounting the
future payments.
The opening right of use asset is lower than the opening lease liability as it includes lease incentives received and reflects the higher depreciation
of the right of use asset compared to the reduction on the lease liability and accrued interest over the same period of time.
The Income Statement will reflect an increase to profit before taxation for the year ending January 2019 of between £14m and £24m.
Operating profit is expected to increase by circa £90m as the new depreciation charge will be lower than the current rental payments.
Interest charge is expected to increase by circa £70m with the addition of higher finance costs. We do not expect the adoption of IFRS 16 to have
a material impact on the Group’s effective tax rate.
There will be no impact on cash flows, although the presentation of the Cash Flow Statement will change significantly, with an increase in net
cash inflows from operating activities being offset by an increase in net cash outflows from financing activities (interest paid).
131
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
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 50.
Segmental Analysis
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 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. Under IFRS 15, total sales have also been
adjusted for customer delivery charges, income received from printed publications, promotional discounts, Interest Free Credit commission
costs and unredeemed gift card balances.
During the year the CODM altered the internal reporting of Group sales and profit to separately disclose the NEXT Finance business unit.
This reporting better reflects the nature of the different business models within the Group. NEXT Finance provides credit for customers to
purchase product. The segment revenue represents the interest charged to customers on their credit account balances. The segment profit
includes all associated costs, including administrative costs, financing and bad debt. The interest cost is calculated on the basis that the Group
lends all funds to NEXT Finance and charges an interest rate equivalent to the Group’s cost of borrowing.
In January 2018 the Lipsy.co.uk website was closed and all Lipsy online sales are now made through the next.co.uk website and reported in NEXT
Online. 2018 segment total sales and profit have been restated by £8.2m and £1.1m respectively to show the prior year Lipsy.co.uk sales in NEXT
Online for better comparability. Prior year segment reporting has also been restated to reflect the retrospective application of IFRS 15 (refer to
Group Accounting Policies ‘IFRS 15’).
Segment sales and revenue
52 weeks to 26 January 2019
Total sales
excluding
VAT
£m
1,955.1
1,918.8
250.3
62.2
6.9
4,193.3
15.1
12.5
4,220.9
–
4,220.9
Commission
sales
adjustment
£m
(1.2)
(92.5)
–
–
–
(93.7)
(0.1)
–
(93.8)
–
(93.8)
IFRS 15
adjustments
£m
2.0
38.3
–
–
–
40.3
–
–
40.3
–
40.3
External
revenue
£m
1,955.9
1,864.6
250.3
62.2
6.9
4,139.9
15.0
12.5
4,167.4
–
4,167.4
Internal
revenue
£m
4.6
–
–
–
543.2
547.8
80.4
202.9
831.1
(831.1)
–
Total
segment
revenue
£m
1,960.5
1,864.6
250.3
62.2
550.1
4,687.7
95.4
215.4
4,998.5
(831.1)
4,167.4
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment sales/revenue
Eliminations
Total
132
1.
Segmental Analysis
Segment sales and revenue
(continued)
(continued)
52 weeks to 27 January 2018
Total sales
excluding
VAT
£m
2,123.0
1,672.4
223.2
67.2
6.6
4,092.4
16.0
9.1
4,117.5
–
4,117.5
Commission
sales
adjustment
£m
(1.0)
(59.8)
–
–
–
(60.8)
(1.2)
–
(62.0)
–
(62.0)
IFRS 15
adjustments
£m
2.0
33.2
–
–
–
35.2
–
–
35.2
–
35.2
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment sales/revenue
Eliminations
Total
Segment profit
Segment profit
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment profit
Central costs and other
Recharge of interest to NEXT Finance
Share option charge
Other gains/(losses)
Trading profit
Share of results of associates and joint venture
Finance income
Finance costs
Profit before tax
External
revenue
£m
2,124.0
1,645.8
223.2
67.2
6.6
4,066.8
14.8
9.1
4,090.7
–
4,090.7
2019
£m
212.3
352.6
121.2
6.2
29.6
721.9
11.0
6.7
739.6
(5.4)
40.1
(13.8)
1.4
761.9
0.1
0.4
(39.5)
722.9
Restated
Total
segment
revenue
£m
2,129.5
1,645.8
223.2
67.2
554.4
4,620.1
76.9
215.3
4,912.3
(821.6)
4,090.7
2018
As reported
£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
Internal
revenue
£m
5.5
–
–
–
547.8
553.3
62.1
206.2
821.6
(821.6)
–
2018
Restated
£m
268.7
309.8
111.9
7.7
33.0
731.1
4.9
3.6
739.6
(6.1)
40.6
(14.1)
(1.1)
758.9
1.0
1.3
(35.1)
726.1
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.
133
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1.
Segment assets, capital expenditure and depreciation
Segmental Analysis
(continued)
Property, plant and
equipment
Capital
expenditure
Depreciation
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
2019
£m
382.6
95.0
–
0.8
2.5
3.8
80.2
564.9
2018
£m
390.7
82.3
–
1.0
2.6
3.5
78.8
558.9
2019
£m
93.0
31.8
–
0.1
0.9
1.3
1.5
128.6
2018
£m
88.6
10.9
–
0.6
1.1
1.0
2.0
104.2
2019
£m
99.1
18.4
–
0.3
1.1
0.9
0.3
120.1
2018
£m
98.9
17.4
–
0.2
0.9
0.9
0.3
118.6
The Group’s internal reporting includes values measured in a manner consistent with 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
2019
£m
3,656.9
279.2
138.7
56.1
36.5
4,167.4
2019
£m
570.6
4.0
4.3
28.6
607.5
2018
Restated
£m
3,641.7
243.9
113.9
60.3
30.9
4,090.7
2018
£m
564.0
4.5
4.3
29.0
601.8
Total Revenue
2.
The Group’s disaggregated revenue recognised under contracts with customers relates to the following categories and operating segments:
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
134
52 weeks to 26 January 2019
Credit
account
interest
£m
–
–
250.3
–
–
–
–
250.3
Royalties
£m
–
–
–
5.5
–
2.1
–
7.6
Rental
income
£m
–
–
–
–
–
–
12.5
12.5
Total
£m
1,955.9
1,864.6
250.3
62.2
6.9
15.0
12.5
4,167.4
Sale of goods
£m
1,955.9
1,864.6
–
56.7
6.9
12.9
–
3,897.0
2.
Total Revenue
(continued)
52 weeks to 27 January 2018
Restated
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
Sale of goods
£m
2,124.0
1,645.8
–
59.6
6.6
13.2
–
3,849.2
Credit
account
interest
£m
–
–
223.2
–
–
–
–
223.2
Royalties
£m
–
–
–
7.6
–
1.6
–
9.2
Operating Profit
3.
Group operating profit is stated after charging/(crediting):
Depreciation on tangible assets
Loss 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
Cost of inventories recognised as an expense
Write-down of inventories to net realisable value
Rental
income
£m
–
–
–
–
–
–
9.1
9.1
2019
£m
120.1
0.4
1.8
0.3
221.2
3.7
1,450.2
102.8
1,553.0
Total
£m
2,124.0
1,645.8
223.2
67.2
6.6
14.8
9.1
4,090.7
2018
£m
118.6
0.8
3.2
0.4
225.1
5.1
1,433.9
116.1
1,550.0
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.
Other gains / (losses) reported in the Income Statement represent foreign exchange gains of £1.4m (2018: losses of £1.1m) in respect of derivative
contracts which do not qualify for hedge accounting under IFRS 9 or IAS 39.
Other foreign exchange differences recognised in the Income Statement were gains of £11.1m (2018: £3.4m).
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 assurance services
2019
£000
297
445
742
145
887
2018
£000
262
368
630
71
701
135
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
4.
Total staff costs were as follows:
Staff Costs and Key Management Personnel
Wages and salaries
Social security costs
Other pension costs
Share-based payments expense – equity-settled
Share-based payments benefit – cash-settled
Total
2019
£m
594.1
43.3
29.2
666.6
13.8
(0.7)
679.7
2018
£m
586.1
42.5
21.9
650.5
14.1
(5.8)
658.8
Share-based payments comprise Management options, Sharesave options and potential LTIP and SMP awards, details of which are given in
Note 23.
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, Online and Finance
NEXT International Retail
NEXT Sourcing
Other activities
Total
NEXT Retail, Online and Finance
NEXT International Retail
NEXT Sourcing
Other activities
Total
2019
£m
618.3
1.9
32.0
27.5
679.7
2018
£m
604.3
2.0
29.6
22.9
658.8
Average employees
Full-time equivalents
2019
Number
39,427
113
4,116
272
43,928
2018
Number
39,859
133
3,725
253
43,970
2019
Number
23,687
90
4,116
258
28,151
2018
Number
24,265
106
3,725
222
28,318
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
Total
Directors’ remuneration is detailed in the Remuneration Report.
2019
£m
3.1
0.1
1.9
5.1
2018
£m
3.1
0.3
1.5
4.9
136
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
2019
£m
0.1
0.2
0.1
0.4
39.5
–
39.5
2018
£m
0.1
–
1.2
1.3
35.0
0.1
35.1
Online account interest is presented as a component of revenue.
Taxation
6.
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 127.
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
2019
£m
145.3
(7.1)
138.2
(4.3)
(1.4)
132.5
2018
£m
147.8
(12.2)
135.6
(6.3)
5.0
134.3
The tax charge for the year to January 2018 includes an amount of £3.2m within the adjustments in respect of prior years 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
2019
%
19.0
0.6
(0.2)
(1.1)
18.3
2018
%
19.2
0.5
(0.2)
(1.0)
18.5
137
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
6.
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:
(continued)
Taxation
Deferred tax:
Pension benefit obligation
Fair value movements on derivative instruments
Tax charge / (credit) in other comprehensive income
Current tax:
Share-based payments
Exchange loss recognised outside of profit or loss
Deferred tax:
Share-based payments
Tax charge / (credit) in the Statement of Changes in Equity
2019
£m
3.2
9.0
12.2
2019
£m
(1.0)
(0.8)
2.1
0.3
2018
£m
7.4
(14.2)
(6.8)
2018
£m
(1.0)
–
(3.4)
(4.4)
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.
2019
£m
6.3
(0.1)
(21.3)
6.1
6.2
(2.8)
2019
£m
5.8
3.9
(0.2)
0.5
1.5
(12.2)
(2.1)
(2.8)
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
The deferred tax (liability)/asset 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
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
138
Taxation
6.
Deferred tax
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:
(continued)
(continued)
Capital losses
Gross value
2019
£m
34.7
Unrecognised
deferred tax
2019
£m
5.9
Gross value
2018
£m
27.9
Unrecognised
deferred tax
2018
£m
4.7
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 26 January 2019
Final ordinary dividend for year to Jan 2018
Interim ordinary dividend for year to Jan 2019
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
Paid
1 Aug 2018
2 Jan 2019
Pence per
share
105p
55p
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
Cash Flow
Statement
£m
141.9
73.8
215.7
Cash Flow
Statement
£m
64.3
149.3
64.0
63.8
74.8
63.5
479.7
Statement
of Changes
in Equity
£m
141.9
73.8
215.7
Statement
of Changes
in Equity
£m
64.3
149.3
64.0
63.8
74.8
63.5
479.7
It is intended that this year’s ordinary final dividend of 110p per share will be paid to shareholders on 1 August 2019. NEXT plc shares will trade
ex-dividend from 4 July 2019 and the record date will be 5 July 2019. The estimated amount payable is £141.8m. 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.
139
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
8.
Earnings Per Share
Basic Earnings Per Share
2019
435.3p
2018
416.7p
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
2019
433.0p
2018
415.7p
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 3,508,782 non-dilutive share options in the current year (2018: 4,779,181).
Fully diluted Earnings Per Share
2019
414.9p
2018
399.7p
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 23.
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
2019
590.4
140.8
(5.2)
135.6
0.7
136.3
135.6
6.7
142.3
2018
591.8
146.7
(4.7)
142.0
0.4
142.4
142.0
6.0
148.0
As detailed in the Remuneration Report, the annual bonus for executive directors is determined by reference to underlying pre-tax Earnings per
Share of 532.9p (2018: 511.3p). This is calculated using 52 week underlying pre-tax profit of £722.9m (2018: £726.1m) 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.
140
9.
Property, Plant and Equipment
Cost
At January 2017
Exchange movement
Additions
Disposals
At January 2018
Exchange movement
Additions
Disposals
At January 2019
Depreciation
At January 2017
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2018
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2019
Carrying amount
At January 2019
At January 2018
At January 2017
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
78.4
–
2.0
(0.9)
79.5
–
1.3
–
80.8
8.2
–
0.2
–
–
8.4
–
0.2
–
–
8.6
72.2
71.1
70.2
9.4
–
–
–
9.4
–
–
(0.2)
9.2
1.6
–
–
–
–
1.6
–
–
–
(0.2)
1.4
7.8
7.8
7.8
1,703.3
(1.4)
102.2
(75.6)
1,728.5
(0.2)
127.3
(70.6)
1,785.0
1,202.7
(1.1)
118.4
3.2
(74.7)
1,248.5
(0.2)
119.9
1.8
(69.9)
1,300.1
484.9
480.0
500.6
Total
£m
1,791.1
(1.4)
104.2
(76.5)
1,817.4
(0.2)
128.6
(70.8)
1,875.0
1,212.5
(1.1)
118.6
3.2
(74.7)
1,258.5
(0.2)
120.1
1.8
(70.1)
1,310.1
564.9
558.9
578.6
At January 2019 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£63.8m (2018: £12.8m).
Impairment charges relate to the impairment of shop fittings on loss-making stores.
141
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
10.
Intangible Assets
Cost
At January 2017, January 2018 and January 2019
Amortisation and impairment
At January 2017
Amortisation provided during the year
At January 2018
Amortisation provided during the year
At January 2019
Carrying amount
At January 2019
At January 2018
At January 2017
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
3.3
0.4
3.7
0.3
4.0
–
0.3
0.7
44.2
1.6
–
1.6
–
1.6
42.6
42.6
42.6
2019
£m
30.5
12.1
42.6
Total
£m
48.2
4.9
0.4
5.3
0.3
5.6
42.6
42.9
43.3
2018
£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 (2018: £nil).
The key assumptions in testing the goodwill for impairment are the future sourcing requirements of the Group and the ability of NEXT Sourcing
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% (2018: -10% growth rate) and discounted at a pre-tax rate of 10% (2018: 10%).
In assessing the recoverable amount of goodwill, internal budgets for next year were used and extrapolated for nine further years using a growth
Lipsy
rate of 2% to 13% (2018: 2%) and discounted at a pre-tax rate of 12% (2018: 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.
142
11. Associates, Joint Venture and Other Investment
Cost
At January 2017
Additions
Retained profit/(loss)
Disposals
At January 2018
Additions
Retained loss
Disposals
At January 2019
Amortisation/Impairment
At January 2017
Provided during the year
Impairment charge
Disposals
At January 2018
Provided during the year
Impairment charge
Disposals
At January 2019
Carrying amount
At January 2019
At January 2018
At January 2017
*relates to the purchase of a 30% share in Custom Gateway Limited.
Interests in
associates
and
joint venture
£m
Other
investment
£m
Total
£m
1.3
–
–
–
1.3
3.0*
–
–
4.3
0.2
–
–
–
0.2
–
–
–
0.2
4.1
1.1
1.1
1.0
–
–
–
1.0
–
–
–
1.0
–
–
–
–
–
–
–
–
–
1.0
1.0
1.0
2.3
–
–
–
2.3
3.0
–
–
5.3
0.2
–
–
–
0.2
–
–
–
0.2
5.1
2.1
2.1
143
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
12. Customer and Other Receivables
The following table shows the components of net receivables:
Gross customer receivables
Less: refund liabilities
Net customer receivables
Less: allowance for expected credit losses (calculated under IFRS 9)
Less: allowance for doubtful debts (calculated under IAS 39)
Other trade receivables
Less: allowance for expected credit losses (calculated under IFRS 9)
Less: allowance for doubtful debts (calculated under IAS 39)
Presentation of the above, split by total receivables and allowances:
Net customer receivables
Other trade receivables
Less: allowance for expected credit losses (calculated under IFRS 9)
Less: allowance for doubtful debts (calculated under IAS 39)
Prepayments
Other debtors
Amounts due from associate and joint venture
2019
£m
1,417.2
(44.5)
1,372.7
(165.5)
–
1,207.2
23.8
(0.5)
–
1,230.5
1,372.7
23.8
1,396.5
(166.0)
–
1,230.5
91.6
14.7
3.0
1,339.8
2018
£m
1,295.8
(40.2)
1,255.6
–
(138.7)
1,116.9
21.7
–
(0.1)
1,138.5
1,255.6
21.7
1,277.3
–
(138.8)
1,138.5
94.2
13.4
2.1
1,248.2
No interest is charged on customer receivables if the statement balance is paid in full and to terms; otherwise balances bear interest at a variable
annual percentage rate of 23.9% at the year end date (2018: 22.9%), except for £3.1m of next3step balance that bears interest at 29.9% (2018:
Not applicable).
The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime
expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on a very
low credit risk characteristic, representing management’s view of the risk, and the days past due. The expected credit losses incorporate forward
looking information.
The fair value of customer receivables and other trade receivables is approximately £1,170m. This has been calculated based on future cash
flows discounted at an appropriate rate for the risk of the debt. The fair value is within Level 3 of the fair value hierarchy (refer to the Fair Value
Hierarchy table in Note 26).
Expected irrecoverable amounts on balances with indicators of impairment are provided for based on past default experience, adjusted for
expected behaviour. Receivables which are impaired, other than by age or default, are separately identified and provided for as necessary.
In the prior year, the impairment of customer receivables and other trade receivables was assessed based on the incurred loss model (IAS 39).
Individual receivables which were known to be uncollectable were written off by reducing the carrying amount directly. The other receivables
were assessed collectively, to determine whether there was objective evidence that an impairment had been incurred but not yet been identified.
For these receivables, the estimated impairment losses were recognised in a separate provision for impairment. The Group considered that
there was evidence of impairment if any of the following indicators were present:
• default or delinquency in payments; or
• other indicators of financial difficulties for the debtor.
The allowance provision for impairment calculated under IAS 39 “Financial instruments: Recognition and measurement” and IFRS 9 “Financial
instruments” at January 2018 are not materially different. Accordingly, there are no adjustments on transition.
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.
144
12. Customer and Other Receivables
An analysis of changes in the gross carrying amount in relation to customer receivables and other trade receivables is as follows:
Gross carrying amount
At 28 January 2018
New assets originated
Recoveries
Transfers from lifetime ECL to credit impaired
Financial assets derecognised during the period
Amounts written off
At 26 January 2019
(continued)
2019
Credit
Impaired
£m
58.0
–
(10.8)
55.8
(17.9)
(6.1)
79.0
Lifetime ECL
£m
1,219.3
1,972.2
(1,807.2)
(55.8)
–
(11.0)
1,317.5
An analysis of the changes in the impairment allowance for customer receivables and other trade receivables is as follows:
Loss allowance
At 28 January 2018
New assets originated
Recoveries
Transfers from lifetime ECL to credit impaired
Change in the allowance for expected credit losses
Financial assets derecognised during the period
Amounts written off
At 26 January 2019
2019
Credit
Impaired
£m
(53.1)
–
10.0
(51.4)
(1.0)
16.5
5.6
(73.4)
Lifetime ECL
£m
(85.7)
(86.9)
79.4
4.0
(4.2)
–
0.8
(92.6)
Total
£m
1,277.3
1,972.2
(1,818.0)
–
(17.9)
(17.1)
1,396.5
Total
£m
(138.8)
(86.9)
89.4
(47.4)
(5.2)
16.5
6.4
(166.0)
Impairment losses on customer and other receivables for the 52 weeks to 27 January 2018 includes the release of a £12m provision for potential
exposures in relation to customer receivables. This element of provision was re-accrued into other creditors and charged to the Income
Statement in administrative expenses, such that there was no overall impact on the profit for the year. The underlying charge for Impairment
losses on customer and other receivables for the 52 weeks to 27 January 2018 was therefore £36m.
Opening balance
Impairment
Amounts recovered
Charged to the Income Statement
Used during the year
Total movement
Closing balance
2019
2018
Lifetime ECL
(85.7)
Credit
impaired
(53.1)
Total
(138.8)
Incurred loss
(137.8)
(12.6)
1.1
(11.5)
4.6
(6.9)
(92.6)
(47.0)
5.8
(41.2)
20.9
(20.3)
(73.4)
(59.6)
6.9
(52.7)
25.5
(27.2)
(166.0)
(28.5)
4.2
(24.3)
23.3
(1.0)
(138.8)
Information on the Group’s credit risk in relation to customer receivables is provided in Note 27.
145
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
13. Other Financial Assets
Foreign exchange contracts
Interest rate derivatives
2019
2018
Current
£m
9.9
–
9.9
Non-current
£m
–
41.5
41.5
Current
£m
5.7
–
5.7
Non-current
£m
–
48.1
48.1
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 27). These instruments are primarily for US Dollars and Euros. Interest rate derivatives are used to
manage the fixed and floating interest rate risk associated with the corporate bonds (refer to Note 18).
14. Cash and Short Term Deposits
Cash at bank and in hand
Short term deposits
2019
£m
156.3
–
156.3
2018
£m
52.8
0.7
53.5
Cash at bank represents the gross cash positions of which the majority are part of the Group’s bank account and interest and balance pooling
arrangements. 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.
15. Bank Loans and Overdrafts
Bank overdrafts and short term borrowings
Unsecured committed bank loans
2019
£m
122.3
255.0
377.3
2018
£m
45.0
135.0
180.0
Bank overdrafts represents the gross overdraft positions of which the majority are part of the Group’s bank account interest and balance pooling
arrangements. 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 27).
16. Trade Payables and Other Liabilities
Trade payables
Refund liabilities
Other taxation and social security
Deferred revenue from sale of gift cards
Property lease incentives
Share-based payment liability
Other creditors and accruals
2019
2018
Current
£m
218.8
6.2
68.3
75.4
34.7
0.2
237.1
640.7
Non-current
£m
–
–
–
–
214.0
0.2
3.3
217.5
Current
£m
168.4
10.9
62.4
78.1
32.6
0.8
227.0
580.2
Non-current
£m
–
–
–
–
218.1
0.7
14.0
232.8
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.
146
17. Other Financial Liabilities
Foreign exchange contracts
Interest rate derivatives
2019
2018
Current
£m
9.4
–
9.4
Non-current
£m
–
9.2
9.2
Current
£m
59.3
–
59.3
Non-current
£m
–
12.4
12.4
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge exchange risk arising from the
Group’s merchandise purchases (Note 27). These instruments are primarily for US Dollars and Euros. Interest rate derivatives are used to manage
the fixed and floating interest rate risk associated with the corporate bonds (Note 18).
18. 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
2019
£m
327.5
277.7
300.0
905.2
2018
£m
328.4
280.1
300.0
908.5
2019
£m
325.0
250.0
300.0
875.0
2018
£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
2019
Nominal
value
£m
150.0
50.0
50.0
50.0
25.0
325.0
2019
Aggregate
interest
rate
2018
Nominal
value
£m
2018
Aggregate
interest
rate
5.375%
5.200%
5.150%
5.050%
6m LIBOR +1.9%
5.375%
5.200%
5.150%
5.050%
6m LIBOR +1.9%
150.0
50.0
50.0
50.0
25.0
325.0
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 27 and the fair values of the corporate bonds are shown in Note 26.
19. 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. 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.
147
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
19. Pension Benefits
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.
(continued)
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.
In August 2018, the Trustees of the 2013 Plan undertook a buy-in in respect of certain pensioner members of the 2013 Plan, with a premium paid
of £94m. As at 26 January 2019 this buy-in policy has a value of £79m within the pension scheme assets.
Within the 2013 Plan, following a High Court ruling, a proportion of members’ benefits are being equalised to address the inequalities that arise
due to differing Guaranteed Minimum Pensions (GMP) entitlements for men and women. This equalisation has increased the IAS 19 liabilities of
the Plan by £0.4m.
The trustee of both Plans is a limited company, NEXT Pension Trustees Limited (the “Trustee”). The Board of the Trustee currently comprises
five directors. Four of these are members of the 2013 Plan, and one director (the Chair) is independent and has no other connection to NEXT.
Two of these directors are member nominated directors and cannot be removed by NEXT. The other three directors, including the independent
director, are appointed by and can be removed by NEXT. All directors of the Trustee receive a fee for their services, including those directors who
are also employees of NEXT. No director of the Company is a director of the Trustee.
The Plans’ investments are kept separate from the business of the NEXT Group and the Trustee holds them in separate trusts. Responsibility for
investment of the Plans’ funds has been delegated to professional investment managers.
The Group operates a salary sacrifice scheme whereby members from either section can elect to receive a reduced gross salary in exchange for
enhanced employer pension contributions. The participation of members in the salary sacrifice scheme does not result in any overall increase
in costs to the Group.
Defined contribution section
The defined contribution section of the 2013 Plan was closed to new members during the year. 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.
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.
Certain members 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).
148
19. Pension Benefits
Principal risks
The following table summarises the principal risks associated with the Group’s defined benefit arrangements:
(continued)
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.
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, 13% of the 2013 Plan pension liabilities and 28% 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.
Income statement
The components of the net defined benefit expense recognised in the Consolidated Income Statement are as follows:
2019
2018
2013
Plan
£m
7.8
0.4
(3.1)
1.8
6.9
Original
Plan
£m
–
–
(0.1)
0.1
–
SPA
£m
0.4
–
0.4
–
0.8
Total
£m
8.2
0.4
(2.8)
1.9
7.7
2013
Plan
£m
8.3
–
(2.2)
1.4
7.5
Original
Plan
£m
–
–
–
0.1
0.1
Current service cost
GMP equalisation
Net interest
Administration costs
Net defined benefit expense
Other comprehensive income
The components of the net defined benefit expense recognised in other comprehensive income are as follows:
Actuarial gains/(losses) due to
liability experience
Actuarial gains/(losses) due to
liability assumption changes
2013
Plan
£m
–
56.0
56.0
2019
Original
Plan
£m
2.5
4.8
7.3
Return on plan assets (less
than)/greater than discount rate
Actuarial gains recognised in
other comprehensive income
(38.7)
(7.3)
17.3
–
SPA
£m
0.3
1.0
1.3
–
1.3
Total
£m
2.8
61.8
64.6
(46.0)
18.6
2013
Plan
£m
4.4
(15.4)
(11.0)
54.1
43.1
2018
Original
Plan
£m
(0.2)
(1.7)
(1.9)
2.0
0.1
SPA
£m
0.4
–
0.5
–
0.9
SPA
£m
0.4
(0.2)
0.2
–
0.2
Total
£m
8.7
–
(1.7)
1.5
8.5
Total
£m
4.6
(17.3)
(12.7)
56.1
43.4
149
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
19. Pension Benefits
Balance sheet valuation
The net defined benefit pension asset recognised in the Consolidated Balance Sheet is analysed as follows:
(continued)
2019
2013
Plan
£m
Original
Plan
£m
(617.8)
757.2
139.4
(134.5)
136.5
2.0
SPA
£m
(16.4)
–
(16.4)
Total
£m
(768.7)
893.7
125.0
2013
Plan
£m
(667.3)
788.5
121.2
2018
Original
Plan
£m
(146.0)
148.0
2.0
SPA
£m
(17.0)
–
(17.0)
Total
£m
(830.3)
936.5
106.2
Present value of benefit
obligations
Fair value of plan assets
Net pension asset/(liability)
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.
Plan obligations
Changes in the present value of defined benefit pension obligations are analysed as follows:
2019
2018
2013
Plan
£m
667.3
7.8
0.4
16.5
0.1
(18.3)
(62.6)
–
6.6
617.8
Original
Plan
£m
146.0
–
–
3.4
–
(7.6)
(3.8)
(2.5)
(1.0)
134.5
SPA
£m
17.0
0.4
–
0.4
–
(0.1)
(1.3)
(0.3)
0.3
16.4
Total
£m
830.3
8.2
0.4
20.3
0.1
(26.0)
(67.7)
(2.8)
5.9
768.7
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
Opening obligation
Current service cost
GMP equalisation
Interest cost
Employee contributions
Benefits paid
Actuarial (gains)/losses
– financial assumptions
– experience
– demographic assumptions
Closing obligation
The present value of the defined benefit closing obligation of £768.7m was comprised of approximately 29% relating to active participants, 46%
relating to deferred participants and 25% relating to pensioners.
Plan assets
Changes in the fair value of defined benefit pension assets were as follows:
2019
2018
2013
Plan
£m
788.5
7.8
0.1
(18.3)
19.6
(38.7)
(1.8)
757.2
Original
Plan
£m
148.0
–
–
(7.6)
3.5
(7.3)
(0.1)
136.5
SPA
£m
–
–
–
–
–
–
–
–
Total
£m
936.5
7.8
0.1
(25.9)
23.1
(46.0)
(1.9)
893.7
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
Opening assets
Employer contributions
Employee contributions
Benefits paid
Interest income on assets
Return on plan assets (excluding
amounts included in interest)
Administrative costs
Closing assets
150
19. Pension Benefits
Plan assets
The fair value of plan assets was as follows:
(continued)
(continued)
Equities
Equity-linked bonds
Bonds
Gilts
Property
Insurance contracts
Cash and cash equivalents
2019
2018
2013
Plan
£m
183.5
54.4
98.5
231.5
102.3
79.2
7.8
757.2
Original
Plan
£m
–
–
–
2.2
–
134.3
–
136.5
Total
£m
183.5
54.4
98.5
233.7
102.3
213.5
7.8
893.7
%
20.6
6.1
11.0
26.1
11.4
23.9
0.9
100.0
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
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 2019 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
2019
2018
Original
plan
2.70%
3.40%
2.40%
–
3.20%
2.20%
2013 and
SPA
2.90%
3.15%
2.15%
–
2.95%
2.05%
Original
plan
2.40%
3.45%
2.45%
–
3.15%
2.05%
2013 and
SPA
2.50%
3.20%
2.20%
–
3.00%
1.95%
2019
2018
Pensioner
aged 65
Non-
pensioner
aged 45
Pensioner
aged 65
Non-
pensioner
aged 45
22.6
24.8
24.4
26.6
22.7
25.0
24.5
26.7
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 Plan 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.
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.
151
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
19. Pension Benefits
Principal assumptions
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).
Future improvement trends have been allowed for in line with the most recent CMI core projection model (CMI 2017) with a long term trend
towards 1.5% per annum.
(continued)
(continued)
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 applied from 2009 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 26 January 2019
£71m decrease
£59m decrease
£3m increase
£13m 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. 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 acted as the 2013 Plan
Actuary to the Trustees until April 2018. From May 2018, Mercer now 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 2018 the 2013 Plan was estimated to be fully funded on a Technical Provisions basis with a surplus in the region of £17m,
therefore a deficit contribution was not payable in January 2019.
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.
Contributions
Members of the defined benefit section of the 2013 Plan contribute 3% or 5% of pensionable earnings; the Group contributes 31.3% 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 during the year are set out below:
Defined contribution – recognised as an expense
Automatic enrolment – recognised as an expense
Defined benefit
152
2019
£m
14.3
7.2
7.7
29.2
2018
£m
11.6
1.8
8.4
21.8
19. Pension Benefits
Contributions
Employer contributions to the defined benefit section in the year ahead are expected to be around £21m assuming a contribution of £14m is
paid in January 2020, 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 are expected to be circa £13m
(including salary sacrifice contributions) for the year ahead. Employer contributions for the automatic enrolment scheme are expected to be
around £12m, including salary sacrifice contributions.
(continued)
(continued)
20. 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
2019
£m
10.4
6.9
(4.5)
(2.9)
0.4
10.3
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 (2018: 8 years).
21. 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
2019
Shares ‘000
2018
Shares ‘000
144,882
(6,276)
138,606
147,057
(2,175)
144,882
2019
£m
14.5
(0.6)
13.9
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
2019
Shares
‘000
6,276
Cost
£m
324.2
324.2
2018
Shares
‘000
2,175
2018
£m
14.7
(0.2)
14.5
Cost
£m
106.1
106.1
Subsequent to the end of the financial year and before the start of the closed period, the Company purchased for cancellation 1,023,306 shares
at a cost of £50.2m.
22. 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.
153
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
23. 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
Remuneration 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
2019
2018
Weighted
average
exercise
price
£47.12
£47.35
£36.66
£49.23
£47.71
£53.85
No. of
options
5,064,951
1,696,653
(411,350)
(767,459)
5,582,795
1,610,693
Weighted
average
exercise
price
£47.61
£41.31
£28.49
£47.46
£47.12
£45.06
No. of
options
5,582,795
1,477,311
(416,282)
(525,669)
6,118,155
1,794,711
Options were exercised on a regular basis throughout the year and the weighted average share price during this period was £53.95 (2018: £44.24).
Options outstanding at January 2019 are exercisable at prices ranging between £13.99 and £70.80 (2018: £10.81 and £70.80) and have a weighted
average remaining contractual life of 5.9 years (2018: 6.0 years), as analysed below:
2019
2018
Weighted
average
remaining
contractual
life
(years)
1.9
8.2
3.5
9.2
6.6
5.7
5.9
No. of
options
1,079,737
1,150,125
894,123
1,118,063
859,435
1,016,672
6,118,155
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
Exercise price range
£10.81 – £38.25
£41.09
£41.12 – £42.08
£48.38
£51.84 – £59.76
£66.95 – £70.80
154
23. Share-based Payments
Share Matching Plan (SMP)
The SMP is an equity-settled scheme open to a small number of senior executives below Board level. 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.
(continued)
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
2019
No. of
options
45,564
10,374
–
(16,484)
39,454
–
2018
No. of
options
76,946
17,298
(43,228)
(5,452)
45,564
–
The weighted average remaining contractual life of these options is 5.4 years (2018: 5.8 years). During the year ending 26 January 2019 no SMP
options were exercised. During the year ending 27 January 2018 SMP options were exercised at different times and the weighted average share
price during this period was £43.12.
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 are now accounted for under IFRS 2 as equity-settled.
Performance conditions for the LTIP awards are detailed in the Remuneration Report.
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 1.5 years (2018: 1.6 years).
2019
No. of
awards
487,442
186,306
(11,442)
(185,417)
–
476,889
2018
No. of
awards
164,783
222,467
(12,752)
(134,668)
247,612
487,442
155
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
23. Share-based Payments
Cash-settled LTIP awards
During the year ending 27 January 2018, the remaining 247,612 cash-settled LTIP awards were transferred to an equity-settled accounting
method resulting in a credit in the year of £5.8m of which £0.1m related to the executive directors.
(continued)
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 26 January 2019 and 27 January 2018
based on information at the date of grant:
Management share options
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
Sharesave plans
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
SMP
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
2019
£48.38
£48.38
28.40%
4 years
1.06%
3.27%
£8.09
2019
£54.34
£43.48
31.35%
3.3 years
0.79%
2.91%
£14.07
2019
£51.86
Nil
31.10%
3 years
0.93%
0.00%
£51.86
2018
£41.09
£41.09
25.90%
4 years
0.32%
3.85%
£5.35
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
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 26 January 2019 and 27 January 2018 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
156
2019
£48.75
Nil
30.62%
3 years
0.95%
0.00%
£22.78
2018
£41.99
Nil
27.10%
3 years
0.30%
3.76%
£16.74
(continued)
23. Share-based Payments
Fair value calculations
(continued)
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
2019
£54.00
Nil
31.40%
3 years
0.87%
0.00%
£26.27
2018
£50.45
Nil
29.40%
3 years
0.52%
0.00%
£23.45
From September 2017, for all new LTIP awards, dividend accruals (both in respect of special and ordinary dividends) may be payable on
vested awards.
24. Shares Held by ESOT
The NEXT 2003 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 26 January 2019 the ESOT held 5,463,200 (2018: 4,826,665) ordinary shares of 10p each in the Company, the market value of which amounted
to £261.0m (2018: £251.8m). Details of outstanding share options are shown in Note 23.
The consideration paid for the ordinary shares of 10p each in the Company held by the ESOT at 26 January 2019 and 27 January 2018 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
2019
2018
Shares
‘000
1,085
448
£m
61.9
15.3
Shares
‘000
842
431
£m
37.0
10.3
Proceeds of £15.8m (2018: £11.3m) were received on the exercise of Management and Sharesave options. The amount shown in the Statement
of Changes in Equity of £15.3m (2018: £10.3m) is after the issue of any nil cost LTIP, SMP and Deferred bonus shares. The weighted average cost
of shares issued by the ESOT was £21.9m (2018: £20.8m).
At 20 March 2019, employee share options over 58,369 shares had been exercised subsequent to the balance sheet date and had been satisfied
by ordinary shares issued by the ESOT.
157
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
25. Financial Instruments: Categories
Financial assets
Derivatives not designated as hedging instruments
Derivatives designated as hedging instruments
Customer and other receivables at amortised cost*
Cash and short term deposits
Non-listed equity instruments designated at fair value through OCI
Financial liabilities
Derivatives not designated as hedging instruments
Derivatives designated as hedging instruments
Interest-bearing loans and borrowings:
Corporate bonds at amortised cost adjusted for the fair value changes attributable to the risk being hedged
Bank loans and overdrafts at amortised cost
Trade and other payables at amortised cost**
2019
£m
2018
£m
0.1
51.3
1,247.8
156.3
1.0
(0.6)
(18.0)
(905.2)
(377.3)
(437.1)
2.4
51.4
1,153.0
53.5
1.0
(4.2)
(67.5)
(908.5)
(180.0)
(395.2)
* Prepayments of £91.6m (2018: £94.2m) and other debtors of £0.4m (2018: £1.0m) do not meet the definition of a financial instrument.
** Other taxation and social security payables of £68.3m (2018: £62.4m), deferred income of £75.4m (2018: £78.1m), property lease incentives
of £248.7m (2018: £250.7m), share-based payment liabilities of £0.4m (2018: £1.5m) and other creditors of £28.3m (2018: £25.1m) do not meet
the definition of a financial instrument.
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 corporate bonds, based on the following assumptions:
Trade receivables, trade payables, short term deposits
and borrowings
Long term borrowings
Derivative financial instruments
The fair value of corporate bonds is as follows:
The fair value approximates the carrying amount because of the short maturity of
these instruments.
The fair value of bank loans and other borrowings approximates the carrying value
reported in the balance sheet as the majority are floating rate where interest rates
are reset at intervals less than one year.
The fair value is determined as the net present value of cash flows using
observable market rates at the reporting date.
Corporate bonds
In hedging relationships
Not in hedging relationships
2019
2018
Carrying
amount
£m
455.2
450.0
905.2
Fair value
£m
461.3
469.0
930.3
Carrying
amount
£m
458.5
450.0
908.5
Fair value
£m
478.8
487.9
966.7
Corporate bonds are held at amortised cost adjusted for the fair value changes attributable to the interest rate risk being hedged.
158
26. Financial Instruments: Fair Values
Fair Value Hierarchy
Financial instruments carried at fair value are required to be measured by reference to the following levels under IFRS 13 “Fair value measurement”:
(continued)
Hierarchy level
Level 1
Inputs
Quoted markets in active markets
for identical assets or liabilities
Financial instruments
Corporate bonds
Level 2
Level 3
Derivative financial instruments
Inputs other than quoted prices
included within Level 1 that
are observable for the asset or
liability, either directly (i.e. as
prices) or indirectly (i.e. derived
from prices)
Inputs for the asset or liability
that are not based on observable
market data (unobservable
market data)
Non-listed equity instruments at
fair value through OCI
Valuation methodology
Market value includes accrued
interest and change in credit
risk and interest rate risk and is
therefore different to the reported
carrying amounts.
Valuation techniques include
forward pricing and swap models
using net present value calculation
of future cash flows. The model
inputs include the foreign
exchange spot and forward rates,
yield curves of the respective
currencies, currency basis spreads
between the respective currencies
and interest rate curves.
The fair value of these non-listed
equity investments has been
estimated using a discounted cash
flow model.
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
The Board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework and for
establishing the Group’s risk management policies.
The Group has exposure to the following risks arising from financial instruments:
• Liquidity risk
•
Interest rate risk
• Foreign currency risk
• Credit risk
• Capital risk
Treasury function
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 include 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.
159
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
Liquidity risk
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s financial
(continued)
liabilities, including cash flows in respect of derivatives:
(continued)
2019
Bank loans and overdrafts
Trade and other payables
Corporate bonds
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
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
377.3
435.2
39.3
851.8
(6.0)
(885.5)
878.6
838.9
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
–
2.0
39.3
41.3
(5.7)
–
–
35.6
1 to 2
years
£m
–
12.8
39.3
52.1
(5.8)
–
–
46.3
2 to 5
years
£m
–
–
407.9
407.9
(13.6)
–
–
394.3
2 to 5
years
£m
–
–
425.4
425.4
(12.3)
–
–
413.1
Over 5
years
£m
–
–
637.2
637.2
(11.1)
–
–
626.1
Over 5
years
£m
–
–
659.0
659.0
(10.7)
–
–
648.3
Total
£m
377.3
437.2
1,123.7
1,938.2
(36.4)
(885.5)
878.6
1,894.9
Total
£m
180.0
395.2
1,163.0
1,738.2
(35.8)
(1,051.7)
1,114.8
1,765.5
At 26 January 2019, the Group had borrowing facilities of £625.0m (2018: £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, this is supplemented by a £100.0m
bridging facility expiring on the earlier of December 2019 or the issue of a Bond. £255.0m of the November 2022 facility was drawn down at
January 2019 (2018: £135.0m).
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 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 manage 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 against part of the interest rate risk associated with the corporate
bonds. Under the terms of the swaps, which have matching features as the bonds, the Group receives a fixed rate of interest equivalent to the
relevant coupon rate, and pays a variable rate interest related to LIBOR. The Group also has interest rate swaps where the Group receives a
variable rate of interest related to LIBOR, and pays a fixed rate. Details of the aggregate rates payable are given in Note 18.
There is an economic relationship between the hedged item and the hedging instrument as the terms of the interest rate swaps match the
terms of the fixed rate corporate bonds (i.e. notional amount and maturity). The Group has established a hedge ratio of 1:1 for the hedging
relationships as the underlying risk of the interest rate swap is identical to the hedged risk component. To test the hedge effectiveness, the Group
uses the hypothetical derivative method and compares the changes in the fair value of the hedging instrument against the changes in the fair
value of the hedged item attributable to the hedged risk.
160
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
Interest rates: fair value hedges
The hedge ineffectiveness can arise from:
• Different interest rate curve applied to discount the hedged item and the hedging instrument
(continued)
(continued)
• Differences in timing of cash flows of the hedged item and hedging instrument
• The counterparties’ credit risk differently impacting the fair value movements of the hedging instrument and the hedged item.
The fair values of the Group’s interest rate swaps, including accrued interest, are as follows:
Derivatives in designated fair value hedging relationships
2019
£m
32.3
2018
£m
35.7
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.
The timing of the nominal amounts of the interest rate swaps are as follows:
At 26 January 2019
Nominal amount (£m)
Average price
At 27 January 2018
Nominal amount (£m)
Average price
October 2021
October 2026
Fixed to floating
175.0
6 month LIBOR + 1.878
Floating to
fixed
Fixed to floating
150.0
5.133
250.0
6 month LIBOR + 1.434
October 2021
October 2026
Fixed to floating
175.0
6 month LIBOR + 1.878
Floating to
fixed
150.0
5.133
Fixed to floating
250.0
6 month LIBOR + 1.434
The impact of the hedging instrument on the Balance Sheet is as follows:
Notional amount
£m
425.0
150.0
Carrying amount*
£m Line item in the Balance Sheet
41.5 Other financial assets
(9.2) Other financial liabilities
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
(6.1)
3.0
425.0
150.0
48.1 Other financial assets
(12.4) Other financial liabilities
(9.1)
4.1
At 26 January 2019
Interest rate swaps – assets
Interest rate swaps – liabilities
At 27 January 2018
Interest rate swaps – assets
Interest rate swaps – liabilities
*The carrying amount of derivatives includes £1.9m of interest accrual (2018: £2.3m).
The impact of the hedged items on the Balance Sheet is as follows:
Carrying amount
£m
275.0
Accumulated fair
value adjustments
£m Line item in the Balance Sheet
30.2
Corporate bonds
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
3.3
275.0
33.5
Corporate bonds
4.9
At 26 January 2019
Fixed-rate borrowings
At 27 January 2018
Fixed-rate borrowings
The ineffectiveness recognised in the Income Statement for the period ended 26 January 2019 was a gain of £0.2m (2018: loss of £0.1m).
161
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
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.
(continued)
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 28.
Foreign currency hedges
There is an economic relationship between the hedged items and the hedging instruments as the terms of the foreign exchange contracts match
the terms of highly probable forecast transactions (i.e. notional amount and expected payment date). The Group has established a hedge ratio
of 1:1 for the hedging relationships as the underlying risk of the foreign exchange contracts are identical to the hedged risk components. To test
hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments
against the changes in the fair value of the hedged items attributable to the hedged risks.
In these hedge relationships, the main sources of ineffectiveness are:
• Differences in the timing of the cash flows of the hedged items and the hedging instruments
• Different indices (and accordingly different curves) linked to the hedged risk of the hedged items and hedging instruments
• The counterparties’ credit risk differently impacting the fair value movements of the hedging instruments and hedged items
• Changes to the forecasted amount of cash flows of hedged items and hedging instruments.
The fair values of foreign exchange derivatives are as follows:
Derivatives in designated hedging relationships
Other foreign exchange derivatives not designated in hedging relationships
Total foreign exchange derivatives
Derivatives designated in hedging relationships at 26 January 2019:
US Dollars (highly probable forecast purchases)
Notional amount (in £m)
Average GBP: USD contract rate
EURO (highly probable forecast purchases)
Notional amount (in £m)
Average GBP: EURO contract rate
Other (highly probable forecast sales)
Notional amount (in £m)
Average GBP: Other contract rate
2019
£m
0.9
(0.4)
0.5
Maturity
1-6 months
559.5
1.33
6-12 months
284.9
1.32
More than
one year
–
–
9.7
1.12
47.0
–
–
–
–
–
–
Various currencies*
2018
£m
(51.8)
(1.8)
(53.6)
Total
844.4
1.32
9.7
1.12
47.0
*4 currencies are hedged, which are individually not material to the financial statements.
162
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
Foreign currency hedges
Derivatives designated in hedging relationships at 27 January 2018:
(continued)
US Dollars (highly probable forecast purchases)
Notional amount (in £m)
Average GBP: USD contract rate
EURO (highly probable forecast purchases)
Notional amount (in £m)
Average GBP: EURO contract rate
Other (highly probable forecast sales)
Notional amount (in £m)
Average GBP: Other contract rate
(continued)
Maturity
1-6 months
770.8
1.32
6-12 months
278.9
1.36
More than
one year
–
–
45.2
1.13
43.0
–
–
–
Various currencies*
–
–
–
Total
1,049.7
1.33
45.2
1.13
43.0
*6 currencies were hedged, which are individually not material to the financial statements.
The impact of the hedging instruments on the Balance Sheet are as follows:
Notional amount
£m
368.4
515.0
Carrying amount
£m Line item in the Balance Sheet
9.9 Other financial assets
(9.4) Other financial liabilities
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
53.6
20.1
150.6
987.8
3.3 Other financial assets
(55.1) Other financial liabilities
(9.7)
(70.2)
At 26 January 2019
Foreign exchange contracts
Foreign exchange contracts
At 27 January 2018
Foreign exchange contracts
Foreign exchange contracts
The impact of the hedged items on the Balance sheet is as follows:
26 January 2019
27 January 2018
Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
1.2
72.5
Closing cash
flow hedge
reserve
£m
1.2
(0.7)
Closing cost
of hedging
reserve
£m
–
0.5
Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
3.4
(83.2)
Closing cash
flow hedge
reserve
£m
0.6
(52.4)
Closing cost
of hedging
reserve
£m
–
–
Highly probable forecast sales
Highly probable forecast stock purchases
The effect of the cash flow hedge in the Income Statement or other comprehensive income is as follows:
Year ended 26 January 2019
Highly probable forecast sales
Highly probable forecast stock purchases
Year ended 27 January 2018
Highly probable forecast sales
Highly probable forecast stock purchases
Ineffectiveness
recognised in
Income
Statement
£m
–
–
Cost of
hedging
recognised in
OCI
£m
–
0.5
Included in
inventories
£m
–
(18.4)
Amount
reclassified
from OCI to
Line item in
the Income
the Income
Statement
Statement
£m
Revenue
0.7
(1.9) Cost of sales
–
–
–
8.8
–
–
2.4
Revenue
(9.9) Cost of sales
163
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises primarily from the Group’s Online customer receivables. The carrying amount of financial assets represents the maximum residual
credit exposure, which was £1,230.5m at the reporting date (2018: £1,138.5m)
(continued)
These are detailed in Note 12.
The Group’s credit risk in relation to customer receivables is influenced mainly by the individual characteristics of each customer. The Board of
directors has established a credit policy under which each new credit customer is analysed individually for credit worthiness and subject to credit
verification procedures. Receivable balances are monitored on an ongoing basis and provision is made for estimated irrecoverable amounts
using forward looking estimates. The concentration of credit risk is limited due to the Online customer base being large and diverse. At January
2019 there were 2.58m active customers (2018: 2.54m) with an average balance of £533 (2018: £493). The Group’s outstanding receivables
balances and impairment losses are detailed in Note 12. The performance of our credit risk policies and the risk of the debtor book are monitored
weekly by management. Any trends and deviations from expectations are investigated. Senior management review is carried out monthly.
Customer receivables with value £23.5m at January 2019 were on Reduced Payment Indicator (RPI) plans. An allowance for Expected Credit
Losses (ECLs) of £17.9m has been made against these balances. Customers are typically on RPI plans for a period of 12 months during which no
interest is charged and repayment rates are reduced. On completion of the RPI plan the customer would be treated as higher risk than the arrears
stage and credit score would suggest. Any modification gain or loss recognised is immaterial to the financial statements.
The following table contains an analysis of the credit risk exposure to customer receivables, using Experian’s Consumer Indebtedness Index (a
measure of customers’ affordability) mapped to NEXT’s internal credit grade.
Credit grade
Very low risk
Low risk
Medium risk
High risk
Gross carrying amount before credit impaired
Credit impaired
Gross carrying amount after credit impaired
Loss allowance
Carrying amount
2019
Total
£m
612.7
354.5
246.1
104.2
1,317.5
79.0
1,396.5
(166.0)
1,230.5
2018
Total
£m
551.5
330.1
238.3
99.4
1,219.3
58.0
1,277.3
(138.8)
1,138.5
164
27.
Financial Instruments:
Financial Risk Management and Hedging Activities
Credit risk
Analysis of customer receivables and other trade receivables, stratified by credit grade, is as follows:
(continued)
(continued)
1-30
days past
due
£m
31-60
days past
due
£m
61-90
days past
due
£m
91-120
days past
due
£m
> 120
days past
due
£m
Current
£m
595.2
334.3
219.0
69.5
–
1,218.0
Customer receivables and other trade receivables
Very low risk
Low risk
Medium risk
High risk
Otherwise impaired
Total
Loss allowance
Very low risk
Low risk
Medium risk
High risk
Otherwise impaired
Total
Expected loss rate %
Very low risk
Low risk
Medium risk
High risk
Otherwise impaired
Total
0.5%
3.1%
10.2%
24.5%
–
4.4%
(3.3)
(10.4)
(22.4)
(17.0)
–
(53.1)
13.3
12.6
13.4
9.0
–
48.3
(0.2)
(1.0)
(2.3)
(3.4)
–
(6.9)
1.6%
7.7%
17.3%
38.0%
–
14.3%
1.2
1.8
4.0
5.2
–
12.2
(0.1)
(0.4)
(1.4)
(2.8)
–
(4.7)
5.3%
21.2%
33.7%
55.9%
–
38.5%
0.2
0.6
1.6
3.7
–
6.1
–
(0.3)
(0.9)
(2.5)
–
(3.7)
6.6%
53.5%
55.4%
67.9%
–
60.8%
0.3
0.2
0.9
3.8
–
5.2
–
(0.1)
(0.6)
(2.8)
–
(3.5)
6.9%
70.1%
64.1%
73.3%
–
67.0%
2.5
5.0
7.2
13.0
79.0
106.7
(1.2)
(3.0)
(5.0)
(11.5)
(73.4)
(94.1)
47.6%
61.2%
69.4%
87.8%
92.9%
88.2%
Total
£m
612.7
354.5
246.1
104.2
79.0
1,396.5
(4.8)
(15.2)
(32.6)
(40.0)
(73.4)
(166.0)
0.8%
4.3%
13.2%
38.4%
92.9%
11.9%
There is no collateral and therefore all amounts that are past due are impaired.
Investments of cash surpluses and derivative contracts 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. The Group does not consider
there to be any impairment loss in respect of these balances (2018: £nil). The maximum exposure to credit risk at the reporting date is the
carrying value of each class of asset.
Capital risk
The capital structure of the Group consists of debt, as analysed in Note 29, 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 returns to shareholders 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.
165
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
28. Financial Instruments: Sensitivity Analysis
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%
Income Statement
Equity
2019
£m
(2.6)
2.6
2018
£m
(2.1)
2.1
2019
£m
(2.6)
2.6
2018
£m
(2.1)
2.1
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
reporting 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
Equity
2019
£m
(0.8)
–
(1.1)
–
2018
£m
(1.6)
–
1.8
–
2019
£m
(49.1)
0.6
54.7
(0.7)
2018
£m
(46.5)
(2.7)
57.8
3.3
Year end exchange rates applied in the above analysis are US Dollar 1.32 (2018: 1.42) and Euro 1.15 (2018: 1.14). 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.
29. 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
166
January
2018
£m
53.5
(45.0)
8.5
(135.0)
(908.5)
33.5
(1,001.5)
Other non-cash charges
Cash flow
£m
Foreign
exchange
£m
Fair value
changes
£m
24.5
(120.0)
–
–
(95.5)
1.0
–
–
–
1.0
–
–
3.3
(3.1)
0.2
January
2019
£m
156.3
(122.3)
34.0
(255.0)
(905.2)
30.4
(1,095.8)
30. 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
2019
£m
243.4
711.7
723.6
1,678.7
2018
£m
243.3
779.6
824.8
1,847.7
At January 2019, future rentals receivable under non-cancellable sub-leases where the Group is the lessor were £18.6m (2018: £12.7m).
Additional information on the Group’s leasing commitments as at 26 January 2019 is detailed in the table below:
Year to January 2018 (Actual)
Year to January 2019 (Actual)
Year to January 2020
Year to January 2021
Year to January 2022
Year to January 2023
Year to January 2024
Subtotal 5 years to January 2024
5 years from February 2024 to January 2029
10 years from February 2029 to January 2039
2039 and beyond
Total future obligations
Minimum
lease
payments
£m
Less
sub-lease
income
£m
250.0
243.1
243.4
217.1
190.1
166.0
138.5
955.1
461.5
252.2
9.9
1,678.7
(9.2)
(12.3)
(11.6)
(4.9)
(0.7)
(0.5)
(0.4)
(18.1)
(0.5)
–
–
(18.6)
Net total
£m
240.8
230.8
231.8
212.2
189.4
165.5
138.1
937.0
461.0
252.2
9.9
1,660.1
167
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
31. 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
Amounts outstanding at year end
2019
£m
7.0
0.5
During the year the Group entered into the following transactions with its joint venture Retail Restaurants Limited, as follows:
Loans advanced
Recharge of costs and loan interest
Amounts outstanding at year end
2019
£m
0.7
0.5
2.5
The loan of £2.5m earns interest at a commercial arms-length rate.
During the year the Group entered into the following transactions with its associate undertaking Custom Gateway Limited, as follows:
Costs recharged by Custom Gateway
Amounts owed at year end
The Group’s other related party transactions were the remuneration of key management personnel (refer to Note 4).
2019
£m
(0.4)
–
2018
£m
7.1
0.6
2018
£m
1.5
0.6
–
2018
£m
–
–
168
PARENT
COMPANY
FINANCIAL
STATEMENTS
170 Parent Company Balance Sheet
171 Parent Company Statement of Changes in Equity
172 Notes to the Parent Company Financial Statements
169
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany 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
26 January
2019
£m
27 January
2018
£m
Notes
C2
C3
C4
C5
C5
C6
C6
C6
C7
2,475.7
41.5
2,517.2
2,475.7
48.1
2,523.8
405.2
21.6
426.8
(508.6)
(81.8)
99.5
0.3
99.8
(170.0)
(70.2)
2,435.4
2,453.6
(914.4)
(1,423.0)
(920.9)
(1,090.9)
1,521.0
1,532.7
13.9
0.9
16.0
(271.6)
985.2
776.6
14.5
0.9
15.4
(231.6)
985.2
748.3
1,521.0
1,532.7
The profit for the year dealt with in the accounts of the Company is £561.0m (2018: £562.0m).
The financial statements were approved by the Board of directors and authorised for issue on 21 March 2019. They were signed on its behalf by:
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
170
PARENT COMPANY STATEMENT OF
CHANGES IN EQUITY
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
At 27 January 2018
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
14.7
–
–
–
(0.2)
–
–
–
–
14.5
–
–
–
(0.6)
–
–
–
–
Share
premium
account
£m
0.9
–
–
–
Capital
redemption
reserve
£m
15.2
–
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
0.2
–
–
–
–
15.4
–
–
–
0.6
–
–
–
–
ESOT
reserve
£m
(215.4)
–
–
–
Other
reserves
£m
985.2
–
–
–
Profit and
loss account
£m
768.5
562.0
–
562.0
Total
equity
£m
1,569.1
562.0
–
562.0
–
–
(106.1)
(106.1)
(37.0)
20.8
–
–
(231.6)
–
–
–
–
(61.9)
21.9
–
–
–
–
–
–
985.2
–
–
–
–
–
–
–
–
–
(10.5)
14.1
(479.7)
748.3
561.0
–
561.0
(37.0)
10.3
14.1
(479.7)
1,532.7
561.0
–
561.0
(324.2)
(324.2)
–
(6.6)
13.8
(215.7)
(61.9)
15.3
13.8
(215.7)
At 26 January 2019
13.9
0.9
16.0
(271.6)
985.2
776.6
1,521.0
171
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany 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 120 to
131. 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 (2018: £2,475.7m) investment shown in the Balance Sheet of NEXT plc relates to its investment in Next Group plc (formerly Next
Group Limited). A full list of the Group’s related undertakings is contained in the table below.
Company name
AgraTech Limited
Belvoir Insurance Company Limited
Brecon Debt Recovery Limited
Cairns Limited
Callscan, Inc.
Choice Discount Stores Limited
Custom Gateway Limited
Lipsy Limited
LLC Next
Next (Asia) Limited
Next Sourcing Limited Shanghai Office
Next AV s.r.o.
Next Brand Limited
Next Distribution Limited
Next Financial Services Limited
Next Germany GmbH
Next Group plc
Next Holdings Limited
Next Holding Wholesale Private Limited
Next Manufacturing (Pvt) Limited
Next Manufacturing Limited
Next Near East Limited
Next Pension Trustees Limited
Next PK s.r.o.
Next Procurement (Private) Limited
Next Properties Limited
Next Retail Limited
Next Retail (Ireland) Limited
Next Sourcing Company Limited
Next Sourcing (UK) Limited
Next Sourcing Limited
Next Sourcing Limited Domestic and/or Foreign Trade
Limited Liability Company
Next Sourcing Services Limited
Next Sourcing Services (India) Private Limited
Next Sourcing VM Limited
Next Sweden AB
Next Commercial Trading (Shanghai) Co Limited
NSL Limited
Project Norwich Limited
Perimeter Technology Inc.
Retail Restaurants Limited
The Next Directory Limited
The Paige Group Limited
Ventura Group Limited
Ventura Network Distribution Limited
172
Registered office address
Glen House, 200-208 Tottenham Court Road, London, W1T 7PL
Maison Trinity, Trinity Square, St Peter Port, GY1 4AT, Guernsey
Desford Road, Enderby, Leicester, LE19 4AT, UK
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
c/o Sedulo, 62-66 Deansgate, Manchester M3 2EN
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
9F, Building 1, Highstreet loft, No.508 Jiashan Road, Shanghai
Pribinova 8, 811 09, Bratislava, Slovakia
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Landsberger Stra. 155, 80687 München
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
2nd Floor, Unit No 201, Alpha Hiranandani Gardens, Powai, Mumbai, 400076 India
Phase 1, Ring Road, 2,E.P.Z, Katunayake, Sri Lanka
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Rohanské nábreží 671/15, Karlín, Prague 8, 186 00, Czech Republic
House No.680, Safari Villas, Sector B Bahria Town, Lahore, Pakistan
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
13-18 City Quay, Dublin 2, D02 ED70, Ireland
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
Kemankes Karamustafapasa Mahallesi Tophane iskele Cad. No: 12/5 Beyoglu, Istanbul, Turkey
Giant Business Tower, Level 4 & 5, Plot #3, Sector-3, Dhaka Mymensingh Road, Uttara Commercial
Area, Dhaka, 1230 Bangladesh
207 Jaina Tower, 1 District Centre, Janakpuri, New Delhi, 110058, India
14/F Cityplaza 1, 1111 King’s Road, Taikoo Shing, Quarry Bay, Hong Kong
Desford Road, Enderby, Leicester, LE19 4AT, UK
Room 301, Building No.4, No.58 Ruixing Lu, Shanghai FTC, PRC, 201306
14/F Cityplaza 1, 1111 King’s Road, Taikoo Shing, Quarry Bay, Hong Kong
Desford Road, Enderby, Leicester, LE19 4AT, UK
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
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
% held by
Group
companies
100
100
100
100
100
49
30
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
100
100
100
50
100
100
100
100
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
C3. Other Financial Assets
Other financial assets comprise interest rate derivatives as detailed in Note 13 of the consolidated financial statements, which are carried at
their fair value.
C4. Other Debtors
Amounts due from subsidiary undertaking
Other receivables
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
2019
£m
400.0
0.4
4.8
405.2
2018
£m
91.1
–
8.4
99.5
2019
2018
Current
£m
–
255.0
37.0
192.6
1.0
–
23.0
508.6
Non-current
£m
905.2
–
–
–
–
–
9.2
914.4
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 18. Other financial liabilities include interest rate swaps carried at fair
value (refer to Note 17).
C6. Share Capital, ESOT and Other Reserves
Details of the Company’s share capital and share buybacks are given in Note 21. ESOT transactions are detailed in Note 24. Other reserves in the
Company Balance Sheet of £985.2m (2018: £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 £271.6m (2018: £231.6m). At January
2019, therefore, the amount available for distribution by reference to these accounts is £505.0m (2018: £516.7m). 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.
C8. Post Balance Sheet Event
Next Group plc (formerly Next Group Limited) was incorporated as a direct, wholly-owned subsidiary of NEXT plc and as an intermediate holding
company between NEXT plc and its other subsidiaries (together, the “Group”), as part of a capital reorganisation of the Group.
This capital reorganisation was to enable the Group to maintain flexibility to use its long established policy of returning free cash flow to
shareholders through share buybacks and special dividends (the “Share Buyback Policy”) by creating additional headroom in the Group’s
distributable reserves.
In order for the Group not to be constrained in the use of its Share Buyback Policy, NEXT plc obtained the requisite consent from each of the
bond trustees and each of its lending banks to substitute Next Group plc for itself as the primary obligor under all of its existing debt obligations,
including each of the Bonds and its bank facilities (the “Substitution”). This Substitution was with effect on and from 31 January 2019 at which
time, the Bonds became the liability of the Next Group plc and they were unconditionally and irrevocably guaranteed by NEXT plc.
173
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany SHAREHOLDER
INFORMATION
175 Half Year and Segment Analysis (unaudited)
176 Five Year History (unaudited)
177 Glossary
179 Notice of Meeting
185 Other Shareholder Information
174
HALF YEAR AND SEGMENT ANALYSIS (UNAUDITED)
Total sales1
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
Profit before tax
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment profit
Recharge of interest
Other activities
Net finance costs
Profit before tax
First
half
£m
Second
half
£m
52 weeks to
Jan 2019
£m
925.1
892.3
122.0
30.9
2.9
7.8
5.2
1,986.2
73.2
163.3
57.9
3.0
14.8
3.6
4.4
320.2
19.8
(9.5)
(19.4)
311.1
1,030.0
1,026.5
128.3
31.3
4.0
7.3
7.3
2,234.7
139.1
189.3
63.3
3.2
14.8
7.4
2.3
419.4
20.3
(8.2)
(19.7)
411.8
1,955.1
1,918.8
250.3
62.2
6.9
15.1
12.5
4,220.9
212.3
352.6
121.2
6.2
29.6
11.0
6.7
739.6
40.1
(17.7)
(39.1)
722.9
First
half
£m
993.2
764.3
108.5
32.6
3.2
7.7
4.5
1,914.0
95.1
134.8
58.7
4.1
16.1
2.5
2.9
314.2
18.6
(7.6)
(15.8)
309.4
Second
half
£m
1,129.8
908.1
114.8
34.6
3.4
8.2
4.6
2,203.5
173.6
175.0
53.2
3.6
16.9
2.4
0.7
425.4
22.0
(12.7)
(18.0)
416.7
52 weeks to
Jan 2018
Restated2
£m
2,123.0
1,672.4
223.3
67.2
6.6
15.9
9.1
4,117.5
268.7
309.8
111.9
7.7
33.0
4.9
3.6
739.6
40.6
(20.3)
(33.8)
726.1
1. As defined in Note 1 of the consolidated financial statements.
2. Refer to the note on change in prior year comparatives on page 48.
175
Strategic ReportGovernanceFinancial StatementsShareholder Information FIVE YEAR HISTORY (UNAUDITED)
Year to January
Underlying1 continuing business
Total sales2
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
2019
£m
2018
£m
2017
£m
2016
£m
2015
£m
4,220.9
4,167.4
4,117.5
4,090.73
4,136.8
4,097.3
4,213.7
4,176.9
4,027.8
3,999.8
762.0
(39.1)
722.9
–
–
(132.5)
590.4
759.9
(33.8)
726.1
–
–
(134.3)
591.8
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
Total equity
553.8
482.6
510.5
311.8
321.9
Shares purchased for cancellation
6.3m
2.2m
3.6m
2.2m
2.2m
Dividends per share – ordinary
– special
Basic Earnings Per Share
Underlying (52 weeks)
Total
165.0p
–
435.3p
435.3p
158.0p
180.0p
416.7p
416.7p
158.0p
–
441.3p
441.3p
158.0p
240.0p
442.5p
450.5p
150.0p
150.0p
419.8p
428.3p
1. Underlying is shown pre-exceptional items.
2. As defined in Note 1 of the consolidated financial statements.
3. 2018 statutory revenue has been restated to reflect the retrospective application of IFRS 15 (refer to Note 1 of the consolidated financial statements).
176
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.
Average active customers
Those customers who have purchased using their Online account,
or received a standard account statement in the last 20 weeks.
Customers can be either Online credit or cash customers.
Average debtor balance
The average amount of money owed by all nextpay and next3step
customers less any provision for bad debt. This represents the total
balances we expect to recover averaged across the relevant period.
Bad debt charge
The charge taken in relation to the performance of our customer
debtor book. This consists predominantly of a charge on the debt
owed by customers who have defaulted and the cost of providing for
future defaults.
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.
Branch profitability
Retail store total sales less cost of sales, payroll, controllable costs,
occupancy costs and depreciation, and before allocation of central
overheads. Expressed as a percentage of VAT inclusive sales. Net branch
profit is a measure of the profitability on a store by store level.
Cost of funding
Interest is charged to the NEXT Finance business in respect of funding
costs for the Online debtor balance. It is calculated by applying the
average Group interest rate (i.e. the external borrowing rate of the
NEXT Group divided by the average NEXT Group borrowing) to the
average debtor balance.
Credit sales
VAT exclusive sales from Online credit customers who have
purchased using their Online account, inclusive of any interest income
charges and delivery charges, and after deducting any applicable
promotional discounts.
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, end-of-season or
Black Friday 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.
Interest income
The gross interest billed to nextpay and next3step customers, before
any deduction for unpaid interest on bad debt.
Like-for-like sales
Change 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 debt
Comprises cash and cash equivalents, bank
loans, corporate
bonds, fair value hedges of corporate bonds and finance leases.
Refer to Note 29 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.
Net profit (NEXT Finance)
The profit, including interest income and the bad debt charge, and
after the allocation of central overheads and the cost of funding.
Return on Capital Employed – ROCE
(NEXT Finance)
The NEXT Finance net profit (after the interest charge relating to the
cost of funding), divided by the average debtor balance.
Surplus cash
Cash flow after capital expenditure, interest, tax and ordinary
dividends but before financing any increase in Online debtors.
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.
177
Strategic ReportGovernanceFinancial StatementsShareholder Information GLOSSARY
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.
Lease term
Refers to the period from the start of the lease agreement to the
earlier of the lease agreement end date or, if applicable, the date of
the earliest break-clause.
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, end-of-season or
Black Friday 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 one of
our Call Centres.
Online credit customers
Customers who order using an Online credit account (nextpay or
next3step 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 155).
SMP
Share Matching Plan (refer to page 155).
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.
178
NOTICE OF MEETING
THIS DOCUMENT
IS
IMMEDIATE ATTENTION.
IMPORTANT AND REQUIRES YOUR
14 Directors’ authority to allot shares
If you are in any doubt as to the action you should take, you should
immediately consult your stockbroker, bank manager, solicitor,
accountant or other independent 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, to the purchaser or transferee,
or to the stockbroker 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 16 May 2019 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.
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.
up to a maximum nominal amount of £4,500,000 (as
reduced by any equity securities allotted under paragraph
(a)(ii) below); and
up to a maximum nominal amount of £9,100,000 (as
reduced by any equity securities allotted under paragraph
(a)(i) above) in connection with an offer by way of a
rights issue;
b.
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 16 August 2020; and
Further information on these resolutions can be found in the
Directors’ Report on pages 68 to 70 and in the Appendix to this
Notice. Biographies of the directors are shown on pages 66 and 67 of
the Annual Report. Subsequent to the signing of the Annual Report,
Jonathan Bewes was appointed as a non-executive director of The
Sage Group plc with effect from 1 April 2019.
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).
1
To receive and adopt the accounts and reports of the directors and
auditor for the year ended 26 January 2019.
15 General disapplication of pre-emption rights
That, subject to resolution 14 being passed:
a.
the directors be given power to allot equity securities for cash;
b.
the power under paragraph (a) above (other than
in
connection with a rights issue) shall be limited to the allotment
of equity securities having a nominal amount not exceeding
in aggregate £687,000 representing 5% of the issued ordinary
share capital;
c.
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 16 August 2020; 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).
2 To approve the Directors’ Remuneration Report.
3
To declare a final dividend of 110p per ordinary share.
To elect the following director appointed by the directors since the
last AGM who is seeking election in accordance with the Company’s
Articles of Association:
4 Tristia Harrison.
To re-elect the following directors who are seeking annual re-election
in accordance with the UK Corporate Governance Code:
5 Jonathan Bewes.
6 Amanda James.
7 Richard Papp.
8 Michael Roney.
9 Francis Salway.
10 Jane Shields.
11 Dame Dianne Thompson.
12 Lord Wolfson.
13 To re-appoint PricewaterhouseCoopers LLP as auditor of the
Company, to hold office until the conclusion of the 2020 AGM of the
Company and to authorise the directors to set their remuneration.
179
Strategic ReportGovernanceFinancial StatementsShareholder Information
NOTICE OF MEETING
16 Additional disapplication of pre-emption rights
That, subject to resolutions 14 and 15 being passed:
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 16 August 2020;
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
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 London Branch,
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 for the
off-market purchase by the Company of its ordinary shares of 10
pence each under or pursuant to the Programme Agreements, as
more fully described in the appendix on page 181 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 close of business on 16 August 2020
(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).
19 Notice of general meetings
That 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
11 April 2019
a.
the directors be given the power to allot additional equity
securities for cash;
e.
b.
the power under paragraph (a) above (other than in connection
with a rights issue) shall be:
limited to the allotment of equity securities having a
nominal amount not exceeding in aggregate £687,000
representing 5% of the issued ordinary share capital; and
f.
i.
ii.
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.
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 16 August 2020; 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 20,637,000 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 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;
180
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”) is fixed at the start of the CFT.
The Forward Price is 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 period 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 Financial Conduct 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
terminates automatically at that time and no further shares would be
purchased under that contract.
Under 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 of 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 16 August
2020 and will incorporate the terms of an ISDA Master Agreement
and Schedule. The Programme Agreements will be entered into and
each CFT will be effected outside a Closed Period but shares may be
purchased by the Company during a Closed Period.
APPENDIX
Further information on resolution 18:
Off-market purchases of own shares
As noted in the Directors’ Report on page 69, approval will be sought
from shareholders to renew the Company’s authority to make off-
market purchases of its shares.
Special resolution 17 passed at the Company’s 2018 AGM, granted
authority to the Company to make on-market purchases of a maximum
number of 21,521,000 shares and expires on the earlier of the date of
the 2019 AGM or 17 August 2019. 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 2019 AGM or 17 August 2019. Pursuant to those
authorities and up to 20 March 2019, the Company has bought back
3,877,449 shares for cancellation, representing 2.7% of its issued share
capital as at the date of the 2018 AGM, at a total cost of £205.4m.
No shares were bought back under contingent purchase contracts.
Sections 693 and 694 of the 2006 Act provide that the terms of any
contract to make off-market purchases or contingent purchases
of its shares must be approved by shareholders. Furthermore, the
Market Abuse Regulation (“MAR”) limits the Company’s ability to
purchase its shares at a time when it is in receipt of unpublished price
sensitive information about the Company (“Inside Information”).
The Company also typically does not purchase its shares during the
period commencing 30 days before the announcement of its interim
results and full year results in September and March (respectively)
each year (a “Closed Period”), as defined in Article 19(11) of MAR.
In the absence of a Programme Agreement (as defined below), these
MAR restrictions and 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 permitted outside of Closed Periods to enter into
irrevocable and non-discretionary programmes and/or contingent
forward purchase contracts which would allow it to buy shares during
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 (but 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.
181
Strategic ReportGovernanceFinancial StatementsShareholder Information NOTICE OF MEETING
Should shareholder approval be granted, any number of CFT may be
effected with the Banks at any time, provided that:
• the total maximum number of shares which the Company is
permitted to purchase pursuant to this authority would be 3 million,
representing circa 2.2% of its issued share capital at 20 March 2019;
• 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 percent 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 16 May 2019 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 2020 AGM or
on 16 August 2020, whichever is the earlier, unless such authority is
renewed prior to that time (except in relation to the purchase of shares
under any CFT effected before the expiry of such authority and which
might be completed wholly or partly after such expiry). The purchase
of shares under the Programme Agreements will always be physically
settled by delivery of shares to the Company (except in the case of
certain events of default or termination events).
A copy of each of the Programme Agreements will be available at the
AGM on 16 May 2019. 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.
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 24 of the financial statements).
MEETING FORMALITIES
AND VOTING
Attending the Annual General Meeting
To be entitled to attend, speak and vote at the AGM and for the purposes
of determining the number of votes they may cast, shareholders must
be registered in the register of members of the Company as at 6.30 pm
on 14 May 2019 or if the meeting is adjourned at 6.30 pm on the day
which is two working days before the adjourned meeting.
The total number of the Company’s issued share capital on 20 March
2019, which is the latest practicable date before the publication of this
Notice, is 137,582,327 ordinary shares. All of the ordinary shares carry
one vote each and there are no shares held in treasury.
In line with best practice, all resolutions will be decided by way of a
poll. This means that a shareholder has one vote for every share held.
The directors believe a poll is most representative of shareholders’
voting intentions because shareholders’ votes are counted according
to the number of shares held, and the proxy vote is added to the
votes of shareholders present so that all votes 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. shares which may be purchased pursuant to the Programme
Agreements) voted for 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.
182
Voting and proxies
Whether or not you intend to attend the AGM in person, please
complete and return the form of proxy to Equiniti, to arrive not later
than 9.30 am on 14 May 2019 (or 48 hours before any adjourned
meeting). If you complete and return the proxy form you can still
attend and vote at the AGM if you 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 can
only be exercised by registered members of the Company and do not
apply to a Nominated Person. Nominated persons 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 (i.e. the first named joint holder recorded in the
Company’s share register) will be accepted.
A member who appoints as their proxy someone other than the
Chairman, should ensure 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 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 14 May 2019.
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
16 May 2019 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 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.
183
Strategic ReportGovernanceFinancial StatementsShareholder Information NOTICE OF MEETING
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 for
15 minutes prior to and for the duration of the AGM:
• a copy of each executive director’s contract of service;
• a copy of each non-executive director’s letter of appointment; and
• 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 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.
184
OTHER SHAREHOLDER INFORMATION
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
2019 to holders of ordinary shares registered at close of business on
5 July 2019. The ordinary shares will trade ex-dividend from 4 July 2019.
Annual General Meeting
The AGM will be held at 9.30 am on Thursday 16 May 2019 at the
Leicester Marriott Hotel, Smith Way, Grove Park, Leicester LE19 1SW.
The Notice of the Meeting on pages 179 to 184 sets out business to
be transacted. Full access is available to the venue for those with
special requirements.
Share price data
(Stock Exchange Code: NXT.L)
Share price at financial year end
Market capitalisation
Share price movement during year:
High mid-market quotation
Low mid-market quotation
2019
£47.77
£6,621m
2018
£52.18
£7,560m
£62.02
£39.91
£53.20
£36.17
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 contact the Company Secretary’s
office (companysecretariat@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 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 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
settlement.
for electronic
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 at nextplc.co.uk or from Equiniti,
telephone +44 (0) 371 384 2164.
185
Strategic ReportGovernanceFinancial StatementsShareholder Information OTHER SHAREHOLDER INFORMATION
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 54 to 58; 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.
186
Printed using vegetable oil based inks by Pureprint Group, a CarbonNeutral® Company with FSC® certification.
Pureprint is a CarbonNeutral Company and FSC certified.
This document is printed on Revive Silk 100 paper, manufactured from FSC® Recycled certified fibre derived
from 100% pre and post-consumer waste and Carbon Balanced with World Land Trust.
The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon
emissions through the purchase and preservation of high conservation value land.
Through protecting standing forests, under threat of clearance, carbon is locked in that would otherwise be
released. These protected forests are then able to continue absorbing carbon from the atmosphere, referred to as
REDD (Reduced Emissions from Deforestation and forest Degradation). This is now recognised as one of the most
cost-effective and swiftest ways to arrest the rise in atmospheric CO2 and global warming effects. Additional to
the carbon benefits is the flora and fauna this land preserves, including a number of species identified at risk of
extinction on the IUCN Red List of Threatened Species.
Produced by Radley Yeldar www.ry.com
A
N
N
U
A
L
R
E
P
O
R
T
A
N
D
A
C
C
O
U
N
T
S
2
6
J
A
N
U
A
R
Y
2
0
1
9