AN N UAL R E P O RT & ACCO U NT S
JAN UARY 2020
CONTENTS
Chief Executive’s Review
Strategic
Report
3
54 Business Model
56 Key Performance Indicators
58 Risks and Uncertainties
65 Viability Assessment
66 Corporate Responsibility
73 Section 172 Statement
Financial
Statements
Group Financial Statements
132 Consolidated Income Statement
133 Consolidated Statement of
Comprehensive Income
134 Consolidated Balance Sheet
135 Consolidated Statement of Changes
in Equity
136 Consolidated Cash Flow Statement
137 Group Accounting Policies
149 Notes to the Consolidated
Financial Statements
Parent Company Financial Statements
194 Parent Company Balance Sheet
195 Parent Company Statement of
Changes in Equity
196 Notes to the Parent Company
Financial Statements
Governance
80 Directors’ Biographies
82
Directors’ Responsibilities
Statement
83 Corporate Governance Report
90 Nomination Committee Report
91 Audit Committee Report
96 Remuneration Report
122 Directors’ Report
124 Independent Auditor’s Report
Shareholder
Information
199 Half Year and Segment Analysis
200 Five Year History
201 Glossary
204 Notice of Meeting
216 Other Shareholder Information
FINANCIAL
HIGHLIGHTS
TOTAL SALES* APM
Underlying continuing business
Jan 16†
Jan 17
Jan 18
Jan 19
Jan 20
+3.3%
n
b
1
4
£
.
n
b
1
4
£
.
n
b
1
4
£
.
n
b
2
4
£
.
n
b
4
.
4
£
PROFIT BEFORE TAX APM
Underlying continuing business
Jan 16†
Jan 17
Jan 18
Jan 19
Jan 20
+0.8%
m
1
2
8
£
m
0
9
7
£
m
6
2
7
£
m
3
2
7
£
m
9
2
7
£
EARNINGS PER SHARE APM
Underlying
Jan 16†
Jan 17
Jan 19
Jan 18
Jan 20
+5.6%
.
p
5
2
4
4
.
p
3
1
4
4
.
p
7
6
1
4
.
P
3
5
3
4
p
8
.
9
5
4
FINANCIAL HIGHLIGHTS
ON STATUTORY BASIS
Total revenue (£bn)
Profit before tax (£m)
Earnings per share (p)
Jan 20
4.3
749
472.4
Jan 19
4.2
734
441.7
*
Total sales are VAT exclusive sales and include the full
value of commission-based sales and interest income
(refer to Note 1 to the financial statements)
Sales, profit and EPS figures for Jan 16 are shown on a
comparable 52 week basis
APM Alternative Performance Measure
†
S
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1
STRATEGIC
REPORT
3
Chief Executive’s Review
54 Business Model
56 Key Performance Indicators
58 Risks and Uncertainties
65 Viability Assessment
66 Corporate Responsibility
73 Section 172 Statement
2
FINANCIAL HEADLINES
NEXT Brand full price sales1 were up +4.0% and Brand total sales2 (including markdown sales) were
up +3.5% on last year. Group profit before tax was up +0.8% and Earnings Per Share (EPS) were up
+5.6% on last year. Group profit of £728.5m was just ahead of the guidance of £727m given in our
January 2020 Trading Statement due to better than expected full price sales in January.
TOTAL SALES £m
Online
Retail
Finance
Brand
Other3
Total Group sales
Jan 2020
2,146.6
1,851.9
268.7
4,267.2
94.6
4,361.8
Jan 2019
1,918.8
1,955.1
250.3
4,124.2
96.7
4,220.9
PROFIT £m and EPS (excluding IFRS 16)
Jan 2020
Jan 2019
Online
Retail
Finance (after funding costs)4
Brand
Other5
Recharge of interest to Finance4
Operating profit
Net external interest
Profit before tax
Taxation
Profit after tax
Earnings Per Share
399.6
163.9
146.7
710.2
25.6
36.3
772.1
(43.6)
728.5
(134.6)
593.9
459.8p
352.6
212.3
127.3
692.2
35.8
34.0
762.0
(39.1)
722.9
(132.5)
590.4
435.3p
+11.9%
- 5.3%
+7.3%
+3.5%
+3.3%
+13.3%
- 22.8%
+15.3%
+2.6%
+1.3%
+0.8%
+5.6%
Statutory sales were up +2.4% and profit before tax, including the effect of IFRS 16, was up +2.0%.
STATUTORY BASIS £m and EPS
Sales
Profit before tax
Profit after tax
Earnings Per Share
Jan 2020
4,266.2
748.5
610.2
472.4p
Jan 2019
4,167.4
733.6
599.1
441.7p
+2.4%
+2.0%
+1.9%
+7.0%
The financial information in pages 5 to 49 do not reflect the impact of IFRS 16, Leases. The impact of
IFRS 16 is provided in Appendix 1 on page 50 and Note 32 of the financial statements.
1 Full price sales are VAT exclusive sales, excluding items sold in our mid-season, end-of-season Sale events and our Clearance
operations. These are not statutory sales (refer to Note 1 of the financial statements).
2 Total sales are VAT exclusive sales including the full value of commission based sales (refer to Note 1 of the
financial statements).
3 Other sales include NEXT Sourcing external sales, Franchise, Lipsy non-NEXT sales and external Property income.
4 Finance profit for January 2019 has been restated to reflect a change in the calculation of funding costs. See page 32.
5 Other profit includes NEXT Sourcing, Franchise, Lipsy and Property management.
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Strategic ReportGovernanceFinancial StatementsShareholder Information RETAIL SALES AND PROFIT
RETAIL SPACE
RENT COSTS AND LEASE RENEWALS
RETAIL STORES IN THE NEXT ONLINE PLATFORM
CORONAVIRUS - SUMMARY OF IMPACT ASSESSMENT
CORONAVIRUS IN PERSPECTIVE
BEYOND THE VIRUS - THE BIG PICTURE
FOCUS FOR THE YEAR AHEAD
ONLINE SALES AND PROFIT
LABEL (UK)
ONLINE OVERSEAS
ONLINE WAREHOUSING
CAPACITY IMPROVEMENTS
INCREASED INVESTMENT IN SYSTEMS
ONLINE MARKETING
DEVELOPING NEW BUSINESS
TABLE OF CONTENTS
FINANCIAL HEADLINES ...................................................................................................... 3
CHIEF EXECUTIVE’S REVIEW - OVERVIEW ................................................................................ 5
5
6
7
9
NEXT ONLINE .................................................................................................................... 10
10
13
15
18
19
21
22
23
NEXT RETAIL .................................................................................................................... 25
25
26
27
29
NEXT FINANCE ................................................................................................................. 30
30
30
31
32
32
OTHER BUSINESS ACTIVITY .............................................................................................. 33
33
33
34
34
34
CASH FLOW ..................................................................................................................... 35
35
35
36
37
37
OUTLOOK FOR SALES AND PROFIT ................................................................................... 38
38
39
40
44
45
SUMMARY ...................................................................................................................... 49
NEXT FINANCE SALES AND PROFIT
CREDIT CUSTOMERS
BAD DEBT CHARGE
FINANCE OVERHEADS
FINANCE BUSINESS BALANCE SHEET AND COST OF FUNDING
APPROACH TO GUIDANCE IN AN UNFORECASTABLE YEAR
1. BASE CASE — BEFORE THE CORONAVIRUS IMPACT
2. MODELLING SALES AND COST IMPACT OF CORONAVIRUS
3. CASH FLOW MODEL
4. MITIGATION
NEXT SOURCING
LIPSY
INTERNATIONAL RETAIL AND FRANCHISE STORES
NON-TRADING ACTIVITIES
PENSION SCHEME
INTEREST
TAX
ORDINARY DIVIDEND
CAPITAL EXPENDITURE
BOND, BANK FACILITIES AND NET DEBT
4
CHIEF EXECUTIVE’S REVIEW - OVERVIEW
CORONAVIRUS - SUMMARY OF IMPACT ASSESSMENT
As might be expected, we begin with a summary of the risks that coronavirus poses to the business
and the actions we are taking to weather the storm. When the pandemic first appeared in China, we
assumed that the threat was to our supply chain. It is now very clear that the risk to demand is by far
the greatest challenge we face and we need to prepare for a significant downturn in sales for the
duration of the pandemic.
Levels of uncertainty
We have no experience of a similar crisis so there is no way of predicting the extent that the effect
coronavirus will have on our Retail and Online sales. It is not yet clear how widespread the virus will
be at any one time, how long the pandemic will last and what the medium to long term effect of this
pandemic will be on consumer behaviour.
What we can say
The evidence we have from sales to date in the UK and from our (small) international websites in the
worst affected countries is that:
● Demand will be the biggest issue and although the virus is likely to impact our operations, we
do not believe this will be as damaging as the very significant drop in sales sustained both in
Retail and Online.
● Online sales are likely to fare better than Retail but will also suffer significant losses. People
do not buy a new outfit to stay at home. There is some evidence from our overseas sites that
as restrictions on movement increase, the difference between Online and Retail sales
performance widens, with Online picking up a small amount of the business that cannot be
carried out in store.
● Some product areas are likely to fare better than others. To date, our homeware and
childrenswear sales appear to be less affected than our adult clothing lines.
Priority
Our priority is to do all we can to keep our workplaces and shops as safe as possible for customers and
staff. At the same time we must prepare the business for varying levels of sales declines. To that end
we have modelled the effects of differing levels of sales declines along with all the measures we can
take to ensure that the Company remains within its bond and bank facilities.
Coronavirus stress test
In our Outlook section (page 38) we have included a detailed stress test that gives the likely cash and
profit impact for different levels of sales decline. The scenarios model full price sales losses of £445m,
£820m and £1bn respectively. These declines represent -10%, -20% and -25% of our annual turnover.
Measures we can take to conserve cash
The stress test details various measures we could take to control costs and conserve cash within the
business, given differing levels of sales decline. These potential measures include the suspension of
our buyback programme, the delay of discretionary capital expenditure, the sale and leaseback of a
warehouse, the part securitisation of customer receivables, the redemption of a loan to our Employee
Share Ownership Trust (ESOT) and if necessary, the deferral of our August dividend. Beyond that we,
of course, have the option to suspend rather than delay dividends.
5
Strategic ReportGovernanceFinancial StatementsShareholder Information
More detail is given as to how and when we would trigger these actions on page 45. We should stress
that we currently believe it is unlikely that we will need to pull all these levers, but we will ensure that
we have the flexibility to take all measures if the need arises.
Combined, actions to conserve cash could retain within the business an additional +£835m of cash.
These actions would mean that should the Company lose -20% of annual full price sales we would still
have £835m headroom within our current bank and bond facilities at the end of the year. (See page
46).
Conclusion of stress test
The conclusion of our stress test is that the business could comfortably sustain the loss of more than
£1bn (25%) of annual full price sales, without exceeding our current bond and bank facilities. This
accounts for the business rates holiday announced by Government but excludes any use of
Government lending or any measures that may be introduced to help with wages during closure.
Working through the crisis
There will be many challenges to our working practices as the pandemic develops and we are putting
plans in place to protect our most vulnerable employees, comply with differing levels of Government
restrictions and cope with illness throughout the business. In particular, we are adapting our
technology for greater home working and seeking to segregate critical operational teams so as to
keep all our vital operations and projects on track.
Sourcing and developing new and exciting product ranges for the back end of the year remains vitally
important. This will be a particular challenge because it normally involves a great deal of international
travel. Our product teams travel to factories to develop new items and to overseas retail markets for
inspiration. Such travel is likely to be impossible as the pandemic progresses. We are putting in place
measures to compensate for a lack of face to face contact - video conferencing, online inspiration
“trips” and more.
CORONAVIRUS IN PERSPECTIVE
The continuing imperative - the mission to evolve
This report begins by discussing the real and immediate threat of coronavirus. It would be easy for
us to talk or think of nothing else, but that would be a mistake. Our sector continues to experience
profound and lasting structural changes and these changes are not on hold. Indeed it is possible that
the pandemic may accelerate the transition to online shopping. So we cannot afford to neglect our
continuing efforts to transform every part of our business.
This process of learning new ways to serve our customers, collaborate with partners and create value
for our shareholders is a task that involves every function in our business. Our buying, sourcing,
systems, marketing, warehouse, distribution and store teams are all having to re-invent what we do
to adapt to a rapidly changing world.
It is the delivery of new product ranges, web systems, fulfilment methods, marketing techniques,
warehouse capacity, business ideas, partnerships and more that will determine our longer term
destiny. That requires a culture that embraces change and is not afraid to take risks - no mean feat
in a crisis.
The pandemic will end!
One thing we can be sure of, at some point the pandemic will pass and when the dust settles it will be
the work we have put into (1) securing the cash resources of the business and (2) moving the business
forward that will make the difference to the long term future of the Company.
6
BEYOND THE VIRUS - THE BIG PICTURE
The following paragraphs summarise our view of how and why people have been changing their
shopping habits over the last five years and how we are responding to the long term challenges and
opportunities those changes present.
The power of choice and the prospect of the high street stabilising
The internet continues to give consumers unprecedented levels of choice without requiring them to
travel to physical stores. The ability of retailers to hold stock in single central locations for nationwide
(and worldwide) distribution means that customers can now access products everywhere that they
could previously only find in a handful of major shopping locations.
We believe that it is this proliferation of choice that is the most important advantage that the internet
brings to the consumer. Of course, the ability to deliver goods to a customer’s home plays an
important part in the service Online provides. But nearly fifty percent of our orders (by volume) are
delivered to our stores. So for many people the overriding factor is choice, not the convenience of
home delivery.
If online trading were only about home delivery, we might reasonably expect high street sales to
stabilise and the split between Online and stores to reach a point of equilibrium relatively soon. But
if the driver of change is choice then, in our view, that equilibrium is likely to be a long way off and we
are preparing ourselves for many years of transition.
The challenge posed by lower barriers to entry
In the same way that the internet has allowed customers to access far more brands, it has also allowed
brands to access far more customers. The internet has dramatically lowered the barriers to entering
the retail market, allowing small, niche and new businesses to reach millions of consumers without
the need to invest in a network of expensive retail shops and all their supporting infrastructure. This
is particularly true if they take advantage of trading on aggregation sites like NEXT.
This is all good news for the consumer and so, in the long run, should be good for our industry; but for
an established retailer, with a relatively large UK market share, heavily invested in physical retail
assets, this change poses a significant and ongoing challenge.
Competing with ourselves
The risk for NEXT is that our customers find new ways to buy competing brands whilst we remain
burdened with expensive retail liabilities (rents, rates, wages etc.). Our response has been to lean into
this challenge and actively enable our competitors to reach more customers by selling their product
on our Online Platform through LABEL.
We have little doubt that the presence of competing brands increases the competition for our own
(higher margin) NEXT branded products, but we believe that longer term it is the only way to survive
in the online world. There is nowhere to hide on the internet, one way or another our customers will
find the brands they want. If they can find what they want on our website they are more likely to
come back to us, furthering our ambition to be our customers’ first choice for clothing and homeware
online.
7
Strategic ReportGovernanceFinancial StatementsShareholder Information
Overseas opportunities
Overseas, the internet also presents us with an unprecedented opportunity to leverage our Online
assets and profitably develop our brand in territories where we are the new contender. For the first
time we have found a way to profitably reach customers who, in any one town or city, are insufficient
in number to justify the investment in a retail store. The internet allows access to a large number of
dispersed populations in a way that stores never could.
Direction of travel
The speed of change is difficult to predict, but the direction of travel remains the same. Nothing has
happened in the last year to change our view that the combination of choice, convenience and speed
remains the driving force behind the evolution of the UK clothing and homeware market.
At the heart of our business is our NEXT Brand product and our Online Platform — the combination of
our products, third-party brands, warehouses, distribution networks, website, customer base, credit
facility, marketing systems and stores. In the year ahead we will continue to improve and develop our
Platform and our Brand.
8
FOCUS FOR THE YEAR AHEAD
Over and above managing the business through the pandemic we must ensure that we continue to
develop the business: its product ranges, operations and online systems.
Much of this work will revolve around the development of NEXT’s Online Platform and its ability to
cope with increasing volumes and breadth of offer. The table below sets out some of our priorities
by business area.
Warehousing
Laying the foundations for future growth in volume and breadth of offer through
investment in additional capacity, improved systems and automation. The focus
will be on systems that consolidate items, quickly and accurately, into individual
parcels; a task which becomes harder as the breadth of offer grows.
The development of next-day Platform Plus, enabling the delivery of items held in
third-party warehouses to customers on a 24 hour promise.
Website
The development of an onsite marketing system to target products and brands to
the customers most likely to want those items. This system will link with our email
and social marketing systems.
The improvement of website speed and performance.
A two-and-a-half year project to modernise the software that supports our website.
This project will enhance resilience and dramatically improve our ability to develop
new website functionality.
The development of our first Total Platform bespoke website for a third-party
partner (see page 24).
LABEL
The continued addition of new brands to our site along with the expansion of ranges
from our existing client brands.
The extension of our ‘Platform Plus’ service to additional clients, allowing customers
to order products held in third-party warehouses for delivery within 48 hours.
The development and expansion of our licensing business.
Overseas
The extension of ranges available on our overseas sites including LABEL brands.
Increased investment in and improvement to our overseas digital marketing
(subject to the extent coronavirus interferes with sales).
The addition of in-house and third-party split payment methods for overseas
customers.
Stores
The continued development of work done in stores for our Online business with
particular focus on the instore “fold and pack” returns processing.
Mitigation of stores’ costs through the renegotiation of rents (as and when leases
come up for renewal) along with the addition of new concession opportunities.
Improvement to working-hours rota systems to further improve productivity.
9
Strategic ReportGovernanceFinancial StatementsShareholder Information
NEXT ONLINE
ONLINE SALES AND PROFIT
The NEXT Online Platform delivered strong and profitable growth. Full price sales were up +11.9%
and profits were up +13% on last year. Net margin of 18.6% was up +0.2% on last year (page 12).
Full Price Sales by Division
Online full price sales grew by +11.9%, with total sales growth (including markdown sales) also up
+11.9%. The table below breaks down full price sales growth by division.
Full price sales £m
NEXT Brand UK
LABEL UK
Total UK Online
Overseas
Total Online full price sales
Jan 2020
1,022
Jan 2019
981
434
1,456
436
1,892
356
1,337
354
1,691
Var %
+4.2%
+21.9%
+8.9%
+23.3%
+11.9%
Var £m
+41
+78
+119
+82
+201
Improved Stock Availability
We believe Online’s sales performance was helped by improved stock availability, achieved through
the faster processing of customer returns. As explained in our Half Year Report, we have taken a
number of actions to bring items returned to our stores back to our warehouses faster, in order to
make them available for resale sooner. This has been achieved by:
1.
Increasing the number of delivery vans visiting our Retail stores each day, allowing daily collection
of Online returns.
2. Reorganising store staff shift patterns to align them with new delivery schedules and trading
3.
4.
patterns.
Introducing a simple fold-and-pack operation in stores, so that pristine stock can return to the
warehouses “customer ready” and made available for re-order immediately.
Identifying at the point returns are being processed through the till, those items that are in
highest demand and prioritising their processing.
We are seeing significant benefits from these activities. In the last six months, the average value of
returned stock in transit between our stores and warehouse was down -30% compared with the
previous year. On average, this meant £15m of additional stock (at full selling price) was available to
our Online customers at any one time. During the peak trading weeks in the run up to Christmas, the
value of additional stock available was £30m.
The most successful initiative has been fast tracking high demand items. High demand stock is now
processed and available for resale within four days, which compares with 12 days in the previous year.
10
Customer Base
Average active customers6 increased by +12.5% to 6 million, driven mainly by the growth in Overseas
and UK cash customers. Cash customers are those who do not use our nextpay credit account when
ordering. The table below sets out the growth in the respective parts of our customer base.
For further detailed analysis of credit customer growth see pages 30 to 31.
Var %
+2.3%
+21.4%
+9.9%
+22.1%
+12.5%
Average active customers (m)
Jan 2020
Jan 2019
2.58
2.02
4.60
1.40
6.00
2.52
1.66
4.18
1.15
5.33
Online Customer History
Overseas cash
UK credit
UK cash
+46%
UK credit
UK cash
Total UK
Overseas cash
Total
s
n
o
i
l
l
i
M
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
6 Active customers are defined as those who have placed an Online order or received a standard account statement in the last 20 weeks.
11
Strategic ReportGovernanceFinancial StatementsShareholder Information Profit by Division
Net margin by division is set out below, together with the change in net margins versus last year.
Online division
NEXT Brand UK
LABEL UK
Overseas
Total Online operating profit
Profit
£m
247.6
77.3
74.7
399.6
Variance
£m
Jan 2020
Net margin %
Net margin %
vs Jan 2019
+19.7
+11.1
+16.2
+47.0
21.0%
15.2%
16.4%
18.6%
+1.0%
- 0.8%
+0.3%
+0.2%
NEXT Brand UK margin was up +1.0% mainly as a result of cost savings made in print and photography
along with a small (+0.2%) improvement in bought-in gross margin.
Margin in the LABEL business was managed down to 15.2% mainly as a result of us lowering our
headline commission rate on third-party brands. This reduction in bought-in gross margin was in
furtherance of our ambition to be our partners’ most profitable third-party route to market. Going
forward, if we are able to operate more efficiently, we will aim to pass any savings back to our partners
by way of further reductions in commission.
Margin Movement Analysis
The table below sets out significant Online margin movements by major heads of costs.
Net margin on total sales to January 2019
Bought-in gross
margin
Underlying margin on NEXT products improved by +0.2%, mainly
due to achieving a better than expected Dollar exchange rate. An
increase in the participation of third-party branded sales, which
have a lower bought-in gross margin, reduced margin by -0.4%.
Markdown
A higher participation of full price sales improved margin.
Warehousing &
distribution
Growth in overseas sales, which have a higher cost of distribution,
eroded margin by -0.3%. Wage inflation and other operational
costs reduced margin by -0.3%.
Catalogues &
photography
Marketing &
systems
Production of fewer catalogues and photography savings
increased margin.
Investment in marketing and systems meant costs grew faster
than sales.
Central costs
Central costs did not grow in line with sales, improving margin.
Net margin on total sales to January 2020
18.4%
- 0.2%
+0.2%
- 0.6%
+1.2%
- 0.5%
+0.1%
18.6%
12
LABEL (UK)
LABEL sells third-party branded products through our Online Platform and is central to the continued
growth of our Online business. Turnover in the year was £510m and net margin was 15%. Our aim is
for the LABEL business to:
● become our customers’ first choice destination for brands
● be our partners' most profitable third-party route to market
● offer a level of service and integrity that both NEXT and our partners are proud of
LABEL Sales and Profit
Total sales were up +23% and full price sales were up +22%. Profit in the year was £77m, an increase
of +17% on last year. LABEL growth has been driven by:
●
●
the introduction of new partner brands, including expansion of our Home and Branded Beauty
offer (page 14)
increasing sales with our existing partner brands, using our Platform Plus model (page 14)
LABEL Full Price Sales Analysis
LABEL full price sales have grown by £78m. This increase is shown below, split into product categories:
Clothing, Home and Branded Beauty. In addition, the Brands can be divided into new, discontinued
and continuous.
Continuous brands were up +10% with the remaining 12% of growth coming from the net increase
from new brands and discontinued brands. Our new Branded Beauty business has grown by £12m,
following our collaboration and subsequent acquisition of Fabled (see page 14), which substantially
increased the breadth of our Branded Beauty offer.
Year on year sales £m
New Discontinued Net new Continuous
Total
Clothing
Home
Branded Beauty
Full price sales versus last year
% var to last year's total full price sales
+32
+6
+11
+49
- 5
- 1
- 6
+27
+5
+11
+43
12%
+33
+1
+1
+35
10%
+60
+6
+12
+78
22%
Commission Versus Wholesale
More than half (56%) of our LABEL business is now on a commission basis and, although we make a
lower net margin on a commission brand, we encourage our partners to adopt this model as we
believe it helps drive sales growth. This is demonstrated by our full price sales performance (shown
below), with commission sales growing by +32%, compared with wholesale which grew by +11%.
Full price sales £m
Jan 2020
Jan 2019
Wholesale
Commission
LABEL full price sales
190.9
242.7
433.6
171.7
184.0
355.7
Var %
+11%
+32%
+22%
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Strategic ReportGovernanceFinancial StatementsShareholder Information
Branded Beauty — Fabled by Marie Claire
In July 2019, our subsidiary Lipsy acquired Fabled by Marie Claire, a premium branded beauty
business. This acquisition has allowed the Group to significantly increase the breadth and depth of
beauty products sold through the NEXT Online Platform. Full price sales were £13m in the year
contributing £2m of profit to the Group.
In the year ahead, we will add six more premium brands to the ranges available on NEXT’s website.
Fabled continues to operate on a standalone website (Fabled.com). 40% of the brands (by value) on
the Fabled website are also available on the NEXT website and it is these products that drive the lion’s
share of our growth. In the year ahead, we expect more of the Fabled product to become available
on the NEXT website.
Platform Plus
Platform Plus enables us to increase the breadth of our offer by giving our customers access to items
stocked in our partners’ warehouses. Stock falls into two categories: (1) products that are delivered
by NEXT through our distribution networks, which can be consolidated in parcels with other stocked
items and (2) products that are delivered by our partners directly to our customers, for example
furniture or personalised items. In the year, we achieved sales of £32m with 87 brands. Before the
prospect of coronavirus, we had expected full price sales in the year ahead of £48m.
Jan 21 (e)
No. of brands
Jan 21 (e)
£m annual sales
Jan 20
No. of brands
Jan 20
£m annual sales
Delivered by NEXT
Delivered by brand
Total
53
89
142
32
16
48
26
61
87
18
14
32
We have also started to forecast sales of Platform Plus stock in the week ahead, so we can collect
stock in anticipation of future orders. This allows us to improve order consolidation, minimising the
number of parcels sent to a customer. This forecasting model is currently live with 11 brands and will
be rolled out to at least 15 more over the coming year.
We estimate that Platform Plus has increased sales of our partner brands by +15% and we believe
almost all of these sales were incremental to the brand.
14
ONLINE OVERSEAS
Overseas Sales and Profit
Our Overseas business has had another good year, with strong growth in both sales and profit. Full
price sales were up +23% and total sales (including markdown sales) were up +26%. Profit was up
+28% and we achieved a net margin of 16% after all central overheads.
The following sections provide details of full price sales, marketing and customer recruitment.
Full Price Sales by Geographical Region
The table below sets out full price sales growth by geographical region. Sales in all regions have
grown, with the fastest growth in our largest regions of Europe and the Middle East.
Full price sales
Middle East
Europe (EU)
Europe (Non-EU)
Australia and New Zealand
Rest of the World (ROW)
Total full price sales
No. of
countries
% of full
price sales
Jan 2020
£m
Jan 2020
vs Jan 2019
14
28
5
2
21
70
45%
34%
13%
6%
2%
100%
195
150
55
25
11
436
+34%
+27%
+7%
+1%
+2%
+23%
Full Price Sales Growth by Channel
Full price sales through our Overseas website (nextdirect.com) grew consistently throughout the year
at +24%. Like-for-like sales via third-parties were up +35%, and in the second half of the year we saw
strong incremental growth from new partnerships covering nine countries. We ceased trading with
two partners during the year.
Full price sales £m
Third-parties
New
Continuous
Discontinued
Total third-parties
nextdirect.com
Total Overseas full price sales
Jan 2020
Jan 2019
Var %
5.5
32.5
-
38.0
398.3
436.3
-
24.1
9.0
33.1
320.8
353.9
-
+35%
- 100%
+15%
+24%
+23%
15
Strategic ReportGovernanceFinancial StatementsShareholder Information
Increasing Choice Overseas
Over the past few years we have increased the choice of products offered on our Overseas website
by extending the range to include some LABEL brands (400+). Take up was slow initially but we are
now starting to see meaningful growth with LABEL brands up +68%. NEXT product full price sales
grew by +20% in the year.
Product full price sales £m
Jan 2020
Jan 2019
NEXT
LABEL brands
nextdirect.com full price sales
350.1
48.2
398.3
292.0
28.8
320.8
Var %
+20%
+68%
+24%
Overseas Digital Marketing & Customer Growth
As our Overseas business continues to grow, we continually evaluate and invest in digital marketing
to drive sales while maintaining profit margins. This year we increased our digital marketing spend
by £5.6m (+112%). The table below sets out the spend by media channel.
Overseas marketing £m
Jan 2020
Jan 2019
Display
Search
Social
Digital marketing spend
Non-digital marketing
Total marketing spend
2.9
3.4
4.3
10.6
0.7
11.3
1.2
1.9
1.9
5.0
1.8
6.8
Var %
+142%
+79%
+126%
+112%
- 61%
We continue to see a good return on our digital marketing investment. For every £1 spent directly on
digital marketing, we expect £1.53 of cash to be generated from incremental orders placed within the
first year. We will continue to invest in the areas where we see strong returns.
New Customers Recruitment Analysis
During the year, we recruited customers both organically and via digital marketing. The table below
illustrates how important digital marketing is to customer acquisition. Over 55% of all new customers
acquired during the year to January 2020 came via digital marketing.
New customers from previous 12 months ('000s)
Jan 2020
Jan 2019
Via marketing
Organic growth in countries with marketing
Total growth in countries with marketing
Organic growth in countries without marketing
Total
150
760
910
285
60
725
785
250
1,195
1,035
Var
+90
+35
+125
+35
+160
Var %
+150%
+5%
+16%
+14%
+15%
16
Sales Growth from New and Continuous Customers
Over the past 12 months, new customers spent on average +4% more than the previous year’s
recruits. Average spend by continuous customers was up +3%. We believe this increase was driven
through marketing and increased choice.
Full price sales and customers for nextdirect.com
Jan 2020
Jan 2019
New customers
Average sales per new customer
New customer sales
Continuous customers
Average sales per continuous customer
Continuous customers sales
Total customers
Average sales per customer
Total full price sales
1,195k
1,035k
£93
£111m
1,290k
£223
£287m
2,485k
£160
£398m
£89
£92m
1,055k
£217
£229m
2,090k
£153
£321m
Var %
+15%
+4%
+20%
+22%
+3%
+26%
+19%
+4%
+24%
Payment Options
During the second half of the year we added an instalment based repayment option (AfterPay) into
one country (Australia). Early results show an increase in the average net order value and we are
looking to provide similar repayment options in more countries.
17
Strategic ReportGovernanceFinancial StatementsShareholder Information
ONLINE WAREHOUSING
The continued growth of the Online business, and particularly the growth in the choice of unique
items, has created ongoing challenges for warehouse infrastructure. Since 2016, the number of
unique styles we offer on our website has increased by +100%.
These challenges relate to the efficiency of our space, machinery and people along with the fact that
some areas are close to operating capacity. During the year we implemented a number of measures
to alleviate these pressures through improved working practices and additional capital investment.
We have plans in place for further investment and development in the coming years.
Choice of Styles* by Year and Product Category
+100%
s
e
l
y
t
s
f
o
r
e
b
m
u
N
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2016
2017
2018
2019
*Average number of distinct styles stocked in our warehouses at a point in time
Online Boxed Warehouse Growth
The activity in our Online boxed warehouse has changed dramatically. To put this in context, in 2000
Online occupied a third of our Retail boxed warehouse. Now, Online is operating to full capacity out
of two standalone warehouses. The table below shows the significant change in daily activity in our
Online boxed operations; we now pick 10 times more units each day, from an area that is five times
larger. Our next-day delivery offer has extended by seven hours, meaning we have less time to pick
more stock over a larger area!
Online boxed warehouse
Units picked per day
Warehouse square footage
2000
50k
320k
2020
500k
1,700k
Change
10 x
5 x
Order cut-off time for next-day delivery
5pm
12 midnight
+ 7 hours
Minimum time to pick
9 hours
2 hours
- 80%
18
The Challenges for Warehousing
As we grow our Online business the challenges become harder. These challenges can be categorised
as cost, speed and accuracy:
● Cost — with more SKUs7 spread over a larger area, our warehouse colleagues have to walk
further, so picking costs are higher
● Speed — stock has further to travel to packing stations, so takes longer
● Accuracy — there is a greater risk of failing to get the right item to the right place on time
Parcel Economics
The costs of fulfilling an order can be broken down into warehouse item picking, parcel packing and
parcel delivery. Of these, the cost of delivering parcels is by far the largest. For NEXT, delivery costs
represent 68% of the fulfilment costs. Our deliveries are fulfilled by various third-party carriers and
we are charged per parcel, rather than per item. If we have to put items into separate parcels, costs
rise dramatically. So, the number of items consolidated into a single parcel is central to minimising
costs.
Capital Discipline
The current book value of our warehouse and distribution plant and machinery assets is £182m and
our annual depreciation charge is £22m, representing around 1% of Online sales. If we were to
replace our current infrastructure with new, we estimate it would cost in the region of £750m which
would equate to an annual depreciation charge of around £50m. So for NEXT, extending the life of
existing equipment is often as important as developing new equipment.
Over the last ten years we have invested in a great deal of new warehouse capacity, systems and
mechanisation; but the key to success has been our ability to integrate those investments with our
existing operations in order to deliver the maximum benefit for the minimum capital investment.
All investments in our warehouses must either be justified on the basis of (1) the profit generated
from the increased sales capacity they facilitate or (2), where they improve productivity, deliver an
internal rate of return of more than 20%.
CAPACITY IMPROVEMENTS
The biggest strain on capacity has been in our boxed warehouses. The following sections cover some
of the initiatives we are working on to increase capacity in both the short and long term.
2019 Improvements
In the short term we have had to work on a large number of small initiatives just to keep up with sales
growth. These initiatives delivered the capacity required for sales growth and resulted in cost savings
of around £1.5m. Some of these initiatives are summarised below.
Forward Locations
In the year we have carried out several small projects, including rewriting our picking software and
reconfiguring our forward picking locations. These changes have increased the number of forward
locations in our Online boxed warehouse by +25%. This has improved the availability of stock which
can be picked for next-day delivery. In turn this has increased the average number of items packed
in a parcel, which reduces the delivery cost per item.
7 A SKU is defined as a unique style in a particular size.
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Strategic ReportGovernanceFinancial StatementsShareholder Information
Staff Training
In our previous report we explained that we have overhauled our recruitment and training
programmes. Over the last six months we have expanded our training zones to benefit more staff and
plan to increase the number of tasks trained this way. During this six month period we have
experienced tangible operational benefits, with improvements in staff retention and productivity.
Returns Locations
We recently completed the installation of a new automated returns storage and retrieval system for
Online boxed items. This was operational from February 2020. Although it is early days, we anticipate
a reduction in picking costs of -30% compared to manual returns locations. When fully complete this
will almost double the boxed returns capacity in our main Online warehouse. In addition, it will also
serve as an overflow for forward locations.
Longer Term Capital Investment Programme
We are currently two years into a six year programme of increased warehouse and logistics capital
expenditure. This includes the development of a new Online boxed warehouse which we expect to
be operational in 2022. The spend is largely geared to increasing Online capacity and throughput.
However, there are further benefits from improved automation in the form of improved accuracy,
parcel consolidation and productivity.
In the next four years we expect to invest around £300m on warehouse capex, which will increase our
Online annual sales capacity by £1.7bn. So as a rule of thumb, 18p of capital investment allows £1 of
future annual sales capacity.
20
INCREASED INVESTMENT IN SYSTEMS
As we go into the year ahead, we will further increase investment in Online systems. The table below
categorises Online systems revenue and capital costs by type of expenditure over the last two years
and our projection for the year ahead.
Systems spend (revenue and capital) £m
Jan 19
Jan 20
Jan 21 (e)
Marketing systems
Warehouse & distribution systems
Website Modernisation
Online Platform development
Software maintenance (e.g. security, storage)
Call centre and Head Office functions
Total Online systems costs
Online systems P&L charge
Online systems capital expenditure
10.6
4.4
0.2
15.2
21.8
13.8
50.8
49.0
1.8
12.2
6.5
2.4
21.1
24.2
17.7
63.0
58.4
4.6
15.0
8.0
5.0
28.0
24.4
17.8
70.2
62.7
7.5
Jan 21 (e)
vs Jan 19
+42%
+81%
-
+84%
+12%
+30%
+38%
+28%
+328%
Ten years ago, our website was relatively simple to code. Since then, the complexity of website coding
has moved on dramatically. Search engines and web-based marketing tools have become more
sophisticated. The volume of data and transactions has grown dramatically along with the challenges
of keeping that data safe; payment methods have multiplied and become more secure and we have
added over 50 international sites, many with their own language and tender types. As a result,
managing the code that supports our website has become increasingly complex, unwieldy and
expensive.
The interdependence of complex and piecemeal legacy code reduces performance, resilience and
makes the development of new functionality increasingly challenging. We are addressing these issues
by redeveloping our entire website in a Website Modernisation project. We expect this programme
to improve the resilience and speed of our site. However, the biggest benefit will be the enhanced
ability for us to improve and develop our website going forward.
In essence, the project compartmentalises the different functions within the website (e.g. header,
footer, home page, search page, product page, checkout etc.), which will allow each of these areas to
be developed and deployed independently of each other, without the risk of a change in one function
destabilising other functions within our website. At the same time, Website Modernisation will serve
to update and simplify our code base to quickly improve performance and resilience of our site.
The programme is modular and each function will be developed in turn and work alongside the legacy
code of functions that have not yet been redeveloped. This approach means that we avoid the risks
inherent in grand projects that seek to replace entire systems overnight in one ‘big bang’ changeover.
We have already built the communication layer and our account management function. We aim to
deploy our search function within the next few months.
We anticipate Website Modernisation will cost £12m over a period of two and a half years.
21
Strategic ReportGovernanceFinancial StatementsShareholder Information
ONLINE MARKETING
We spent £63m on Online marketing, an increase of £13m (+26%) on the prior year. £44m of this
expenditure relates to digital marketing, of which £33m was in the UK and £11m was Overseas. £19m
was spent on marketing professionals and other online marketing activities such as site content
management and translation, brand advertising campaigns, PR and market research.
The increase in Online marketing costs was more than offset by savings made from reducing the
number of catalogues we print and savings made on the costs of photography. The table below gives
a picture of how our marketing expenditure changed during the year.
Category £m
UK digital marketing
Overseas digital marketing
Total digital marketing
Personnel and other marketing costs
Total Online marketing
Catalogues and photography
Total marketing
Jan 2020
Jan 2019
Var %
33
11
44
19
63
67
29
7
36
14
50
85
130
135
+14%
+64%
+23%
+33%
+26%
- 21%
- 3%
We still produce printed publications every six weeks but send them to fewer customers as more
choose to browse and shop Online only. We expect to make at least £10m of further savings in
photography and catalogue costs in the year ahead.
22
DEVELOPING NEW BUSINESS
In the year ahead we aim to develop two new features of our Online platform: (1) licensing which
leverages our ability to source specialist products such as childrenswear and swimwear and (2) Total
Platform, which takes our service to third-party brands one step further. Each is discussed in turn
below.
Licensing
In our Half Year Report we announced a licensing partnership with Ted Baker and this will launch
Online and in ten stores in April 2020. The aim of this business is to enable us to combine our sourcing
expertise with our partners’ design skills. We now have licence agreements in place with four other
brands in the following categories: childrenswear, swimwear, men’s suits, men’s formal shirts and
some home textiles (cushions and curtains). We will continue to look for new opportunities to work
in this way.
We are very clear that for our licensing business to be successful, items must genuinely reflect the
handwriting and DNA of our partner brands. To that extent, their input into the design process is
crucial. Our belief is, where the combination of our sourcing expertise and our partners’ design skills
produce something genuinely new and valuable for the consumer, the business will be a success.
Before the prospect of coronavirus, we had expected annualised full price sales for new licensed
products to be around £20m and to generate £4m of profit.
23
Strategic ReportGovernanceFinancial StatementsShareholder Information Total Platform — A Trial
Taking working with third-party brands to the next level
The aim of this Total Platform is to leverage the investment NEXT has made in its warehousing, call
centres, distribution networks, customers, marketing and systems and make those assets available to
third-party brands through their own dedicated bespoke brand website.
NEXT has agreed heads of terms with a third-party business to build and operate their website for
them. The website would look and feel like the client’s website but would be built on all the
functionality available on NEXT’s own website, along with our order by midnight for next-day delivery
promise, store collections and returns.
Complete online service
But this trial is much more than an outsourcing deal. The client’s website will link into ALL the other
elements of our platform. This will allow us to provide all the services the client needs to serve its
online customers; from warehousing, distribution, data management, retail deliveries, call centre
services through to complaint resolution, returns refurbishment and clearance. We will also be
providing a number of dedicated, translated overseas websites for our client with the ability to take
payment in local currencies.
One simple commission
Total Platform will offer a pay-as-you-go answer to operating an online business. Clients pay through
fixed commission on their total sales, which means that the costs such as website, systems and
warehousing all vary in line with sales. It also means their businesses can grow without the capital
costs, operational risks and time associated with developing new warehousing, systems, distribution
networks and website functionality.
We plan to have our first client operational later this year and are actively talking to other brands
about providing a similar service in 2021.
TOTAL PLATFORM
24
NEXT RETAIL
RETAIL SALES AND PROFIT
£m
Total sales
Operating profit
Net margin
Jan 2020
1,851.9
163.9
8.9%
Jan 2019
1,955.1
212.3
10.9%
Var %
-5.3%
-22.8%
Full price sales were down -4.3% which was +0.8% ahead of the guidance given in September 2019 of
-5.1%. Total Retail sales (including markdown sales) were down -5.3% on last year.
We believe that Retail sales were improved by better shop-floor stock availability. During the year we
increased the frequency of deliveries at a cost of £1m. We also more closely aligned delivery
processing shifts to van arrival times to reduce delay in getting stock onto the shop floor. Following
these process changes, stock received and waiting to be put onto the shop floor (store backlog) was
reduced by 55%.
Profit was down -23% on last year and net margin reduced by -2.0% to 8.9%, mainly due to the costs
of store occupancy and other fixed overheads which did not fall in line with like-for-like sales. Retail
wage costs were well controlled and, despite inflationary cost increases, improved productivity meant
store payroll costs fell broadly in line with sales.
Retail Margin Analysis
The table below sets out significant Retail margin movements by major heads of costs.
Net margin on total sales to January 2019
Bought-in gross
margin
Underlying bought-in gross margin added +0.3% to margin, mainly
due to achieving a better than expected Dollar exchange rate.
Markdown
Stock loss
Lower clearance rates would have reduced margin by -0.8% but
were partially offset by a higher participation of full price sales.
The value of stock loss was flat on last year and did not fall in line
with sales, reducing margin.
10.9%
+0.3%
- 0.2%
- 0.1%
Store payroll
Increased rates of pay reduced margin by -0.4%, however this was
offset by improved productivity.
- 0.1%
Store occupancy
Falling like-for-like sales increased occupancy costs as a percentage
of sales, reducing margin by -1.4%. Rent reductions and additional
concession income improved margin by +0.3%.
- 1.1%
Warehousing &
distribution
A combination of falling sales (-0.1%), wage inflation (-0.1%) and
increased cost of picking and distribution (-0.2%) reduced margin.
- 0.4%
Central costs
Central costs have not reduced in line with sales, reducing margin.
- 0.4%
Net margin on total sales to January 2020
8.9%
25
Strategic ReportGovernanceFinancial StatementsShareholder Information
RETAIL SPACE
Overall net space grew by +98,000 square feet in the year, an increase of +1.2% as set out below. The
increase in space came from relocating existing stores into larger sites and the addition of concessions.
The reductions came from the closures of stores with low levels of profitability.
January 2019
Mainline re-sites (10)
Mainline closures
Clearance stores
January 2020
Change in square feet
Change %
Store
numbers
NEXT
Sq. ft. (k)
Concessions
Sq. ft. (k)
Total
Sq. ft. (k)
507
0
- 7
- 2
498
7,989
+ 132
- 70
- 20
8,031
+ 42
+ 0.5%
305
+ 57
- 1
0
361
+ 56
+ 18.3%
8,294
+ 189
- 71
- 20
8,392
+ 98
+ 1.2%
New space performance and forecast payback
Branch profitability8 of new space opened in the year is forecast to be 21% and the investment in new
space is forecast to payback within 27 months (excluding the effects of coronavirus).
Store closures and transfer of trade
We closed seven mainline stores and estimate that around 20% of sales from the closing stores
transferred to nearby stores. The marginal profit gained on these transferred sales is the gross margin
less the associated additional variable costs. We estimate that profit gained on transferred sales was
broadly equal to the profit lost in the closed stores. The table below sets out the store closure
economics for last year. The implication is that where stores are making 9% or less net margin and
where we are able to transfer 20% to nearby stores, closure is cost neutral.
£m
Sales (VAT inclusive)
Net margin before central overheads (NBC)
% NBC
Closed stores
Transferred
trade
- 11.9
- 1.0
8%
2.3
1.0
44%
Total
- 9.6
0.0
Concessions
Concession space grew by +18% in the year and now represents 4.3% of all Retail space. Annual rental
income has increased by £2m to £14m and now accounts for 7% of our total store rent bill.
Retail space in the year ahead
In the year ahead, we expect to add +57,000 square feet through the addition of two new trading
locations and the relocation of five existing stores. We plan to close 14 low profitability stores
occupying 122,000 square feet. The net impact in Retail space is forecast to be a reduction of -65,000
square feet (- 0.8%).
8 Store profitability is defined as profit before central overheads and is expressed as a percentage of VAT inclusive sales.
26
RENT COSTS AND LEASE RENEWALS
In the year we renewed 44 leases. Rent on these stores reduced by -30%, with an average lease term
of 3.6 years. These reductions allowed us to continue to trade in stores which would otherwise have
closed.
44 store renewals
January 2020 £m
Rental costs9
Concession income
Net rent
Net rent/sales (VAT inc.)
Before
renewal
After
renewal
13.6
9.5
- 30%
(0.1)
13.6
9.4
- 31%
10.3%
7.1%
Rent-free incentive/capital contribution used for store upgrade10
Average lease term11
Average branch profitability (before central overheads)
£3.2m
3.6 years
24%
Outlook for Lease Renewals in the Year Ahead
In the year ahead, we expect to negotiate lease renewals on 53 stores and anticipate rent reductions
of -40%. This includes eight very short term lease renewals with terms of less than two years at a very
low rent. In stores where the lease has been renewed for more than two years, the average rent
reduction is expected to be -29%.
After accounting for additional concession income in these stores, net rent is forecast to reduce by
-£7.7m per annum (-42%) as a result of lease renewal negotiations. The average lease term is expected
to be 3.9 years and the profitability of the stores would be 26% (before central overheads).
53 store renewals
January 2021 £m
Rental costs12
Concession income
Net rent
Net rent/sales (VAT inc.)
Before
renewal
After
renewal
18.5
11.0
- 40%
(0.2)
18.5
10.8
- 42%
11.1%
6.5%
Rent-free incentive/capital contribution used for store upgrade10
Average lease term11
Average branch profitability (before central overheads)
£4.0m
3.9 years
26%
9 Annualised rental costs including 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 -29%.
10 This is a cash contribution or rent-free period given by the landlord spent on upgrading the store.
11 Average lease term shown is to the earlier of the lease end or break clause.
12 Excluding the release of surplus capital contributions rent is forecast to decline by -40%.
27
Strategic ReportGovernanceFinancial StatementsShareholder Information
Lease Commitments and Portfolio Profitability
Fifty per cent of our leases (by value) will expire or break within 4.8 years and 81% within the next 10
years. The table below summarises our net store profitability (before central overheads) by
profitability band as at January 2020. As shown, 98% of Retail’s turnover is profitable and 91% is
achieving at least 10% profit. N.B. This profitability is based on our January guidance and does not
reflect the effect of lost sales resulting from coronavirus.
Store profitability
% of turnover
>20%
>15%
>10%
>5%
>0%
58%
81%
91%
97%
98%
Long Term View of Retail Sales and Costs
The graph below indexes Retail sales13 and costs from January 2016 to January 2020. This
demonstrates the improvements we have made in reducing payroll costs as well as the challenges that
remain to current levels of rents, rates and service charges.
Retail sales and costs indexation
vs Jan 2016
100
111 Service Charge
108 Business rates
96 Rent
77 Sales
73Payroll
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
13 Annualised sales of Mainline store only, at the end of each year.
28
RETAIL STORES IN THE NEXT ONLINE PLATFORM
Our stores remain an important part of our Online business in the UK. UK Online customers collect
nearly 50% of their orders from and bring over 80% of their returns to our stores. Our focus for our
stores for the year ahead is three-fold:
● The continued improvement to the systems and procedures we use to ensure customer
collections are quick, accurate and efficient.
● The continued improvement in the speed and quality of Online returns processing to
maximise their availability for resale.
● Increasing the amount of Online work we do in our stores in relation to making returns
customer-ready and fit for resale before they leave the store. This has three advantages: (1)
it reduces the pressure on staffing levels in our warehouses at peak times, (2) increases the
speed at which returns become available for resale and (3) helps improve store productivity
through making use of contracted hours at quieter times of the day.
NEXT, Bicester
29
Strategic ReportGovernanceFinancial StatementsShareholder Information NEXT FINANCE
NEXT FINANCE SALES AND PROFIT
£m
Note of credit sales (VAT ex.)
Interest income
Bad debt charge
Overheads
Profit before cost of funding
Cost of funding14
Net profit
Average debtor balance
ROCE (after cost of funding)
Jan 2020
Jan 2019
1,747.6
1,688.8
268.7
(43.3)
(42.4)
183.0
(36.3)
146.7
250.3
(52.1)
(36.9)
161.3
(34.0)
127.3
£1,185m
£1,140m
12.4%
11.2%
Var %
+3.5%
+7.3%
- 16.9%
+15.0%
+13.4%
+6.4%
+15.3%
+4.0%
NEXT Finance has performed well in the year. Interest income was up +7.3% on last year and net
profit was up +15.3%.
Growth in interest income was driven by a combination of increased credit sales and an increase in
APR actioned in November 2018. Underlying credit sales grew by +3.5%, marginally ahead of the
+2.5% growth in credit customer base. We believe that credit sales per customer grew mainly as a
result of the continued increase in the products available on our website.
CREDIT CUSTOMERS
Active15 credit customers closed the year up +2.5% on last year. Total credit sales per customer
(including interest) were up +1.2%.
Credit customers (‘000)
Jan 2020
Jan 2019
Opening actives
Average actives
Closing actives
Credit sales per average active (£ VAT Ex)
2,578
2,582
2,643
£677
2,545
2,524
2,578
£669
Var %
+1.3%
+2.3%
+2.5%
+1.2%
Credit Customer Growth Drivers
Last year was our third consecutive year of growth in closing active customers and demonstrates the
effects of the improvements we have made to our credit offers, marketing and account services. The
five year trend is shown in the following chart.
14 Cost of funding has been restated for January 2019 to reflect the new debt to equity ratio. See page 32.
15 Active customers are defined as those who have placed an Online order or received a standard account statement in the last 20 weeks.
30
+4%
+3%
+2%
+1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-5.6%
Jan 16
Annual Change in UK Active Credit Customers
+0.6%
+1.3%
+2.5%
-0.8%
Jan 17
Jan 18
Jan 19
Jan 20
We believe the following initiatives have driven the increase in recruitment of new customers this
year:
● Investment in new credit scoring techniques and software, which has allowed us to accept
more applicants without lowering our acceptance criteria
● Improved Online marketing, for example using personalised banner advertising on our
homepage
BAD DEBT CHARGE
The bad debt charge in the year was £43m, which was £9m lower than last year. This was partly due
to an over provision we made last year for doubtful debts. We subsequently recovered these debts,
which resulted in a release of the provision this year. The underlying bad debt charge is set out below:
£m
Bad debt charge
Adjusted for provision release
Underlying bad debt charge
Underlying bad debt charge as a % of credit sales
Jan 2020
Jan 2019
Var %
43.3
+3.4
46.7
2.7%
- 16.9%
- 4.1%
52.1
- 3.4
48.7
2.9%
The underlying bad debt charge as a percentage of credit sales reduced in the year from 2.9% to 2.7%.
As seen in the following chart, we started to experience an increase in bad debt in 2017/18. In January
2019 we made two changes to our lending criteria: (1) we reduced the amount of credit limit increases
and (2) we increased the time required between successive increases.
31
Strategic ReportGovernanceFinancial StatementsShareholder Information Underlying Bad Debt as a % of Credit Sales
2.9%
2.7%
2.4%
1.8%
1.8%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Jan 16
Jan 17
Jan 18
Jan 19
Jan 19
Jan 20
Following the credit limit restrictions, we have seen a reduction in the average credit limit, customer
balance and debtor days (the average number of days a customer takes to pay down their balance).
Key metrics
Average credit limit £
Average balance £
Average debtor days
FINANCE OVERHEADS
Jan 2020
Jan 2019
Var %
4,118
532
225
4,290
533
233
- 4.0%
- 0.1%
- 3.4%
Overheads increased to £42m, up +15%. Costs directly related to the Finance business (£17m) grew
slightly faster than sales (+12%) due to investment in our credit systems and call centre operations.
Following a review of central overheads, we have increased the cost allocation to the Finance business
by +17% and now recharge £25m.
FINANCE BUSINESS BALANCE SHEET AND COST OF FUNDING
In our Half Year Results, we outlined our approach to funding the Finance business. We aim to fund
any increases in customer net receivables with 15% equity and 85% debt. So for every £100 of
additional receivables we own, we would expect to take on an additional £85 of financial debt. It is
worth stressing that net receivables are calculated after providing for bad debt. So to report £100 of
receivables on our balance sheet we would need to be owed £107 (that has not defaulted).
We have restated last year’s cost of funding on the same basis and the calculation of the cost of
funding is set out below. The average interest rate increased by +0.1% to 3.6% as a result of the
issuance of a new bond in April 2019.
Cost of funding calculation
Average nextpay receivables
Debt funding %
nextpay receivables funded by debt
Annual interest rate %
Cost of funding for 12 months
Jan 2020
£1,185m
85%
£1,008m
3.6%
£36.3m
Restated
Jan 2019
£1,140m
85%
£969m
3.5%
£34.0m
As reported
Jan 2019
£1,140m
100%
£1,140m
3.5%
£40.1m
32
OTHER BUSINESS ACTIVITY
NEXT SOURCING
NEXT Sourcing (NS) is our internal sourcing agent, which procures around 38% of NEXT branded
product. Profit in the year ended January 2020 increased by +£2.4m to £32m. The table below sets
out the performance of the business in Pounds and in Dollars.
Sales in Dollars were down -5% due to lower NEXT purchases. Profit in Dollars was up +4.1% due
primarily to overhead savings, with lower sales being offset by improved margin.
Sales (mainly inter-company)
543.0
550.0 - 1.3%
695.1
731.5
- 5.0%
Jan 2020
£m
Jan 2019
£m
Jan 2020
USD m
Jan 2019
USD m
Operating profit
Net margin
Exchange rate
LIPSY
32.0
5.9%
1.28
29.6 +8.2%
5.4%
1.33
41.0
5.9%
39.4 +4.1%
5.4%
Lipsy is a wholly owned subsidiary, based in London, that sells women’s fashion brands including
Lipsy’s own brand and over 140 third-party brands. In July 2019, Lipsy acquired Fabled by Marie Claire,
which significantly increased the Group’s offer of Branded Beauty products.
Sales achieved through NEXT’s stores and websites are reported by NEXT Retail and Online
respectively. Online, UK sales are reported within LABEL and non-UK sales are reported within
Overseas. The table below sets out Lipsy’s total sales performance by channel and operating profit.
£m
Sales through NEXT websites: Online clothing
Sales through NEXT websites: Online beauty
Sales through NEXT stores
Sales reported through NEXT
Other sales (Fabled, wholesale, franchise, third-party websites)
Total sales
Net operating profit (exc. Lipsy and Fabled acquisition costs)
Net operating profit (inc. Lipsy and Fabled acquisition costs)
Jan 2020
Jan 2019
Var %
113.8
116.7
- 2.5%
18.5
9.8
142.1
13.1
155.2
15.9
13.0
5.2 +255.5%
12.9
-23.6%
134.8
+5.4%
15.1
- 13.7%
149.9
+3.5%
17.1
11.0
- 7.0%
+18.0%
As detailed in our Half Year Report, we expected clothing sales in the second half of the year to be
hampered by range errors and stock shortages. Clothing sales through NEXT Online were down -2.5%
on last year and down -24% in Retail stores. With the addition of Beauty, overall sales via NEXT were
up +5.4%. Non-NEXT sales were down -13.7%, due to the winding up of the UK wholesale business.
Underlying profit (excluding acquisition costs) was £15.9m, down -7% on last year. The reduction in
profit was mainly due to the fall in clothing sales and higher levels of surplus stock in the first half of
the year. After acquisition costs, net operating profit was £13m, up +18.0%. The increase in post-
acquisition profit came as a result of the crystallization and settlement of some management earn out
incentives.
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Strategic ReportGovernanceFinancial StatementsShareholder Information
INTERNATIONAL RETAIL AND FRANCHISE STORES
Our franchise partners currently operate 185 stores in 31 countries and at the close of the year we
had three owned stores in the Czech Republic. During the year we closed our unprofitable retail
operations in Slovakia and Sweden.
Revenue and profit are set out in the table below. Profit has remained flat on declining sales due to
the closure of our unprofitable operations.
£m
Franchise income
Own store sales
Total revenue
Operating profit
Jan 2020
Jan 2019
52.0
4.9
56.9
6.2
52.2
10.0
62.2
6.2
Var %
- 0.3%
- 51.7%
- 8.6%
- 0.5%
NON-TRADING ACTIVITIES
The table below summarises central costs and the profit on other non-trading activities.
£m
Jan 2020
Jan 2019
Central costs and employee share schemes
Property management
Foreign exchange
Associates and joint venture
Total
(21.5)
(2.2)
(1.5)
(0.4)
(25.6)
(19.4)
6.7
1.4
0.1
(11.2)
Property profit was £8.9m lower than last year. This was due to a £3.6m increase in provisions made
in the year and £5.3m of one-off profits in the prior year. The year ending January 2019 benefited
from a profit of £1.4m on two development sites and £3.9m compensation income received upon the
early completion of two store leases at the landlords’ request.
Foreign exchange movements relate to contracts not eligible for hedge accounting.
PENSION SCHEME
On the IFRS accounting basis, our defined benefit schemes have moved from £125m surplus at January
2019 to £133m surplus at January 2020. This movement is primarily due to an increase in the value
of equity investments, partially offset by an increase in liabilities resulting from a reduction in the
discount rate assumption applied to the liabilities.
A full valuation as at 30 September 2019 is currently being undertaken and the discussions between
the Company and the Trustee are well advanced. The preliminary results of this valuation showed a
small deficit of £12m on the proposed Technical Provisions basis.
34
CASH FLOW
Profit in the year before interest, tax, depreciation and amortisation was £896m. Cash flow after non-
discretionary outflows of taxation, interest and working capital was £663m. After investing in capital
expenditure and paying ordinary dividends, but before financing customer receivables, the Group
generated surplus cash of £307m. Total share buybacks in the year to January 2020 were £300m; we
purchased 5.4m shares at an average price of £55.83, reducing our shares in issue at the start of the
year by 3.9%. The table below summarises our main cash flows in the year ended January 2020 and
the prior year.
£m
Jan 2020
Jan 2019
Profit before Interest, Tax, Depreciation & Amortisation
Interest
Taxation
Working capital and other
Discretionary cash flow
Capital expenditure
Investment in subsidiary/associate
Ordinary dividends
Surplus cash
Financing of additional nextpay receivables*
Share buybacks
Movement in net debt
896
(39)
(138)
(56)
663
(139)
(3)
(214)
307
(23)
(300)
(16)
884
(37)
(144)
(34)
669
(129)
(3)
(216)
321
(90)
(325)
(94)
*85% of movement in Jan 2020, 100% of movement in 2019 (see page 32 for further explanation).
INTEREST
Net interest charged in the Income Statement for the year was £44m, an increase of +£5m on the
previous year as a result of higher net debt and higher average interest rate following the issue of the
new bond in April 2019. As a result of payment timing differences, the interest paid was £39m.
TAX
Our full year effective tax rate was 18.5%, broadly in line with last year. For the year ahead we have
assumed an effective tax rate of 18.5%. This is based on the current UK headline corporate tax rate,
adjusted for our overseas business.
In the year ahead, HMRC are accelerating Corporation Tax payments so that the full tax charge is paid
in the year in which it is incurred. Previously, half of the tax payment was deferred until the following
year. If the Company had achieved its pre-coronavirus central guidance, this change would have
resulted in an additional £70m cash outflow to HMRC.
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Strategic ReportGovernanceFinancial StatementsShareholder Information
ORDINARY DIVIDEND
It is our usual practice at this time of the year to propose a final ordinary dividend to be paid at the
start of August, subject to approval by shareholders at the Annual General Meeting held in May.
However, given the highly unusual circumstances arising from the coronavirus, we believe it is
important to maintain flexibility around the timing of a decision to pay this dividend.
So, instead of proposing a final dividend at this time, the Board currently intends to declare a second
interim dividend in June. The directors will keep the Group’s liquidity position under review over the
next few months and determine the quantum and timing of the second interim dividend in the light
of the outlook for the Group’s balance sheet at that time. Our current plan is to declare an interim
dividend of up to 116.5p payable on 3 August, although we may decide to delay this payment by up
to three months if we need cash to keep our balance sheet secure through our period of peak
borrowings. For further detail see Outlook and Stress Test sections on page 38.
36
CAPITAL EXPENDITURE
Spend by Category
£m
Retail space expansion
Retail cosmetic/maintenance capex
Total capex on stores
Warehouse
Head office infrastructure
Systems
Jan 2021 (e)
Current plans
Jan 2021 (e)
Pre-coronavirus
Jan 2020
Jan 2019
30
5
35
55
2
8
32
15
47
81
7
10
24
14
38
87
5
9
57
12
69
52
4
4
Total capital expenditure
100
145
139
129
Capital expenditure in the year ending January 2020 was £139m, £10m higher than the prior year.
Warehouse capex was our biggest investment at £87m, a £35m increase on the prior year. This
warehouse investment is part of an ongoing expansion programme to increase capacities to support
Online sales growth. The £31m reduction in Retail capex is a function of opening fewer new stores;
most of the space expansion in the year relates to the re-site of small stores in existing locations to
larger sites, typically on improved lease terms. Retail cosmetic and maintenance capex increased by
£2m; this is due to the renewal of leases where capital contributions from the landlord are being
reinvested in the stores.
Capex in the year ahead
Pre-coronavirus, we had originally planned to spend £145m in the year ahead, but we have scaled this
back to £100m by delaying non-essential capex. Our warehouses will again see the largest investment
with capital spend of £55m. This includes the extension of bulk storage facilities in our current Online
boxed warehouse. We expect to spend £35m on store capex in the year, this includes three large
stores which we plan to re-site to new locations.
The systems expenditure of £8m includes projects which update the code that runs three core
systems. The systems in question are (1) our web platform (2) our warehouse management systems
and (3) our product systems. These projects all aim to deliver improvements to resilience,
performance and security along with an improvement in the ease with which they can be developed
going forward.
BOND, BANK FACILITIES AND NET DEBT
During the year we took steps to extend the maturity of our long term debt financing. We successfully
issued a £250m six year bond, which matures in August 2025. We initially retained £50m of these
bonds which were later issued in August 2019. The value of Sterling bonds outstanding at January
2020 amounted to £1,125m, which compares with £875m at January 2019. In addition, we refinanced
our bank facilities, combining two facilities maturing in 2020 and 2021 into a new £450m facility
maturing in 2024. Total bank and bond financing amounts to £1.6bn.
Our £325m bond matures in October 2021. It is our intention to refinance this with the issuance of a
new bond prior to maturity.
37
Strategic ReportGovernanceFinancial StatementsShareholder Information
OUTLOOK FOR SALES AND PROFIT
APPROACH TO GUIDANCE IN AN UNFORECASTABLE YEAR
Uncertainty and Stress Testing
Uncertainty around the scale, timing and impact of the coronavirus pandemic means it is impossible
to give meaningful guidance for profits in the year ahead. Instead, we have given a range of outcomes
for the current year for different sales scenarios. The resulting stress test is very useful; it gives a clear
picture of the possible effects on our balance sheet and finances and points to the practical steps we
can take to ensure that the Company is best placed to cope with all imaginable outcomes.
Method
The method we have used to stress test the business is as follows:
1. Start with our Base Case sales, profits and cash flow guidance before taking account of any
impact of coronavirus (i.e. based on the forecast given in January)
2. Model varying levels of sales of decline
3. Assess the expected impact on cash flow for each scenario
4. Outline the measures we can take to increase cash retained within the business
Conclusion of Stress Test
The conclusion of our stress test is that the business could sustain the loss of more than £1bn (25%)
of annual full price sales, without exceeding our current bond and bank facilities. This accounts for
the rates holiday announced by Government but excludes any use of Government lending or any
measures that may be introduced to help with wages during closure.
38
1. BASE CASE — BEFORE THE CORONAVIRUS IMPACT
Base Case — Sales
The table below sets out our January central guidance for full price sales growth by trading divisions
in the year ahead, before the impact from the coronavirus. For comparison, we have also shown the
actual sales performance in the year ending January 2020.
Full price variance on previous year
Online sales
Retail sales (including sales from new space)
Product full price sales
Finance interest income
Total full price sales including interest income
Base Case
guidance
2020/21 (e)
Actual
performance in
2019/20
+10.9%
+11.9%
- 5.8%
+3.1%
+1.0%
+3.0%
- 4.3%
+3.7%
+7.3%
+4.0%
Base Case Profits and Earnings Per Share (52 Week Basis)
In the Base Case we estimated that Group profit before tax would be around £734m, up +0.8% on the
prior year. Our January central guidance for sales, profits and EPS is set out in the table below.
Full year estimate to January 2021
Total full price sales versus 2019/20
Group profit before tax
Group profit before tax versus 2019/20
Earnings Per Share growth versus 2019/20
Base case
guidance
+3.0%
£734m
+0.8%16
+3.3%16
The guidance above is based on a 52 week trading period. However, the financial year ahead will be
a 53 week period to 30 January 2021. We had expected the additional week of sales to generate
profit of around £13m.
16 In our January Trading Statement, we reported profit guidance of £734m, which would be up +1% on the prior year, and EPS growth of
+3.5%. Profit in the year ended January 2020 finished slightly ahead of our forecast so profit growth would now be up +0.8% with EPS up
+3.3%.
39
Strategic ReportGovernanceFinancial StatementsShareholder Information
2. MODELLING SALES AND COST IMPACT OF CORONAVIRUS
Supply Chain Effects
When the coronavirus outbreak started, we assumed that the main impact would be on our supply
chain. There has been some effect on supply, though as yet the only meaningful delays have come
from suppliers based in mainland China. Mainland China accounts for 27% of our supply base
(excluding third-party brands). This number increases to 47% once you account for goods
manufactured outside China but made with Chinese fabric and trims (buttons, zips etc.).
So far, half the goods we were expecting from China in the month of February are running late. Most
of our factories in China have now returned to work and we expect the supply of stock from China to
improve as the year progresses. As yet we do not know what impact the virus will have on our other
key territories, though at present it appears that the virus is not having a significant impact on warmer
territories. The table below sets out the percentage of stock delivered from our most important
territories:
Territory
Mainland China
Bangladesh
India
Sri Lanka
Cambodia
Turkey
Vietnam
Myanmar
Pakistan
Portugal and North Africa
Supply %
Year ended Jan 2020
27%
24%
12%
7%
6%
6%
5%
4%
4%
2%
In reality, the threat posed to the supply of goods pales into insignificance when compared with the
potential impact on demand. Indeed, the inability of some suppliers to make and deliver the stock
we have ordered may help manage stock levels at a time when we are certain to have higher than
normal levels of surplus stock.
40
Sales Impact to Date
The graph and table below show our sales growth in Retail stores and Online versus last year for the
year to date. The last column on the right shows sales up to the evening of Tuesday 17 March. The
year-on-year performance for mid-February is distorted by the fact that this year the third and fourth
weeks were adversely affected by flooding.
Week commencing
26 Jan 02 Feb 09 Feb 16 Feb 23 Feb 01 Mar
08 Mar 15 Mar*
Online (including overseas)
+7.4%
+7.5% +11.2%
+6.2%
+2.3%
+3.9%
- 2.0% - 25.0%
Retail
- 3.9%
- 4.6%
- 9.6%
- 6.9% - 12.9% - 12.4%
- 19.7% - 46.0%
Brand (including interest income) +2.1%
+1.7%
+1.4%
- 0.0%
- 5.9%
- 2.1%
- 8.8%
- 30.0%
*Part week to Tuesday 17 March
2020 Full Price Sales Variance by Week vs 2019
+2.1%
+1.7%
+1.4%
+5%
+0%
-5%
-0.0%
-2.1%
-5.9%
-8.8%
-10%
e
c
n
a
i
r
a
V
s
e
a
S
e
c
i
r
P
l
l
l
u
F
-15%
-20%
-25%
-30%
-35%
26-Jan
02-Feb
09-Feb
16-Feb
Week Commencing
23-Feb
01-Mar
08-Mar
15-Mar*
-30.0%
41
Strategic ReportGovernanceFinancial StatementsShareholder Information
Sales Scenarios
We have modelled three scenarios for full price sales as set out below. The first scenario assumes a
shorter pandemic duration. The second and third are spread out over 24 weeks. It is important to
stress that no one knows, and the phasing shown below is pure guesswork. Our gut feeling is that the
-10% scenario is too optimistic, and we believe the -25% scenario is overly pessimistic. The week by
week progression does not make much difference to our cash resources and the number to focus on
is the total quantum of lost sales rather than the timing.
Full price sales versus last year
Weeks 1 & 2
Weeks 3 & 4
Weeks 5 & 6
Weeks 7 & 8
Weeks 9 & 10
Weeks 11 & 12
Weeks 13 & 14
Weeks 15 & 16
Weeks 17 & 18
Weeks 19 & 20
Weeks 21 & 22
Weeks 23 & 24
Decline for affected period
Rest of year
Full year
Scenario -10%
- 45%
- 90%
- 45%
- 25%
- 25%
- 25%
-
-
-
-
-
-
- 42%
0%
- 10%
Scenario -20%
- 45%
- 90%
- 90%
- 65%
- 65%
- 45%
- 45%
- 25%
- 25%
- 10%
- 10%
- 10%
- 45%
0%
- 20%
Scenario -25%
- 45%
- 100%
- 100%
- 75%
- 75%
- 60%
- 60%
- 40%
- 40%
- 25%
- 25%
- 10%
- 53%
0%
- 25%
Full Price Sales Scenarios
10%
20%
25%
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
0%
-10%
-20%
-30%
-40%
-50%
-60%
-70%
-80%
-90%
-100%
42
Cost Assumptions
The paragraphs below set out the way in which we have modelled the major heads of cost.
Stock
We have assumed that we can cancel out of somewhere between 10% and 20%
of the lost sales, saving the cost value of the stock. The later in the year the sales
are lost, the greater our opportunity to cancel orders.
Clearance rates We have assumed that we will not achieve any additional markdown sales by
clearing additional surplus stock. This is potentially overly conservative.
Variable costs
As sales reduce, the demand for labour in our warehouses, stores and call centres
would reduce. We have assumed that for warehouses and call centres, costs are
20% variable. So if Online sales drop by -10%, costs would only fall by -2%.
Retail store wages are assumed to be 30% variable to Retail sales. We believe this
can be achieved mainly through not requiring staff to work more than their
contracted hours and, in the short term, we would not replace leavers. In the
event of a prolonged closure period, and in the absence of any Government
assistance, we may have to take more radical action on wages, but we have not
factored this into the model.
Online distribution costs, many of which are contracted out to a third-party on a
per parcel basis, are assumed to be 65% variable.
Head office
Most Head Office functions are vital to the long term future of the business and
we have assumed that wages remain broadly fixed.
Bad debt
We have not assumed any change in bad debt rates or payment profile though in
reality payments may be a little slower than expected and bad debt may increase.
Rents
We have assumed that rents and all other fixed costs are not variable.
43
Strategic ReportGovernanceFinancial StatementsShareholder Information
3. CASH FLOW MODEL
Base Case Finances
NEXT has long term bond and debt facilities of £1.6bn; all of these facilities are secured for more than
a year. Peak debt was forecast to be £1.4bn in August.
The bar chart below sets out our bond and bank facilities in the leftmost bar consisting of £1,125m of
bonds and a £450m bank facility maturing in 2024. The central bar shows our Base Case year end and
peak borrowing requirements. The right-hand bar demonstrates that year end net debt would
normally be more than matched by our wholly owned consumer receivables book.
Financing
Peak
1.4bn(e)
Jan 2021
1.15bn(e)
Jan 2021
1.25bn(e)
£1,800m
£1,600m
£1,400m
£1,200m
£1,000m
£800m
£600m
£400m
£200m
£0m
Bank
facilities
450m
Bonds
1,125m
1.6bn
2024 RCF
450m
2021 Bond
325m
2025 Bond
250m
2026 Bond
250m
2028 Bond
300m
Funding
Net debt
nextpay
receivables
Base Case Cash Flow Model
The graph below shows our Base Case cash flow for the year ahead, relating to our January guidance.
This model assumes, amongst other things, that we buy back £280m of shares over the course of the
year. The black line shows our expected net debt position throughout the year, the green line shows
the level of our cash resources. As can be seen, in a normal year we would expect to keep headroom
of around £210m at peak financing in late August.
Net Debt and Financing
Base Case
Cash resources
Net debt: Base Case
Headroom
at peak
£210m
Headroom
at year end
£390m
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
£1,700m
£1,600m
£1,500m
£1,400m
£1,300m
£1,200m
£1,100m
£1,000m
44
Cash Flow Without Mitigating Action
The table below sets out the cash flow impact of lost sales after cost saving measures but without the
Company taking any further corporate action to conserve cash (such as cancelling buybacks). For
completeness, the EBITDA and Profit before tax the Company would generate is shown in the last two
lines of the table.
£m (e)
Scenario -10%
Scenario -20%
Scenario -25%
Lost full price sales (VAT ex)
Cash from additional clearance sales
Operational cost savings
Reduced stock purchases
Inflow from reduction in Online lending
Corporation tax saving and rates holiday
Cash cost of lost sales
Implied Group EBITDA17
Profit before tax17
- 445
+0
+55
+15
+55
+130
- 190
£665m
£490m
- 820
+0
+80
+50
+120
+180
- 390
£375m
£200m
- 1,010
+0
+90
+65
+150
+215
- 490
£230m
£55m
Net Debt and Financing
Without Mitigation
Cash resources
Net debt: -20% scenario
Shortfall
£245m
£1,900m
£1,800m
£1,700m
£1,600m
£1,500m
£1,400m
£1,300m
£1,200m
£1,100m
£1,000m
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
4. MITIGATION
The following actions can be taken to increase cash resources in the current financial year.
Level 1 Measures: Share Buybacks, ESOT and Capex
Suspending buybacks, employee share option trust (ESOT) purchases and deferring non-essential
capital expenditure. These actions will have no or little impact on the short term operations of the
business.
Level 2 Measures: Leasebacks, Securitisation and ESOT Loan Recall
We believe we can leaseback high quality assets and recall part of a loan from the Company which
has been advanced to the ESOT and securitise some of our customer receivables. These actions have
little impact on the operations of the business but are mildly earnings dilutive in future years as, for
example, the cost of rent on a leased-back building is likely to be higher than prevailing interest rates
on the proceeds of sale.
17 Profit before tax includes the benefit of the business rates holiday.
45
Strategic ReportGovernanceFinancial StatementsShareholder Information Level 3 Measures: Delay August Dividend
We could choose to delay the payment of our usual August dividend which comes just before our
peak cash requirement. This would only be necessary in the event we saw more than a -20% reduction
in sales.
At this time of year (March) we would normally propose a final dividend and we had planned to
announce a return of 116.5p per share for payment in August. Instead of proposing a final dividend
now (which would commit us to the payment), our current intention is to announce a second interim
dividend (of up to 116.5p) at the end of June, for payment at some point between August and October,
in the event that (1) the worst of the virus has passed by that time and (2) that our finances permit
the payment.
Level 4 Measure: Suspend Dividends
This would be a last resort but, in the event the business needed to conserve cash, we could suspend
both the August 2020 and January 2021 dividends which would retain £220m in the Group.
Impact of Levels 1-4 Mitigation
The chart below shows our cash requirements and resources in the event that we lose -20% (£820m)
of sales and take all levels of mitigation outlined above. The dotted line shows the scenario where
sales are down -25%. As can be seen in the -20% scenario, our minimum headroom is £150m and
cash resources at the year-end would rise to £835m. Even in the -25% scenario, our minimum
headroom would still be £110m.
Net Debt and Financing
With Levels 1 - 4 Mitigation
Headroom @ -20% +£150m
Headroom @ -25% +£110m
Headroom at
year end
£835m
1138.951996
Cash resources
Net debt: -20% scenario
Net debt: -25% scenario
£1,700m
£1,600m
£1,500m
£1,400m
£1,300m
£1,200m
£1,100m
£1,000m
£900m
£800m
£700m
£600m
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Further Measures Not Included in the Model
We have two further significant measures that would help us to increase our cash headroom in May.
We could (1) bring forward our Summer End of Season Sale and (2) push back deliveries of stock into
June. We estimate that the combination of these two options would increase our headroom by at
least a further £100m at that time.
46
The following table sets out the measures we believe we can take and an estimate of the resulting
cash retained at the end of August and Year End. The final line of the table shows the headroom the
measures would generate at year end in the -20% scenario.
It is worth noting that, normally, our peak cash requirement would be in August, however, if all
measures are undertaken the peak cash requirement moves to the end of May as shown in the
previous graph.
ACTION
Suspend
buybacks
ESOT
purchases
Defer capex
TOTAL LEVEL 1
DESCRIPTION
We expected to spend £280m on buybacks and have spent c.£20m to
date. Further buybacks are suspended until the situation stabilises
We had expected to spend £40m in the current year on buying shares
into our Employee share option trust.
We had planned to spend £145m of which we have not committed to
£70m. We intend to delay all non-essential capex (for example
maintenance and refit capex). We expect to save £45m on capex.
Value at
August
£m
Value at
year end
£m
+148
+260
+17
+40
+20
+45
+185
+345
Part securitise
Online debt
Within the terms of our bonds we can securitise up to £100m of our
Online receivables.
+100
+100
Lease backs
We have some freehold warehousing and other property which could
be leased back. We estimate we could realise £100m from these
sales.
+100
+100
ESOT loan recall
This involves our ESOT selling shares they do not currently need to
cover employee options (at today’s share price) and repaying part of
the loan from the NEXT Group used to buy these shares. We estimate
that this would generate cash of at least £70m.
TOTAL LEVEL 1 & 2
Delay dividend
This would involve delaying our usual August dividend to October.
TOTAL LEVEL 1, 2 & 3
Suspend dividends
TOTAL LEVEL 1, 2, 3 & 4
Cash impact of lost sales and rates holiday (-20% scenario)
Base case headroom
Headroom generated by all measures assuming -20% scenario
+70
+70
+455
+615
+147
-
+602
+615
+220
+602
+835
- 390
+390
+835
47
Strategic ReportGovernanceFinancial StatementsShareholder Information
Further Increasing our Financing Resources
We are in advanced discussions with our banks to increase our facilities by £200m to provide further
flexibility and headroom during these uncertain times. These discussions are progressing well, and
we expect the new facility to be in place within the next month.
Revolving Credit Facility Covenants
Under the scenario where full price sales fall by -20%, there is a risk that we may breach the Group's
bank covenants during the current financial year. This would be caused by a temporary reduction in
profits, however peak borrowings would remain comfortably within our total facilities.
We have had positive discussions with all our lending banks about this potential scenario. Our
discussions have been encouraging and early indications suggest they would agree to a covenant
waiver during the financial period to the end of January 2021.
Government Support for Businesses
We believe that Government, acting as lender and employer of last resort, can make an enormous
difference to the preservation of retail jobs and businesses during the crisis. The scale and speed of
the actions announced on Tuesday are very much welcomed. We believe that the availability of a
Government loan facility will do much to stabilise businesses through the crisis.
At present (as can be seen from our modelling) we do not believe that we would need to draw on
Government loan facilities, but they are hugely comforting, not least because they will help prevent
business collapses and unemployment elsewhere in the economy.
The Government has announced and is considering further measures to assist industry at this
exceptional time. For information, If NEXT were able to defer payment of National Insurance,
Corporation Tax, and VAT for the rest of this financial year, it would generate an additional cash
headroom of £240m at the year end.
Employment and Salaries
We would recommend that the Government urgently put in place measures to support the incomes
of those who work in shops that are forced to close. We understand the immense pressure the
Treasury are under at this time but would emphasise that clarity and speed on this issue would be
useful for retailers and employees alike.
48
SUMMARY
Our industry is facing a crisis that is unprecedented in living memory, but we believe that our balance
sheet and margins mean that we can weather the storm.
The crisis will pass at some point. At that time, it will be the work we do to move the business forward
that will determine our future success. So our priorities are clear: (1) to do all we can to keep our
workplaces and shops as safe as possible for customers and staff, (2) securing the cash resources of
the business and (3) continue to develop our Online platform and product ranges throughout the next
six months.
Our first quarter Trading Statement will cover the thirteen weeks to 25 April 2020 and is scheduled
for Wednesday 29 April 2020.
Lord Wolfson of Aspley Guise
Chief Executive
19 March 2020
49
Strategic ReportGovernanceFinancial StatementsShareholder Information
APPENDIX 1 – STATUTORY SALES AND LEASES
Overview
The financial information presented in pages 5 to 49 is used by the Chief Operating Decision Maker
(CODM) and management in assessing business performance against its targets and strategy. It is also
the financial information used to inform business decisions and investment appraisals. Having been
prepared on a basis that is consistent with prior years and current profit guidance, it is management's
view that this provides both a useful and necessary basis for understanding the Group’s results.
Management will continue to monitor and assess the financial information it presents so that it
remains both useful and necessary to understand the Group’s performance.
For statutory reporting purposes, changes are made in respect of revenue and accounting for leases.
A summary of the changes and their impact is set out below. Further detail on IFRS 16 “Leases’’ and
its impact on the statutory accounts is provided in Note 32 of the Financial Statements.
Revenue
Revenue presented in pages 5 to 49 is based on “Total sales” excluding VAT. “Total sales” represent
VAT exclusive sales, including the full value of commission based sales and interest income. For
statutory reporting purposes two adjustments are made to derive statutory revenue:
● Where third-party branded goods are sold on a commission basis, only the commission
receivable is included in statutory revenue. This adjustment reduces the value of sales
recognised for statutory reporting purposes by £137.7m for the period to January 2020 (2019:
£93.8m)
● Customer delivery charges, income received from printed publications, promotional
discounts, Interest Free Credit commission costs and unredeemed gift card balances are
included in statutory revenue (these amounts being reclassified from cost of sales). This
adjustment increases the value of sales recognised for statutory reporting purposes by
£42.1m for the period to January 2020 (2019: £40.3m)
As a result, Total Sales for the period to January 2020 of £4,361.8m (2019: £4,220.9m) are recognised
for statutory purposes as revenue of £4,266.2m (2019: £4,167.4m). A corresponding amount has been
recognised in cost of sales.
This change has no impact on profit before taxation, profit after taxation, Earnings Per Share or cash
flow.
Leases (IFRS 16)
The accounting for leases used within pages 5 to 49 do not reflect the requirements of IFRS 16,
“Leases’’. Instead, operating leases are held off balance sheet with the lease costs recognised on a
straight-line basis over the term of the lease. This is consistent with how leases were recognised on
a statutory basis in prior years.
In contrast, IFRS 16 applies a single ‘on balance sheet’ approach to lease accounting. This is primarily
achieved by:
● Recognising a right-of-use asset which represents the lessee’s contractual right to use the
leased asset for the lease term
● Recognising a lease liability which reflects the lessee’s obligation to make payments under
the terms of the lease
In this way leases previously classified as operating leases have now been included in the Balance
Sheet.
50
Due to the changes on the Balance Sheet, the nature and timing of costs being recognised in the
Income Statement also change, with depreciation being recognised on the right-of-use asset and
finance costs being recognised on the lease liability. The rental costs recognised under the previous
accounting standard for leases, IAS 17, are then excluded.
The impact of this change, on the timing of costs being recognised, is shown in the graph below. Note,
this graph is for illustrative purposes only.
Example of Income Statement Profile for Lease Costs
IAS 17 costs
IFRS16 total costs
£350m
£300m
£250m
£200m
£150m
£100m
£50m
£0m
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Under IFRS 16 depreciation costs on the right-of-use asset remain consistent during the lease as they
are recognised on a straight-line basis.
However, finance costs recognised on a lease are typically higher in the earlier years due to the finance
costs associated with a higher lease liability. This is evident in years one to three in the above graph
where the total IFRS 16 cost is higher than its IAS 17 equivalent.
As the lease liability is repaid the associated finance costs reduce year-on-year. This is evident in years
three to five in the above graph.
In contrast, under the previous accounting standard, the entire lease cost would be recognised on a
straight-line basis over the lease term as represented by the horizontal line in the graph.
IFRS 16 – Full retrospective application
NEXT has applied the requirements of IFRS 16 on a fully retrospective basis. This means that NEXT
has had to recalculate its IFRS 16 position as though it had always applied IFRS 16.
When viewed across its entire lease population, the NEXT lease portfolio is relatively mature. The
retrospective application of IFRS 16 has therefore resulted in a reduction in reserves of £196.3m as at
January 2018 (see note 32 of the Financial Statements). This reduction in reserves represents the
costs that would have been recognised at an earlier point in the lease term under IFRS 16 compared
to the previous standard, IAS 17.
While this reduction in reserves has reduced the Net Assets of NEXT it will not cause any hindrance
to the distribution of dividends to shareholders.
51
Strategic ReportGovernanceFinancial StatementsShareholder Information Income Statement
Having recognised a significant portion of the lease costs directly in reserves it is expected that, where
the lease portfolio is stable, the NEXT Income Statement will benefit from the recognition of lower
lease costs going forward. This is evident in both the January 2020 and January 2019 Income
Statement, restated for IFRS 16, see below.
£m
Profit before taxation
Taxation
Profit after taxation
Earnings Per Share
£m
Profit before taxation
Taxation
Profit after taxation
Earnings Per Share
Jan 2020 excluding
IFRS 16
IFRS 16 impact
Jan 2020
including IFRS 16
728.5
(134.6)
593.9
459.8p
20.0
(3.7)
16.3
748.5
(138.3)
610.2
472.4p
Jan 2019 excluding
IFRS 16
IFRS 16 impact
Jan 2019
including IFRS 16
722.9
(132.5)
590.4
435.3p
10.7
(2.0)
8.7
733.6
(134.5)
599.1
441.7p
The higher profit before tax under IFRS 16 is consistent with the illustrative profile on lease costs
shown on page 51 and the impact of full retrospective application of IFRS 16.
It is important to stress that while the timing and nature of costs under IFRS 16 differ to those reported
under IAS 17, over the course of the lease term the overall costs remain the same.
Hence the reduction to reserves of £196.3m, and the subsequent higher profit before tax in the
periods to January 2020 and January 2019, relate primarily to the timing of costs being recognised
and not cash savings or improved performance under the lease contracts.
In order to present financial information on a basis consistent with how the CODM and
management run the business, and to assist readers in understanding the underlying business
performance, pages 5 to 49 of this report do not include the impact of IFRS 16.
Cash Flow
While IFRS 16 has, from a statutory reporting perspective, had a significant impact on the Balance
Sheet and Income Statement it is important to emphasize that it has had no impact on the cash
generated by the business.
As disclosed in the Group accounting policies in the Financial Statements, the impact of IFRS 16 on
the cash flow is limited to changes in the presentation of where cash flows are reported. A summary
of the changes for January 2020 is presented below which also demonstrates that the net cash
position does not change.
Consequently, surplus cash as presented on page 35 remains an APM used by the business in its
management of cash flows.
52
Cash Flow Statement
£m
Operating profit
Non-cash items and movement in
working capital
Net Cash from investing activities
New cash from financing activities
Closing cash
Jan 2020
excluding IFRS 16
IFRS 16 impact
Jan 2020
including IFRS 16
772.1
81.8
853.9
(69.3)
(139.1)
(544.8)
18.9
142.6
0.0
(224.4)
-
73.3
(139.1)
(769.2)
18.9
Net Debt
Net debt at January 2020, excluding leases, was £1,112.1m. From a statutory reporting perspective,
the adoption of IFRS 16 results in the recognition of lease debt on the Balance Sheet of £1,251.0m
(2019: £1,366.3m).
£m
Jan 2020
Jan 2019
Cash and cash equivalents
Unsecured bank loans
Corporate bonds
Fair value hedges of bonds
Net debt excluding leases
Lease debt under IFRS 16
Net debt including leases
52.9
(40.0)
(1,163.7)
38.7
(1,112.1)
(1,251.0)
(2,363.1)
34.0
(255.0)
(905.2)
30.4
(1,095.8)
(1,366.3)
(2,462.1)
- 1.5%
+4.0%
The year on year reduction in lease debt reflects the payments made in the period and the trend
towards shorter lease terms on lease renewals.
Lease Commitment Profile
On an IFRS 16 basis 50% of the lease liability (by value) will expire within the next 11 years. This differs
to the lease profile on page 28 which states that 50% of the leases will expire within 4.8 years and
that within the next 10 years 81% of the rental liability would have expired.
This difference is primarily due to the following factors:
● The IFRS 16 lease profile includes all lease contracts within the scope of IFRS 16 - stores,
warehouses and plant and machinery. In contrast the lease commitment profile on page 28
includes store leases only
● The IFRS 16 liability includes lease terms beyond the break clause based on our expectation
of how long we will remain in the lease. In contrast the lease commitment profile on page 28
only includes the commitment to expiry or break point
● The IFRS 16 lease liability is measured as the present value of future lease payments.
In contrast the lease commitment on page 28 is not discounted.
53
Strategic ReportGovernanceFinancial StatementsShareholder Information
BUSINESS MODEL
NEXT’s purpose is to offer beautifully designed, excellent quality clothing and homeware which are responsibly
sourced and accessibly priced.
Why we are unique
Our NEXT Platform draws on all our assets – stores, warehouses, delivery networks, systems, marketing, credit facilities – to create a single
powerful aggregation business selling hundreds of third-party clothing and home brands alongside our own NEXT merchandise. We also draw
upon the strengths of our employees and our other key stakeholders – see page 73.
In the UK, the scale of our Online business, supported by our store network and strong relationships with partner brands, enables NEXT to offer
a broad product range to satisfy consumer demand for choice. In 2019/20, over £500m of other brands’ products were sold through LABEL.
The lower barriers to entry created by the shift to online retail have enabled NEXT to take advantage of overseas markets. Sales of NEXT
branded products overseas continue to grow
strongly and in 2019/20, Online Overseas sales
exceeded £450m.
Our Platform has three very clear objectives:
• To be our customers’ first choice destination
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 we and
our partner brands can be proud of
500 stores
7 UK Depots
8 UK NEXT warehouses
Third party warehouses
Warehousing – 8 UK warehouses
Distribution – 7 UK depots and 2 international hubs
UK Online – 5 million UK Online customers
Online Marketing – websites serving 70 countries
Customer Credit – £1.4 billion NEXT Finance credit business
Overseas Online – 1.5 million overseas customers
WHAT WE SELL
NEXT BRANDED PRODUCTS
In-house design capability
Our in-house team develop NEXT branded
products offering great design, quality
and value for money
Responsibly sourced
We source globally to deliver quality
and value
for money NEXT branded
products that are responsibly sourced.
NEXT Sourcing, our Hong Kong-based
international sourcing agent, competes for
business with other suppliers
LABEL
LABEL is our online aggregation business
selling almost 1,000 third-party brands
LIPSY
• Lipsy is our wholly owned subsidiary
which designs and sells its own branded
and other branded products
• Aimed at a younger female demographic
• Multi-channel; trades through NEXT
Online, from 40 NEXT stores, and
through wholesale
and overseas
franchise channels
HOW WE ADD VALUE
More product choice
A combination of NEXT products and almost
1,000 third-party brands means customers can
choose from an extensive range of clothing
and homeware products
Strong third-party LABEL relationships
We aim to be the most profitable route to market
for our third-party LABEL partners
Cost and quality control
Our sourcing structure provides excellent quality
and accessibly priced products for our customers.
It also helps maintain our margin through
efficient product sourcing, stock management
and cost control
54
Our objectives
The primary financial objective of the Group is to build shareholder
value through long term, sustainable growth in Earnings Per Share
(EPS) while conducting our business responsibly (see page 66). This long
term value creation is driven by our core principles of doing business:
1. Add value
• Use our product skills, distribution networks, systems, services
and sourcing to create goods and provide services that consumers
cannot easily find elsewhere
• Focus on customers’ satisfaction levels by improving the customer
experience in our stores and continuing to develop and enhance
our Online website
2. Play to our strengths
•
•
Improve and develop our product ranges by using our design
skills to create quality products at affordable prices
Increase the number of profitable Online customers and their
spend, both in the UK and internationally. Our UK Online
business is complemented by our LABEL offering of branded
products and the credit facility (nextpay). Our objective is to be
our customers’ first choice online retailer for clothing, footwear
and home products
3. Make a margin
• Achieve healthy gross and net margins through efficient product
sourcing, stock management and cost control
• Healthy margins help create stability that allows the business to
withstand the vagaries of any consumer-facing business
4. Good returns on capital invested
• Support the Group’s access to low cost finance by maintaining
a strong balance sheet and secure financing structure
• Make a return on capital commensurate with risk, and using
robust investment appraisal models targeting financial hurdles,
including cash payback and return on capital invested
• Maximise the profitability of retail selling space
5. Generate and return surplus cash
to shareholders
• This is done by way of share buybacks and/or special dividends
HOW WE SELL IT
Flexible and robust infrastructure
and distribution channels
• Our warehouse and
logistics operations
provide an efficient and agile product
distribution network
• 8 UK warehouses, 7 UK depots and
2 international hubs provide cost-effective
delivery to our Online and Retail customers
Digital marketing and websites
• Online sales of NEXT branded products
are routed through our own website and
third-party websites
• Together, those websites serve 70 countries
Well-connected store network
• Around 500 stores in the UK and Eire.
• Our stores play an important role in supporting
our Online customers
• Nearly half of our UK Online orders (by number
of orders) are fulfilled through collection
from our stores and over 80% of returns are
through our stores
Overseas
• 1.5 million overseas customers
• 185 mainly franchised stores in 31 countries.
• Online orders are fulfilled from both our UK
warehouses and our international hubs
Flexible UK credit financing business
• £1.4bn of consumer credit is currently provided
to customers
• We offer a credit facility for UK NEXT Online
customers called nextpay
• We also offer next3step, a credit account
which allows customers to spread the cost of
orders over three months interest-free
Creating value for shareholders
• We manage financial resources effectively
with a strong focus on cost control and
maximising shareholder value
• NEXT is highly cash generative; after investing
in the business, surplus cash is returned
to shareholders
Outstanding customer experience built
on convenience and flexibility
• Customers can order online or in-store and
choose delivery to home or store
• UK Online customers ordering before midnight
can expect next-day delivery as standard
• We also offer a ‘Collect Today’ service in
the UK on certain items ordered online for
same-day collection in-store
55
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 201 for further details. The KPIs
include Alternative Performance Measures (APMs).
The directors use 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.
Sales (%)
APM
NEXT profitability
APM
NEXT Brand full
price sales growth
NEXT Brand
total sales growth
+4.0%
+3.1%
+3.5%
+2.6%
2020
2019
2020
2019
Full price sales are VAT
exclusive sales of stock
items excluding items sold
in our mid-season, end-of-
season and Black Friday
Sale
and our
Clearance operations, and
includes interest income on
those sales.
events
Total sales are VAT exclusive
full price and markdown
sales including the full value
of commission based sales
and
income (as
described in Note 1 to the
financial statements).
interest
NEXT Retail
operating margin
NEXT Online
operating margin*
Group profit
before tax (£m)
+8.9%
+10.9%
+18.6%
+18.4%
728.5
722.9
2020
2019
2020
2019
2020
2019
* 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 to the
financial statements).
Returns to shareholders (£m)
Earnings Per Share
APM
Ordinary dividends
Share buybacks
Total
213.6
215.7
300.2
324.2
513.8
539.9
459.8p
435.3p
2020
2019
2020
2019
2020
2019
2020
2019
Based on dividends paid in
the Cash Flow Statement.
Refer to Note 7 to the
financial statements.
56
Refer to Note 8 to the financial statements.
the
financial
total of 5,376,718
A
shares were purchased
in
year
(2019: 6,276,572) at an
average cost per share
of £55.83 (2019: £51.65)
including stamp duty and
associated costs.
The average price before costs
was £55.49 (2019:£51.33).
Buybacks represented 3.9%
(2019: 4.3%) of opening
share capital.
APM Alternative Performance Measure. APMs are not defined in
IFRS. The statutory equivalents are presented in the financial
highlights (page 1) with further explanations and reconciliations
provided in Appendix 1 to the Chief Executive’s Review, the
Glossary, and Notes 1 and 32 to the financial statements.
NEXT Online sales performance
APM
NEXT Online average active customers (000’s)
APM
Full price
sales growth
Total sales growth
Credit
Cash
Total
+11.9%
+14.8%
+11.9%
+14.7%
2,582
2,524
3,420
2,810
6,002
5,334
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.
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
NEXT Retail sales performance
APM
NEXT Retail selling space
Full price sales
growth
Total sales
growth
Underlying total
like-for-like sales
Underlying full price
like-for-like sales
-4.3%
-7.3%
-5.3%
-7.9%
-5.7%
-8.5%
-5.5%
-8.2%
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 square footage
excludes 361k sq. ft. (2019: 305k sq ft) of space occupied
by concessions.
Store numbers
Square feet (000’s)
498
507
8,031
7,989
2020
2019
2020
2019
2020
2019
2020
2019
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.
2020
2019
2020
2019
NEXT Finance
nextpay credit sales
(£m)
APM
Interest income
(£m)
Average debtor
balance (£m) APM
Net profit (£m)
(after cost of funding)
APM
Return on APM
Capital Employed
(after cost of funding)
1,747.6
1,688.8
268.7
250.3
1,185.0
1,140.0
146.7
127.3
12.4%
11.2%
have
Credit sales are defined as
VAT exclusive sales from
Online credit customers
who
purchased
using their Online account,
interest
inclusive of any
income
and
delivery charges, and after
deducting any applicable
promotional discounts.
charges
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
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). Net profit for
2019 has been restated for
the revised allocation of
finance costs.
57
Strategic ReportGovernanceFinancial StatementsShareholder Information RISKS AND UNCERTAINTIES
Risk management and internal control framework
The Board has overall responsibility for risk management, the supporting system of internal controls and for reviewing their effectiveness.
The Group operates a policy of continuous identification and review of business risks. This includes the monitoring of key risks, identification of
emerging risks, determination of treatment in taking into account risk appetite, and evaluation and reporting on how those risks may affect the
achievement of business objectives.
The risks and uncertainties that the business faces evolve over time and executive directors and senior management are delegated the task of
implementing and maintaining controls to ensure that risks are managed appropriately. The Group’s risk management framework is designed
to identify and manage, rather than eliminate, the risk of failure to achieve business objectives and to provide reasonable, but not absolute,
assurance against material misstatement or loss.
Our approach to risk management is illustrated by the following
diagram and described below.
Parties involved in the review, challenge and assessment of risks.
Also scrutinise the reporting, management and control of risks.
Risk identification and assessment – current and emerging risks
• Corporate compliance team
• Audit Committee
Operational risk registers
• Senior managers and operational directors
• Corporate compliance team
Corporate risk register
• Internal Audit
• Risk Steering Group
• Executive Directors
Principal risks and uncertainties
Viability assessment
• Risk Steering Group
• Executive Directors
• Audit Committee
• Board
• Audit Committee
• Board
and
risk
Assess effectiveness of
management
internal
control systems. Challenges are
fed back to the management
team to consider.
Risk identification and assessment
• On a day-to-day basis, the risk management process is coordinated
by the corporate compliance team which reports its findings to the
Audit Committee regularly
• Each business area is responsible for preparing and maintaining
operational risk registers and for identifying, analysing, evaluating,
managing and monitoring the risks and emerging risks in their
respective areas. Risk registers are prepared using consistent risk
factors and evaluate business impact and likelihood ratings, both
before and after the effect of any mitigating activities or controls
• A corporate risk register is maintained, reflecting the significant
Group-level key risks identified from the operational risk registers.
This ‘bottom up’ identification of risks is overlaid by those risks
highlighted from the ‘top-down’ review and challenge process
(see below)
• The corporate risk register includes key controls, mitigating
activities and action plans in respect of the principal risks and it
forms the basis of the principal risks and uncertainties disclosed
in this report. These principal risks are also considered during the
directors’ assessment of viability
Review, challenge and control
•
Issues, incidents and key risk indicators are reported to the
corporate compliance team on a regular basis, in addition to a
half yearly cycle of risk and control assessments. This helps to
identify any control weaknesses for remediation. During this
review, the business areas are asked to consider and report on the
emerging risks in their areas
• There is an annual review of operational risk registers by relevant
senior managers and operational directors. This is to ensure risks
are comprehensively covered and assessed consistently across
the business
• A senior management Risk Steering Committee has been
established during the year which meets at least four times
annually. The work of the Steering Group includes: assessing
and challenging the consolidated operational and strategic
risks; overseeing the development of risk modelling, processes
and risk reporting; influencing the prioritisation of mitigating
actions; reviewing the Company’s horizon-scanning processes
and emerging risks; monitoring management’s responsiveness to
findings and recommendations of documented risks and controls;
and providing reports and recommendations to the executive
directors, Audit Committee and Board including to assist with
assessing the effectiveness of the risk management system and
internal controls and the setting of risk appetite with regard to the
principal risks
• The work and findings of the corporate compliance team are
considered by the Audit Committee at least twice each year and
by the Board at least annually. At that time they also review the
principal risks of the business and evaluate the effectiveness of the
risk management and internal controls systems
•
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
58
Emerging risk
As part of the ongoing risk management framework described above,
the Group’s subject matter experts in our business areas, our Risk
Steering Committee and Board are all specifically tasked to identify
emerging risks and to assess their potential impact on the business.
During the review process this year, the Audit Committee challenged
management to consider emerging (and indeed principal) risks in light
of the changing shape of the NEXT business, the challenging trading
conditions in the retail sector and other external factors.
Coronavirus
A detailed summary of our impact assessment on the risks that the
Coronavirus pandemic poses to the business, together with potential
mitigating actions to conserve cash, is included in the Chief Executive’s
Review. The Review also summarises the output of a stress test which
assesses the likely cash impact in various scenarios. However, the
current uncertainty around the scale, timing and impact of Coronavirus
means it is impossible at the time of writing to quantify accurately the
level of risk associated with the pandemic.
Risk appetite
In determining its appetite for specific risks, the Board ensures that the
risks are consistent with its financial objectives and values. On page
55 we talk about our principles of doing business and those principles
contribute to managing the business objectives within the Board’s risk
appetite. In particular, our financial disciplines ensure that each of our
business divisions make net margins that are sufficient to allow them
to withstand the inevitable vagaries of any consumer facing business.
We also ensure that we make healthy returns on capital employed,
commensurate with the risks involved in our sector. In practical terms
this means a return of no less than 15% on capital invested.
Board review
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 2020 and up to and including the date of this
report (see page 89 of the Corporate Governance Report for further
details). The business will continue to review opportunities to mature,
strengthen and improve the effectiveness of these systems.
No significant failings of internal control were identified during
these reviews.
Brexit
The UK formally left the EU on 31 January 2020 and entered a transition
period which is scheduled to end on 31 December 2020. During this
period the UK will effectively remain in the EU’s customs union and
single market, so there will be no impact on NEXT during this period.
A Brexit Planning Statement providing a detailed analysis of the Brexit-
related risks and operational challenges to our business and their
potential impact is available on our corporate website, nextplc.co.uk.
We are well advanced in our Brexit preparations and are confident
that all the necessary arrangements we need to make will be in place
by 31 December 2020 if no new trade deal is agreed.
Whilst a no-deal Brexit is not our preferred outcome, as long as our
ports continue to operate effectively we do not believe that the risks
of a no-deal Brexit pose a material threat to the ongoing operations
and profitability of NEXT’s business, either in the UK or to our business
into the EU.
Progress in the Brexit negotiations will continue to be monitored
and the risks and uncertainties will be managed within the risk
management and control processes 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 any
emerging risks, and those that would threaten its business model,
future performance, solvency or liquidity. Please refer to the Corporate
Governance Report on page 89 for further details. Certain changes
have been made to the principal risks and uncertainties reported in
the previous year as a result of this assessment.
• Regulatory compliance
in relation to our consumer credit
business has been added in recognition of the significant financial,
operational and reputational damage that could arise were the
Group to fail to conduct itself in accordance with the principles and
rules set out by key regulators
• The principal risk of ‘Retail store network’ is broadened to
‘Management of long term liabilities and capital expenditure’
to cover other long term obligations and capital expenditure in
addition to Retail store leases
• The principal risk of ‘Information security, business continuity and
cyber risk’ is expanded to incorporate data privacy
•
‘Customer experience’ is changed to ‘Customer facing systems’
so as to cover the risk that the Company fails to adopt and make
effective use of new technologies around software, hardware and
mechanisation to ensure we serve our customers well
• The Board considered that, given the strength of the talent pipeline
and the robustness of succession plans, the ‘Management team’
risk relating to failure to attract, motivate and retain highly qualified
senior management and technical personnel should be demoted
from the list of principal risks
The principal risk areas otherwise remain the same as reported last
year. Those principal risks are described over the next few pages
together with an explanation of how they are managed or mitigated.
Reputational risk is not in itself one of the principal risks detailed below,
instead it is a key factor in evaluating all principal risks. The Board is
committed to ensuring that the key risks are managed on an ongoing
basis and operate within appetite. 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 (see the
viability assessment on page 65).
59
Strategic ReportGovernanceFinancial StatementsShareholder Information RISKS AND UNCERTAINTIES
Link to strategy
Improving and developing our product ranges
Focusing on customer experience and satisfaction
Maximising the profitability of retail selling space
Maintaining the Group’s financial strength
Increasing the number of profitable NEXT Online customers
Generating and returning surplus cash to shareholders
Managing margins
Risk trend: ↑ Increasing ↔ Unchanged
Principal risk and description
How we manage or mitigate the risk
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.
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.
• 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 regular updates at Board meetings
regarding key opportunities and progress of major initiatives.
• Our International Online business and our third-party label business
provide geographic and product diversity
• Our disciplined approach to sales, budgeting, investment returns
and cost control ensures the Company continues to generate
strong profits and cash flows
• 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
• A detailed plan to manage the business going forward and its
longer term direction of travel exists and is clearly articulated to
our stakeholders in our annual and half yearly reports
• Longer term financial scenarios for our Retail business have been
prepared and stress tested. This process provides a mechanism for
ensuring that business profitability is maximised through efficient
allocation of resources and management of costs
• 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 and our third-party label
product 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 necessary
• Senior product management approves quality standards, with
in-house quality control and testing teams in place across all
product areas
• Senior management regularly reviews product recalls and product
safety related issues
60
Principal risk and description
How we manage or mitigate the risk
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
profit margins.
Non-compliance by suppliers with the NEXT Code of Practice
may increase reputational risk or undermine our reputation as a
responsible retailer.
Warehousing and 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 and
slow processes and third-party failures.
Increasing choice in the products NEXT sells has been central to
the development of our Online Platform but the proliferation
of unique items has presented our warehouse operation with
significant challenges.
• Stock availability is reviewed on an ongoing basis and appropriate
action taken where service or delivery to customers may be
negatively impacted
• Management continually seeks ways to develop our supplier base
to reduce over-reliance on individual suppliers and 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 audits
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. Further details are set
out on page 67
• We train relevant employees and communicate with suppliers
regarding our expectations in relation to responsible sourcing,
anti-bribery, human rights and modern slavery
• The Audit Committee receives Code of Practice and modern slavery
updates from senior management during the year
• The Audit Committee receives modern slavery and anti-bribery
training progress updates together with whistleblowing reports at
each meeting. Significant matters are reported to the Board
• 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
• Our Warehouse Leadership Team meets regularly to assess the
opportunities and risks in our warehouse and logistics network
• Business continuity plans and insurance are in place to mitigate
the impact of business interruption
• The Board has approved and keeps under regular review a
warehouse investment proposal to accommodate further Online
growth and transfer in customer demand from Retail to Online (see
page 20 for further details)
• During the year, the Audit Committee requested and received
updates of key warehouse fire risks and mitigation plans from our
Warehousing and Logistics directors. Following a detailed review of
the risk of business interruption arising from a catastrophic event in
one of our key warehouses, the Board approved an increase in the
value of risk covered by insurance
61
Strategic ReportGovernanceFinancial StatementsShareholder Information
RISKS AND UNCERTAINTIES
Principal risk and description
How we manage or mitigate the risk
Customer-facing systems
↑
NEXT’s performance depends on the engagement, recruitment
and retention of customers, and on its ability to drive and service
customer demand. There is a risk that the business fails to adopt
and/or make effective and efficient use of new software, hardware
and mechanisation to provide both Retail and Online customers with
service levels that meet or exceed their expectations. These systems,
software and platforms are ever changing, as technology continues
to evolve. Keeping customers and users up to date and managing the
implementation and changes that come with the evolution of these
platforms can be challenging.
• Continued investment in technology which supports the various
component parts of the NEXT Online Platform
• Continual development and monitoring of performance of NEXT’s
UK and overseas websites, with a particular focus on improving the
online customer experience
• A range of key trade and operational meetings keep under review
the performance, evolution, risks and opportunities of the NEXT
customer facing systems. Executive directors are in attendance at
each of these key meetings
• Market research and customer feedback is used to assess customer
opinions and satisfaction levels to help to ensure that we remain
focused on delivering excellent customer service
• Ongoing monitoring of KPIs and feedback from website and call
centre support operations
Management of long term liabilities and capital expenditure
↔
Poor management of NEXT’s longer term liabilities and capital
expenditure could jeopardise the long term sustainability of the
business. It is important to ensure that the business continues to be
responsive and flexible to meet the challenges of a rapidly changing
Retail sector.
• 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 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
• We ensure that we make healthy returns on capital employed,
commensurate with the risks involved in our sector (in practical
terms this means a return of no less than 15% on capital invested).
• Appropriate amortisation accounting policies reduce the risk of
unexpected significant write-off
62
Principal risk and description
How we manage or mitigate the risk
Information security, data privacy, 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.
The Group could inadvertently process customer or employee data
in a manner deemed unethical or unlawful, resulting in significant
financial penalties, remediation costs, reputational damage and/or
restrictions on our ability to operate. This is against a backdrop of:
• The changing attitude of UK consumers toward their data and
•
how it is used
Increasingly complex and fast-evolving data protection law
and regulation
• Rapid technological advances delivering an enhanced ability to
gather, draw insight from and monetise personal data
• We operate an Information Security and Data Protection Steering
Committee. Its main activities include agreement and monitoring of
related key risks, activities and incidents. The Committee comprises
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 and physical 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,
imposing contractual
security requirements and service level agreements on third-party
suppliers, and IT capacity management
•
• All staff and contractors are required to read, accept and comply
with the Group’s data protection and information security policies,
which are kept under regular review and supported by training
Information security and data protection risk exposure was
reviewed during the year by both the Audit Committee and
the Board, target risk appetites were agreed and the controls
necessary to achieve target were documented. A roadmap was
prepared and approved to address gaps between current and
target risk exposures
63
Strategic ReportGovernanceFinancial StatementsShareholder Information RISKS AND UNCERTAINTIES
Principal risk and description
How we manage or mitigate the risk
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 £1.4bn represents the largest
item on the Group Balance Sheet.
• NEXT operates 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 28 to 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
• The Board and Audit Committee receives regular updates
throughout the year regarding the customer credit business
Regulatory compliance in relation to our consumer credit business
↑
Failure to continuously adapt to the increasingly broad, stringent
and fast-evolving regulatory framework applicable to the operation
of the Group’s customer credit business could result in significant
financial penalties and remediation costs, reputational damage and/
or restrictions on our ability to operate.
• Policies and training are in place for those employees and
contractors working in the business areas that are subject to
financial regulation. These are kept under review and updated.
• A dedicated financial regulatory compliance and quality assurance
team monitors compliance and any changing requirements,
working with external advisers as required.
• NEXT has identified a set of Conduct and Compliance risks,
documented in an operational risk register, with owners and
associated controls.
• Key risk and control performance indicators are managed through
a series of operational meetings and reported quarterly to the
Retail Credit Board.
64
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 (pages 54 and 55), strategy (page 55) and the principal risks and mitigating factors described on pages 60 to 64.
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. In each of the last three years the business has generated surplus cash in excess of £300m. 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
Long term
investment and
financing
considerations
Warehousing and logistics capacity planning
New lease commitments
Retail space planning
Share-based incentives
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. Although a three year period is considered an appropriate period of assessment for the viability statement, beyond this time horizon
management has also considered the possible performance of the business over the next 15 years in terms of sales and cash flow. This model
gives the possible performance of the NEXT Group over the next 15 years in terms of sales and cash flow. Its purpose is to test the economic
structure of the Group in an environment of rapid change by modelling the financial consequences of a continuing -10% fall in Retail like-for-like
sales. This demonstrated that a radical restructuring 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.
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 60 to 64.
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.
Specific consideration was also given to the potential risks associated with the Coronavirus. This included the preparation of stress tests which
model the impact of a decline in sales and the actions which the business could take to control costs, conserve cash and meet its liabilities as they
fall due. For further details on the stress tests see pages 38 to 48.
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.
65
Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE RESPONSIBILITY
Our principles
NEXT is committed to the following principles of responsible business which underpin our business model. We strive to:
• Act in an ethical manner
• Recognise, respect and protect human rights
• Develop positive relationships with our suppliers and business partners
• Recruit and retain responsible employees
• Take responsibility for our impact on the environment
• Deliver value to our customers
• Deliver support through donations to charities and community organisations
NEXT is a member of the FTSE4Good Index Series. The Group’s Corporate Responsibility Report is published on our corporate website at
nextplc.co.uk.
The following pages describe how we uphold these principles in relation to our stakeholders.
Our workforce is integral to achieving our business objectives. We aim to attract, retain and develop the best talent at every level throughout
NEXT and believe an engaged workforce is vital to achieving our aims. We strive to create a workplace in which everyone is safe; supported and
respected; treated fairly and taken care of; listened to; and motivated to achieve their full potential. We are committed to achieving excellence
in the areas of health and safety, wellbeing and the protection of our workforce in their working environment.
Equal opportunities and diversity
NEXT is an equal opportunities employer and will continue to ensure that it offers career opportunities without discrimination.
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’s policy is 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.
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 90.
The following chart shows the gender mix of the Group’s employees at the end of the financial year:
Directors of NEXT plc
Subsidiary directors and other senior managers1
Total employees
2020
2019
Male
5
29
14,143
Female
4
14
30,271
Male
5
25
14,353
Female
4
12
30,329
1 At January 2020, senior managers comprised 14 male and 12 female employees and their direct reports consisted of 58 male employees and 90 female employees.
66
Reward, gender pay and employee share ownership
We aim to reward all employees with fair and competitive salaries and provide the opportunity to gain additional pay in the form of a bonus
depending on Company (or in some cases store or individual) performance. NEXT publishes its annual Gender Pay Report at nextplc.co.uk.
Approximately 8,600 employees (circa 22% of our total UK and Eire employees) held options or awards in respect of 6.4m shares in NEXT at the
end of January 2020, 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 5.4m 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 20 to the
financial statements. At January 2020, there were 751 (2019: 814) active members in the defined benefit section of the 2013 NEXT Group
Pension Plan and 4,418 (2019: 4,841) UK active members of the defined contribution section. In addition, 14,390 employees (2019: 13,118)
participate in the Group’s auto enrolment defined contribution scheme.
Training and development
NEXT aims to realise its employees’ potential by supporting their career progression and promotion wherever possible. The Group makes
significant investment in the training and development of staff and in education programmes which contribute to the promotion prospects
of employees. We believe that these opportunities will help employees feel supported and equipped to carry out their role to the best of
their ability.
Health, Safety and Wellbeing
NEXT recognises that the health, safety and wellbeing of employees is of critical importance. 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.
It is a key priority for NEXT to ensure we trade ethically, taking all reasonable and practical steps to ensure NEXT product is made by workers who
are treated honestly and fairly for the work they undertake and whose safety, human rights and wellbeing are respected. We work with both
suppliers and external experts to address and resolve issues within our supply chain and to raise standards generally.
In common with other retailers, NEXT’s product supply chain is both diverse and dynamic. During the year, NEXT products were manufactured
in around 40 countries.
Ethical trading
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 almost 50 of our employees based in key sourcing locations. NEXT continues to
focus on its supply chain as it recognises that there is potential for human rights issues to arise in this area.
NEXT’s COP programme is based on the Ethical Trading Initiative (ETI) Base Code and International Labour Organisation 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 2,400 audits of factories in 2019/20 and work directly with suppliers to identify and address causes of non-
compliance. NEXT also recognises the importance of partnership and collaboration with our suppliers, other brands and organisations when
working to resolve some of the more complex problems.
Traceability and transparency of our suppliers’ factories are an important part of NEXT’s overall approach to corporate responsibility. Suppliers are
contractually required to declare to NEXT all Tier 1 and 2 sites where NEXT branded products or components will be manufactured. This means
we can ensure the facility is audited and meets our requirements. Tier 1 sites are defined as the declared supplier’s factory where the contract
is assigned and bulk production of NEXT branded products takes place. Tier 2 sites are defined as separate declared factory or subcontractor
locations which manufacture or process materials, components or parts of a finished product for a Tier 1 site. We publish a list of Tier 1 suppliers’
manufacturing sites producing NEXT branded products at nextplc.co.uk.
Payment practices
NEXT has calculated and uploaded relevant supplier data onto the HMRC government portal under the ‘Duty to report on payment practices and
performance’ legislation under section 3 of the Small Business, Enterprise and Employment Act 2015.
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NEXT is committed to offering exciting, beautifully designed, excellent quality products that are well made, functional, safe and responsibly
sourced and which provide outstanding value to meet or exceed our customers’ expectations. 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.
Customers
NEXT endeavours to provide a high quality service to its customers, whether they are shopping through our stores or online. Our NEXT Customer
Services teams respond to a wide range of customer enquiries and issues. Customer feedback is gathered from a variety of different sources and
findings are reviewed and the information is used by relevant business areas to ascertain how products or services can be improved.
Product safety and legislation compliance
Our product safety standards are based on a range of legislation and compliance requirements. Technologists in our Product teams work closely
with our suppliers to provide expert guidance to ensure the right materials are chosen to manufacture high quality, durable products in factories
with robust product safety processes. Suppliers to NEXT have direct access via our online Supplier Portal to our full range of technical manuals
and quality, safety, ethical and responsible sourcing standards. All products are inspected upon receipt into our UK warehouses by our quality
assurance team to ensure they meet our requirements.
NEXT also works with our LABEL third-party brands to ensure all products offered for sale are safe for the intended end use. We require brands
to be able to demonstrate compliance with all applicable legislation and standards through risk assessment, certification and testing as well as
being able to show the product has been sourced from factories which are compliant with the ETI Base Code.
Responsible sourcing
Each stage of our supply chain has an environmental and social impact, from sourcing the materials through to post consumer use and disposal.
The majority of environmental impacts lie in the fibre and fabric production stage. Whilst we do not source raw materials directly, we work with
our suppliers to ensure we can trace their routes. This enables us to source products in ways which support their replenishment, respect human
rights and protect natural habitats. The main raw materials used in our products are cotton, wool, manmade cellulosic (such as viscose), polyester,
timber and leather. These materials can have wide-ranging environmental and social risks associated with their production and extraction if not
managed correctly. Our 2025 Responsible Sourcing Strategy sets out our ambition to source 100% of our main raw materials through known,
responsible or certified routes and work with our suppliers to help reduce the impact of manufacturing processes on the environment and on
the health of those working and living in communities around the sites where our products are made.
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Solutions to reduce environmental and social impacts can really only be achieved with collaborative global actions. NEXT, along with other
retailers, is involved in a number of initiatives to minimise these adverse impacts. These include:
Zero Discharge of Hazardous
Chemicals (ZDHC) Roadmap
to Zero
Better Cotton Initiative (BCI)
NEXT is a signatory to the ZDHC programme to collaborate on promoting industry-wide change in
responsible chemical management in textile and leather production processes (dyeing, printing and
laundering of textiles, and tanning and dyeing of leather) to protect workers, customers and the
environment. NEXT has its own Restricted Substances Standards which ban or state the limits for
harmful chemicals used in or during the manufacture of our products.
We provide specially-designed online chemical management training modules to our suppliers (notably
our key fabric mills and wet processors) to educate on good practices to reduce and eliminate the
discharge of hazardous chemicals from production processes into the environment.
Next joined the BCI in 2017 and in 2019 sourced 34% (2018/19: 13%) of its cotton as Better Cotton.
Our target is to source 100% of cotton from BCI, recycled, Certified Organic or Fairtrade Certified cotton
by 2025.
NEXT does not support the use of cotton from Uzbekistan or Turkmenistan in our textile products due
to concerns over child labour and working conditions in these territories. We also expect our suppliers
not to source cotton from these countries.
Changing Markets Foundation’s
Roadmap Towards Responsible
Viscose and Modal
Fibre Manufacturing
This Roadmap focuses on the chemicals used to break down timber to make viscose pulp which is spun
to create fibre. It aims to minimise the effects of harmful chemicals in the manufacturing process.
NEXT works with its viscose and modal manufacturers to help them adopt closed-loop production
systems to ensure emissions controls and chemical recovery rates are in line with the EU Best Available
Technique (BAT) standards.
CanopyStyle
Timber sourcing
TMC (The Microfibre Consortium)
NEXT is working with Canopy through its CanopyStyle initiative to ensure wood-based fabrics are
responsibly sourced. We are committed to ensuring cellulosic fibres used in our products do not come
from ancient and endangered forests, endangered species or illegal sources and that the rights and
wishes of indigenous communities are respected.
NEXT aims to contribute to zero net deforestation and forest degradation through our sourcing
decisions. We risk assess all timber products to verify that the material used was harvested, traded
and transported in compliance with the applicable legislation in the country of origin in line with the EU
Timber Regulation (995/2010) and our detailed timber sourcing policy.
In 2017 NEXT joined TMC to collaborate to develop a robust solution for microfibres being found in
the marine environment. NEXT has directly supported, using its in-house laboratory, the development
of testing methodology to assess fibre shedding. This will help TMC to work towards robust industry-
based solutions.
Waste Resources Action Plan
– Sustainable Clothing Action
Plan (SCAP)
NEXT is a signatory of the SCAP, a UK collaborative framework to deliver industry-led targets on carbon,
water and waste to improve the sustainability of textiles across their entire life cycle. This initiative allows
participants to measure, in an industry-consistent manner based on fibre submission, the embodied
emissions of products over their whole lifecycle (from raw material sourcing to product end of life).
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NEXT remains committed to minimising our environmental impacts by reducing both the carbon intensity of our activities and the natural
resources we use, through the development and operation of good business practices to manage resources more efficiently throughout
their lifecycle.
When setting our approach to identify climate-related risks and opportunities, NEXT takes into account the Financial Stability Board’s Task
Force on Climate-Related Financial Disclosures (TCFD) and the eleven recommended climate-related disclosures across four competency areas:
Governance; Strategy; Risk Management; Metrics and Targets. TCFD is a voluntary framework, and we aim to align our reporting with the
requirements of the TCFD over time. We are undertaking a detailed review to identify the key risks and opportunities posed to NEXT by climate
change and how they may impact our business in the future. We plan to:
• Undertake a scenario analysis to develop our understanding of the risks and opportunities along with their associated financial impacts
• Report on our planned activities following the scenario analysis to determine the potential financial impacts on our current business model
• Develop our management response to the scenario findings
We recognise that risks and opportunities can arise from the physical impacts of climate change (more frequent or extreme weather events)
and also from regulatory, technological or market trends as society transitions to a low carbon economy. The use of climate scenario analysis
will enable us to test the resilience of our business and we will continue to identify transitionary and physical risks and opportunities to help
determine what our management response should be.
Direct operations
As a responsible business, NEXT is working to reduce the direct impact of our business operations on the natural environment. In order to help
us understand the impact of our direct business we measure our global carbon footprint produced from the operational activities of NEXT over
which we have direct control. We recognise that current global emissions trends are not aligned with international commitments such as the
2015 Paris Agreement.
In 2016/17, we set a five year target to reduce our electricity consumption by 10% in kg CO2e/m2 by 2020/21. We achieved this target in 2018/19
with a 15% reduction. As a result, in 2019 we launched a new carbon reduction target to reduce Scope 1 and Scope 2 absolute carbon emissions
by 50% against our 2016/17 baseline. We aim to achieve this by 2030 and by the end of the year we had achieved a 35% reduction against our
2016/17 emissions.
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 and 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
2020 Tonnes
of CO2
equivalent
45,739
60,440
106,179
24.34
2019 Tonnes
of CO2
equivalent
46,911
70,693
117,604
27.86
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 2019.
For International electricity, Scope 2 factors published by IEA in 2019 have been used. 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.
Renewable energy
NEXT is a signatory to the RE100 initiative that commits businesses to using 100% renewable energy by 2030. Our UK and Eire operations have
been run using 100% renewable energy since April 2017, and we continue to work towards achieving this in our direct operations overseas.
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Waste, packaging and recycling
NEXT operates an ongoing programme of reduction, reuse and recycling. We exceeded our target of diverting more than 95% of operational
waste from landfill by 2020 for reuse or recycling, achieving 97% in 2019/20.
NEXT has contributed to Government Waste Strategy consultations with the aim of overhauling the waste system and improving recycling for
consumers (e.g. consistent material collections by all Local Authorities), helping to develop a more circular economy.
NEXT is committed to finding ways to reduce the amount of its packaging and eliminate avoidable plastics in product packaging such as PVC,
polystyrene and acetate by 2025. All our packaging is recyclable, although not all local authorities recycle all materials. In 2019 we introduced
100% recycled content carrier bags in our retail stores.
We also focus on helping customers with products which are harder to recycle e.g. mattresses and furniture. NEXT works with the British Heart
Foundation (BHF) to help customers donate for reuse unwanted furniture and home products (including clothing) to raise funds to support BHF’s
aims. BHF generated £1.3 million from NEXT customers’ donations between 2016–2019.
NEXT recognises that its activities have an impact upon communities local to where we operate and also on the wider environment. We seek to
minimise any adverse impact as far as possible and to engage and support our communities in a positive manner.
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
2020
£000
1,069
8
95
2020
£000
7
1,963
208
97
2019
£000
1,153
21
96
2019
£000
29
2,167
211
61
The proceeds of sale of our reusable carrier bags go to our nominated charities across England, Scotland and Wales. We support both
environmental charities and health charities that focus on care for life-limited children, young people and their families. In Northern Ireland, the
monies raised are paid to the Government who use the proceeds to fund environmental projects.
As part of our target to divert our waste from landfill, we continue to identify and divert products which previously may have been disposed of
via landfill and offer them for reuse to a group of registered charities and social enterprise organisations. These organisations are able to reuse
and recirculate products and materials as well as create value from the products to benefit their aims.
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Respect for human rights is a fundamental part of how NEXT operates as a responsible business. As a business we seek to avoid infringing the
human rights of others and work to address any adverse human rights impacts we identify. 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. Any instance of forced
labour is unacceptable.
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.
Our approach is to implement the United Nations Guiding Principles on Business and Human Rights (UN Guiding Principles). Our corporate
responsibility reporting aligns with the United Nations Guiding Principles Reporting Framework. It helps us to identify and manage the risk
of harm associated with unsatisfactory working conditions, discrimination, modern slavery, human trafficking and forced or bonded labour,
particularly to the most vulnerable and exploited, such as women and children.
Using this Reporting Framework, we combine the knowledge and experience we gain from working with our global supply chain and business
partners, together with learnings from affected stakeholders and NGOs, to look at our business and assess the risks to people. Our salient human
rights are:
• Freedom of association and collective bargaining
• Health and safety (including mental health)
• Children’s rights
• Modern slavery (including wage retention)
• Wage levels (including fair wages)
• Harassment and discrimination
• Water, sanitation and health
• Working hours
• Privacy and data security
Our Code of Practice (COP) Principle Standards are also designed to address these matters. Human rights issues evolve over time, therefore our
approach to tackling them must also evolve, including the development of relevant skills in our own COP team. We regularly review our COP
processes and procedures to ensure we integrate indicators for new or emerging risks within our COP audits and provide training where needed.
Where human rights issues do occur in our supply chain, we recognise the value in being transparent about how we have tackled them –
including what worked and what didn’t.
Collaboration and partnering is key to achieving change. Our in-country COP teams have direct links with locally-based representatives of NGOs
and trade unions. This helps to broaden our understanding of root causes and solutions.
Our Modern Slavery Steering Group, comprised of relevant senior management representatives, meets regularly and co-ordinates actions
across the business. We have introduced representatives from our product teams to the group to broaden our perspective and increase
internal collaboration.
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SECTION 172 STATEMENT
This section describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) Companies Act 2006 in exercising their
duty to promote the success of the Company for the benefit of its members as a whole. In November 2018 the directors received training from
external counsel to remind them of their duties and put the Board in a position where it could purposefully apply section 172 throughout the
2019/20 financial year.
Our stakeholders
The directors consider that the following groups are the Company’s key stakeholders. The Board seeks to understand the respective interests of
such stakeholder groups so that these may be properly considered in the Board’s decisions. We do this through various methods, including: direct
engagement by Board members; receiving reports and updates from members of management who engage with such groups; and coverage in
our Board papers of relevant stakeholder interests with regard to proposed courses of action.
Workforce – see pages 73 and 74
The strength of our business is built on the hard work and dedication of all of NEXT’s
people. We also consider the interests of former employees who are members of a group
pension scheme.
Our colleagues rely on us to provide stable employment and opportunities to realise their
potential in a working environment where they can be at their best.
Communities and the
Environment – see page 75
Communities and the wider public expect
us to act as a responsible company and
neighbour, and to minimise any adverse
impact we might have on local communities
and the environment.
Investors – see page 76
We rely on our shareholders and providers
of debt funding as essential sources of
capital to further our business objectives.
They rely on us to protect and manage their
investments in a responsible and sustainable
way that generates value for them.
Regulators – see page 75
We seek to enjoy a constructive and cooperative relationship with the bodies that authorise
and regulate our business activities. This helps us maintain a reputation for high standards
of business conduct.
They expect us to comply with applicable laws, regulations and licence conditions.
Customers – see page 75
Our customers are the reason we exist.
They have near limitless choice, so it
is essential to our future that we can
consistently and continuously design and
offer attractive, stylish products of high
quality to new and existing customers at an
accessible price. In doing so, we will build
our brand value and loyalty.
Suppliers – see page 75
We rely on our suppliers to make and
distribute our products, provide the real
estate through which we store and display
our lines, and provide essential services we
need to operate our business.
Our suppliers rely on us to generate
revenue and employment for them.
Having regard to the likely consequences of any decision in the long term
Within the fast-moving fashion retailing sector, the operational cycle is short and has become even shorter within recent years. Despite this, the
Board remains mindful that its strategic decisions can have long term implications for the business and its stakeholders, and these implications are
carefully assessed. The most prevalent example of this is in the Board’s decisions with regard to capital allocation. During the year, in approving
the Company’s budget the Board balanced:
• the need for capital expenditure on new and existing stores, warehouses and systems to support operational performance; with
• a desire to remain resilient to risks, attract and retain long term investors by maintaining a progressive dividend policy and to return surplus
capital to shareholders via the continuing share buyback programme.
Having regard to the interests of the Company’s employees
The Board takes active steps to ensure that the suggestions, views and interests of the workforce are captured and considered in our
decision-making.
NEXT benefits from having a Chief Executive and three other executive directors who have served with the Company as employees and, latterly,
as directors over a period of 20 to 30 years. They all therefore perform a high degree of personal oversight and engagement in the Group’s
affairs. This knowledge of the business and active style of engagement means our executive directors maintain an exceptionally acute insight
into the mood, culture and views of the workforce, which they are then able to report on to the wider Board.
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Employee engagement
NEXT has a number of effective workforce engagement mechanisms in place across the Group:
• Employees are kept informed of performance and strategy through regular presentations and updates from members of the Board
• The executive directors attend key business meetings throughout the year, including weekly trading and capex meetings, monthly international
sales meetings, and presenting financial results to Head Office employees
• Employee engagement surveys are undertaken covering the vast majority of the workforce, and the results are reported to the Board
• The Chairman and other non-executive directors attend meetings with employees, including:
— Product Training Days and visits to stores and warehouses as a Board as well as individual director visits
— the attendance by a non-executive director, alongside the Chief Executive and the Group HR Director, at meetings of the Group’s Workforce
Focus Forums with workforce representatives (these are workforce advisory panels as referred to in the Corporate Governance Code).
This allows effective engagement and open discussion on the key business issues, policies and the working environment in different parts
of the business, with actions agreed on issues raised
• During the year a new online tool was put in place to facilitate ongoing, meaningful performance and development conversations between
managers and teams. The tool also provides a forum for positive and constructive feedback by individuals, peers and managers. Around 3,000
employees are currently using the tool; it will be rolled out more widely during 2020
The Group HR Director attends certain meetings of the Board to brief on employee-related matters, including workforce demographics,
engagement activities, the results of employee opinion surveys, staff retention rates, diversity, numbers and nature of whistleblowing,
disciplinary and grievance procedures, learning and development activity, pay and reward including gender pay gap and HR initiatives.
The Board considers that, taken together, these arrangements deliver an effective means of ensuring the Board stays alert to the views of
the workforce.
With regard to health, safety and wellbeing, during the year the Audit Committee received an update from the Group Health and Safety Manager
including on safety performance, safety risk management and mental health wellbeing initiatives.
Diversity
Putting diversity and inclusion on the agenda helps the business to attract, retain and develop the best talent from every walk of life. During the
year we:
• Trialled making certain roles part-time to work around school drop-off and pick-up times
• Worked towards enhancing the support offered to working parents under our Moments That Matter project
• Created a working party comprising individuals from the Online and IT teams to champion the attraction and development of female talent
in technology
• Signed up to Level 1 of the Disability Confident Scheme which supports employers to make the most of the talents disabled people can bring
to the workplace
Case study – Retail store contract consultation
During the year, the Board considered a number of matters where it was important to be mindful of the interests of employees.
One example of this was with regard to a number of store closures considered in the year, where the Board was assured of the Group’s
approach of seeking to minimise redundancies of affected store staff and, wherever possible, to offer alternative employment in
other stores.
A consultation process proposal was also considered in detail by the Board. A key objective of the proposal was to re-set the base
contracts in retail stores with the least disruption to all staff. The Board considered the interests of employees, concluding that there
would be a reduced overall impact on employees when considered against more disruptive alternatives, and some positive employee
benefits in terms of more certainty over working hours to aid the smooth running of stores.
The Board also concluded that, due to the impacts being spread across a geographically dispersed network, there would be minimal
impact to customers, local communities and suppliers.
74
Having regard to the need to foster the Company’s business relationships
with suppliers, customers and others
Suppliers
Throughout the year the Board was briefed on major contract renegotiations and strategy with regard to key suppliers, notably with the
Group’s providers of freight forwarding services, and with certain landlords of the Group’s premises. The Board seeks to balance the benefits of
maintaining strong partnering relationships with key suppliers alongside the need to obtain value for money for our investors and the desired
quality and service levels for our customers. See also below with regard to ethical trading and our focus on suppliers as part of maintaining a
reputation for high standards of business conduct.
Customers
As a large retail business, the sentiment of customers can be seen in the Company’s underlying sales performance figures, which the Board
reviews regularly. The Executive directors provide updates to the Board on their perceptions of consumer sentiment and the market view.
The interests of customers are considered in key decisions e.g. relating to: store portfolio changes; selection of product lines including third-party
brands; selection and monitoring of suppliers to ensure quality and safety standards are met; freight and logistics arrangements to maximise
efficiencies from order to delivery; the availability of customer credit products; and the development of the Online Platform.
With the interests of customers in mind, during the year the Board reviewed proposals in respect of: store closures and new openings; capital
expenditure on stores and warehouses; a new credit product from NEXT Finance and major freight forwarding and parcel delivery contracts.
Regulators
Our Finance business is regulated by the Financial Conduct Authority in respect of the provision of consumer credit. As a responsible authorised
company, we seek always to cooperate and engage constructively with the FCA and meet its standards. The Audit Committee exercises
independent oversight over the regulated Finance business that includes updates on matters under discussion with the FCA.
NEXT manages its tax affairs responsibly and proactively to comply with tax legislation. The Company’s approach is to seek to build solid and
constructive working relationships with all tax authorities. NEXT’s UK tax policy can be found at nextplc.co.uk, and was reviewed and approved
by the Board during the year. This policy includes that the Company engages with HMRC constructively, honestly and in a timely and professional
manner, and seeks to resolve disputed matters through active and transparent engagement. Engagement with HMRC is led by the Company’s
in-house tax team of qualified tax professionals. The Group CFO provides regular updates to the Board on tax matters.
Debt capital/credit facility providers and credit reference agencies
The Group Finance Director and the Company’s Treasury team are responsible for managing the relationships with our bank syndicates, bond
trustees and credit rating agencies, and for the Group’s cash/debt management and financing activities. The Group Finance Director provides
regular reports to the Board on these activities including the Company’s plans to ensure appropriate access to debt capital, monitoring the
headroom and maturity schedules of our primary credit facilities. The Board approves the Company’s Treasury Policy annually.
During the year the Board approved: a debt substitution transaction between the Company and its subsidiary Next Group plc that increased
the amount of reserves available for distribution to shareholders without prejudicing debt providers; the issue of a new £250m bond; and share
hedging strategies in respect of the Group’s employee share plans. The Board carefully considers the Group’s cash position and forecasts when
making decisions on capital allocation, the Company’s dividend policy and its share buyback programme.
Having regard to the impact of the Company’s operations on the
community and the environment
The Board supports the Company’s goals and initiatives with regard to reducing adverse impacts on the environment and supporting the
communities that it touches. Please see pages 70 and 71 of our Corporate Responsibility Report for details. The Board intends to give further
consideration in 2020 to the Company’s approach to climate change and further measures we can take to contribute to the reduction of our
impact on the environment.
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Strategic ReportGovernanceFinancial StatementsShareholder Information SECTION 172 STATEMENT
Having regard to the desirability of the Company maintaining a reputation for
high standards of business conduct
Corporate governance
The Board recognises the importance of operating a robust corporate governance framework, and you can read about how we comply with the
UK Corporate Governance Code and our approach to governance in our Corporate Governance Report on pages 83 to 89.
Ethical trading and responsible sourcing
The Audit Committee exercises strong oversight over the Group’s activities in these areas including reviewing the work of the COP team,
and reports to the Board on such topics as appropriate. During the year the Board approved the Group’s third Modern Slavery Transparency
Statement, published at www.next.co.uk.
Political donations
No donations were made for political purposes (2019: £nil).
See also the description of the Company’s approach to engaging with Regulators on the previous page.
Having regard to the need to act fairly as between members of the Company
The Company has just one class of share in issue and so all shareholders benefit from the same rights, as set out in the Company’s articles of
association and the Companies Act 2006. The Board recognises its legal and regulatory duties, including under the EU Market Abuse Regulation,
and does not take any decisions or actions, such as selectively disclosing confidential or inside information, that would provide any shareholder
or group of shareholders with any unfair advantage or position compared to the shareholders as a whole.
Shareholder engagement
During the year, the Chief Executive and Group Finance Director regularly held one-to-one meetings, calls, roadshows and conferences with
institutional investors. The Chairman and Senior Independent Director (who is also the Remuneration Committee Chairman) also engaged with
certain major shareholders by way of meetings and calls. There is also regular communication with institutional investors by the Company
Secretary and senior management.
During 2019, we have engaged with investors on a range of topics, including:
• Governance including Board composition
• Executive remuneration and our proposed new Directors’ Remuneration Policy – see pages 100 to 110
• Human rights and ethical trading
• The environment, sustainability and responsible sourcing
• Company performance against its strategy
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 on market reaction and investor views after full and half year results announcements
and investor roadshows
• Reports from the Chairman and other non-executive directors who have direct dialogue with shareholders
• Analyst/broker reports and views
• Shareholder feedback reports and statements made by representative associations
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.
The interests of investors were considered as part of the Board’s decisions throughout the year including with regard to the interim and final
dividends and the continuation of our share buyback programme.
76
NON-FINANCIAL INFORMATION STATEMENT
The table below sets out where the information required to be disclosed under sections 414CA and 414CB Companies Act 2006 can be found in
this Annual Report.
Reporting requirement
Relevant information
Policies and Standards
Information, to the extent necessary for an understanding of the company’s
development, performance and position and the impact of its activity, relating to:
1. Environmental matters (including
the impact of the Company’s
business on the environment)
2. The Company’s employees
• Our principles – page 66
• Environment – pages 70 and 71
• Section 172 Statement – Having regard to the impact
of the Company’s operations on the community and
the environment – page 75
• Environment Policy
• Timber Sourcing Policy*
• Protecting Forests Through Fabric
Choices Policy*
• Our principles – page 66
• Our People – page 66
• Section 172 Statement – Having regard to the
interests of the Company’s employees – pages 73
and 74
• Staff Handbook
• Diversity Policy
• HR Policies including Flexible Working,
Safeguarding, Adoption Leave, Parental
Leave, Continuing Education and
Equal Opportunities
• Whistleblowing Policy
• Group Health and Safety Policy*
3. Social matters
• Our principles – page 66
• Our People, Our Suppliers, Our Customers and
Products, Environment, Community, Human Rights
and Modern Slavery – pages 66 to 72
• Section 172 Statement: Having regard to the
desirability of the Company maintaining a reputation
for high standards of business conduct – page 76
4. Respect for human rights
• Our principles – page 66
• Human Rights and Modern Slavery – Page 72
• Section 172 Statement – Having regard to the
desirability of the Company maintaining a reputation
for high standards of business conduct – page 76
5. Anti-corruption and
anti-bribery matters
• Our principles – page 66
• Section 172 Statement – Having regard to the
• Human Rights and Modern Slavery Policy*
• Data Retention Policy
• Customer Privacy Policy*
• Employee Data Privacy Policy
• Staff Handbook
• Anti-Bribery Policy*
• Competition Law Policy
• Supplier Code of Practice Standards*
• Whistleblowing Policy*
Required information
6. Business model
7. Policies in relation to (1) to (5)
above, related due diligence
processes and a description of
the outcome of those policies*
8. Principal risks in relation to (1)
to (5) above
9. Relevant non-financial KPIs
desirability of the Company maintaining a reputation
for high standards of business conduct – page 76
• Whistleblowing – Audit Committee Report
page 95
• Business model – page 54
• Our principles – page 66
• Risks and Uncertainties – pages 60 to 64
• Viability assessment – page 65
• Section 172 Statement – Having regard to the impact
of the Company’s operations on the community and
the environment – page 75
• Our People, Environment, Community – pages 66, 70
and 71
Further information regarding our employees, social, community, human rights and environmental matters is provided in our Corporate
Responsibility Report available on our corporate website at nextplc.co.uk.
* Our latest policies are available at nextplc.co.uk
On behalf of the Board
Amanda James
Director
19 March 2020
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Strategic ReportGovernanceFinancial StatementsShareholder Information GOVERNANCE
80
Directors’ Biographies
82 Directors’ Responsibilities Statement
83 Corporate Governance Report
90 Nomination Committee Report
91 Audit Committee Report
96 Remuneration Report
122 Directors’ Report
124 Independent Auditor’s Report
78
79
Strategic ReportGovernanceFinancial StatementsShareholder Information DIRECTORS’ BIOGRAPHIES
Directors and Officers
Michael Roney
CHAIRMAN
Lord Simon Wolfson
of Aspley Guise
CHIEF EXECUTIVE
Amanda James
GROUP FINANCE DIRECTOR
KEY SKILLS AND EXPERIENCE:
Michael joined the Board as Deputy Chairman
in February 2017 and became Chairman
in August 2017. Michael brings significant
international leadership experience to the
Board; 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.
PRINCIPAL EXTERNAL APPOINTMENTS:
Chairman of Grafton Group plc
Non-Executive Director of Brown-Forman
Corporation (US firm)
Executive Director
KEY SKILLS AND EXPERIENCE:
Simon brings deep knowledge of all areas
of the NEXT business, together with strong
leadership and strategic expertise, having led
as Chief Executive since 2001. He joined the
Group in 1991 and was appointed Retail Sales
Director in 1993. He became responsible for
NEXT Directory in 1995 and was appointed
in 1997 with additional
to the Board
responsibilities
for Systems. Simon was
appointed Managing Director of the NEXT
Brand in 1999 before his appointment as
Chief Executive.
Executive Director
KEY SKILLS AND EXPERIENCE:
Amanda brings extensive financial knowledge
to the Board, having joined the Group in
1995 and led the management accounting
and commercial finance teams since 2005.
In 2009, Amanda was appointed Commercial
Finance Director and was promoted to
in 2012.
NEXT Brand Finance Director
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
KEY SKILLS AND EXPERIENCE:
Jane has profound understanding of NEXT’s
operations, having joined NEXT Retail in 1985
as a Sales Assistant in one of our London
stores. Jane worked her way through store
management to be appointed Sales Director
in 2000, responsible for all store operations
and training.
In 2006 Jane was given
additional responsibility for Retail Marketing
and in 2010 was appointed Group Sales and
Marketing Director, adding Directory and
online marketing to her portfolio.
Executive Director
KEY SKILLS AND EXPERIENCE:
Richard has a wealth of operational and
merchandising experience. He joined NEXT
in 1991 as a 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,
for NEXT’s Merchandising
responsible
International
function, Product Systems,
Franchise,
operations.
Clearance
and
On appointment to the Board, Richard took
on additional responsibility for Warehousing,
Logistics and Systems within the Group.
APPOINTED TO THE BOARD
July 2013
APPOINTED TO THE BOARD
May 2018
80
Francis Salway
Jonathan Bewes
COMPANY SECRETARY
Seonna Anderson
listed
strong
Senior Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
company
Francis brings
to
experience and property expertise
the Board. He was Chief Executive of
Land Securities plc, then the UK’s largest
commercial property company, between
2004 and 2012. In addition to his roles below,
he is also a Visiting Professor in Practice at
the London School of Economics and a past
President of the British Property Federation.
PRINCIPAL EXTERNAL APPOINTMENTS:
Director of Peabody Trust
Chairman of Town & Country Housing Group
Chairman of the Property Advisory Group for
Transport for London
Non-Executive Director of Cadogan
Group Limited
Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
After qualifying as a Chartered Accountant
with KPMG, Jonathan spent 25 years as an
investment banking adviser, with Robert
Fleming, UBS and Bank of America Merrill
Lynch. As a senior banker, he provided advice
to the boards of many UK and overseas
companies on a wide range of financial and
strategic issues, including financing, M&A,
shareholder engagement and corporate
governance. Jonathan is a Fellow of the
Institute of Chartered Accountants of England
and Wales.
PRINCIPAL EXTERNAL APPOINTMENTS:
Vice Chairman, Corporate and Institutional
Banking, Standard Chartered Bank
Non-Executive Director of The Sage Group plc
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
Board Committees
Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
Tristia is Chief Executive Officer of TalkTalk
Telecom Group PLC and as such has
experience of running a large-scale consumer
facing company and knowledge of digital and
cyber security. Tristia was Managing Director
of TalkTalk’s consumer business when it
demerged from Carphone Warehouse, which
she joined in 2000 and held a number of
senior management and executive positions.
PRINCIPAL EXTERNAL APPOINTMENTS:
Trustee at Comic Relief
Trustee at Ambitious about Autism
Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
Dianne has a wealth of marketing experience
gained
in retail companies as well as
significant senior management experience.
Her 42 year career has included 14 years
as Chief Executive Officer of Camelot
Group. More recently she was Chairman of
RadioCentre and a non-executive director of
the Home Office.
PRINCIPAL EXTERNAL APPOINTMENTS:
Chairman and Non-Executive Director 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
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
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Strategic ReportGovernanceFinancial StatementsShareholder Information DIRECTORS’ RESPONSIBILITIES STATEMENT
Directors’ Responsibilities
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.
Each of the directors, whose names and functions are listed on pages
80 and 81, confirm that to the best of their knowledge:
• the Parent Company financial statements, which have been
in accordance with United Kingdom Generally
prepared
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 Strategic 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.
On behalf of the Board
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
19 March 2020
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.
82
CORPORATE GOVERNANCE REPORT
Chairman’s Introduction
It has been a fast-moving year in corporate governance; as with the
retail environment in which we operate, the governance arena is
constantly evolving.
This is our first Annual Report since the introduction of the new
disclosure requirements with regard to stakeholder engagement.
A revised UK Corporate Governance Code, published in 2018, applied
to the Company for the first time in 2019/20 and you can read about
how we have complied with the updated principles throughout this
Governance section. Additionally, we consulted with investors on our
Remuneration Policy in line with the three year cycle; our proposed
Policy will be put to shareholders for approval at the 2020 AGM.
Stakeholder engagement
We recognise the importance of the role that good governance plays
in NEXT’s success. Companies do not exist in isolation and stakeholder
trust is increasingly important to the success of a company.
During the year, we considered our approach to engaging with the
Company’s stakeholder groups and in particular with our workforce.
We understand the value of incorporating stakeholder views when
considering our strategic planning and decision-making. You can read
more about who our stakeholders are and our approach to stakeholder
engagement on pages 73 to 76.
Culture
The NEXT culture is one of openness and transparency, with a strong
focus on high expectations and standards, honesty and integrity.
The Board have given particular focus this year to culture and you can
read more on the following page.
At NEXT we benefit from well-balanced gender representation on our
Board, and indeed across the organisation, as illustrated by the table
on page 66. This diversity mix allows for rounded discussions from
various perspectives that strengthen our decision-making.
Directors’ remuneration policy
This year we are proposing our revised Directors’ Remuneration Policy
for shareholder approval at our 2020 AGM. This has been developed
taking into account the views of major shareholders with whom we
have engaged. The policy reflects our desire to attract, motivate and
retain talented executives who can execute our strategy successfully
and balance the risks and opportunities inherent in a fast-paced and
challenging external environment. You can read more about our
proposed Policy in the Remuneration Report on pages 96 to 110.
Search for a new non-executive
director
During the year, the Board commenced a search process for a new non-
executive director to replace Francis Salway, our Senior Independent
Director and Chairman of the Remuneration Committee, who has
served on our Board for over nine years. A number of candidates were
shortlisted but, as explained in the Nomination Committee report,
towards the end of the year the Board decided to restart the process
with a renewed consideration of the skills and attributes required to
maintain a strong and balanced Board. It is extremely important to us
that we find the right person who will make a significant contribution
to the success of NEXT. We look forward to the successful conclusion
of our search process during 2020.
Board effectiveness and diversity
To deliver sustained value to our shareholders, employees and wider
stakeholders, the Board must function effectively in supporting and
guiding management to deliver the Company’s strategy. We therefore
conduct an annual evaluation of the Board’s effectiveness.
Having undertaken an externally-facilitated annual effectiveness
review of our Board and Committees in the previous year, this year’s
review was facilitated internally. Diversity of knowledge, skills and
experience was highlighted as one of the Board’s strengths, along with
collaborative decision-making. Further details of this review and its
insights can be found on page 88.
Continuing governance commitment
Understandably, environmental, social and governance
(ESG)
considerations are increasingly becoming a key area of focus for
stakeholders. NEXT is mindful of the impact its operations have on the
environment and the communities in which it operates. In this year’s
annual report we have increased our ESG disclosures and we produce
a Corporate Responsibility Report each year (available on our website
at www.nextplc.co.uk) which covers these areas in more detail.
We remain committed to applying robust governance to safeguard
the long term interests of the Company and its stakeholders. You can
read our compliance statement and supporting disclosures on pages
84 to 89.
Michael Roney
Chairman
19 March 2020
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Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE GOVERNANCE REPORT
Corporate Governance Statement
The statement below, together with the rest of the Corporate
Governance Report, provides information to aid understanding of
how the Company has applied the principles in the UK Corporate
Governance Code 2018 (the “Code”), which is the version of the Code
that applies to its 2019/20 financial year.
For the year ended 25 January 2020, the Board considers that it
has complied in full with the provisions of the Code, available 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
Directors’ Report on page 122. Disclosures required by DTR 7.2.8
relating to diversity policy are presented in the Nomination Committee
Report on page 90.
Directors’ biographies and membership of Board Committees are set
out on pages 80 and 81.
BOARD LEADERSHIP AND
COMPANY PURPOSE
Review of business model
The Group’s business model is set out on pages 54 and 55. This describes
how the Group generates and preserves value over the long term.
The Board keeps this model, and its long term sustainability, under
review and supports management in assessing opportunities and risks
to the future success of the business. It does this through:
• Discussions with the executive directors and other members of the
senior management team on industry trends
• Evaluating strategic proposals and considering how these will
support and strengthen components of the business model
• A policy of continuous identification and review of principal
business risks, including identifying key and emerging risks,
determining control strategies and considering how those risks
may affect the achievement of business objectives, taking into
account risk appetite, as detailed on pages 58 and 59
• Our annual viability assessment which is undertaken by reference
to the business model, strategy and the principal risks and
mitigating factors as well as the current financial position and
historical financial performance and forecasts – see page 65
In a fast-changing industry increasingly enabled by technological
advances, the Board retains a long term view of value creation being
mindful of wider corporate social responsibilities. The governance
provided by the Board and its Committees enables rounded and
balanced oversight, robust yet constructive challenge and guidance
to management in evaluating strategic proposals and threats to either
the execution of the strategy or to the success of the business model.
Culture
The Board recognises the importance of ensuring a healthy and
supportive culture within the Group. We monitor this through direct
employee engagement activities (see page 74) and discussions with
the executive directors, Group HR Director and other members of
management. We assess and monitor this in the following ways:
• Dedicated time at Board meetings, supported by the Group
HR Director, to hold discussions on culture and employee/
workforce matters
• Reviewing the results of the Group’s employee opinion surveys
• Monitoring the levels and nature of whistleblowing reports and
grievance and disciplinary hearings
• Monitoring absenteeism and employee turnover
• Audit Committee receiving internal audit reports on fraud and
compliance breaches
• Review of induction and training policies and practices
• Engaging with employees directly during site visits
• Overseeing management’s plans to respond to matters raised by
the workforce
• Reviewing the Group’s key policies and HR initiatives
The Corporate Responsibility Report sets out our values on page 66 and
the Non-Financial Information Statement summarises the Company’s
supporting policies on page 77. The Group’s Whistleblowing Policy
encourages workers to report concerns or suspicions about any
wrongdoing or malpractice, and provides a number of procedures to
do this including via the confidential NEXT Integrity line (managed by
Crimestoppers) or through a dedicated, monitored, email address.
The Audit Committee report contains more details of the Company’s
whistleblowing procedures and the Audit Committee’s oversight.
The Board members also strive, through their own behaviours, to
set a strong example for management and the wider workforce in
conducting themselves appropriately and in line with the Group’s
values and supporting policies.
Information on the Company’s approach to investing in and rewarding
its workforce is set out in the Strategic Report on pages 66 and 67.
Resourcing
The Board ensures that the necessary resources are in place for the
Company to meet its objectives and measure performance against
them. The Board has an integral role in the Company’s budget setting
and capital allocation processes, and in monitoring availability of credit/
debt capital facilities and the Company’s credit ratings. The Board also
receives reports from management on any development gaps in key
roles and the plans to address these.
Risk management and internal controls
The Board is responsible for keeping the effectiveness of the systems
of risk management and internal controls under review – see page 89.
84
Engagement 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. The Chief
Executive and Group Finance Director engage directly with investors
on a regular basis throughout the year. Full year and other public
announcements are presented in a consistent format with a particular
focus on making the presentations as meaningful, understandable,
transparent and comparable as possible. Such information is also
made publicly available via the Company’s corporate website
nextplc.co.uk.
Our Section 172 Companies Act statement on page 76 details how the
views of shareholders have been taken into account during the year.
Engagement with other stakeholders
Although 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. Please see the Section 172
Companies Act statement on pages 73 to 76 for information on how
the Board does this.
With regard to engagement with the workforce, the Board uses
various methods including engagement with a workforce panel and
attendance by a non-executive director at those panels. More details
can be found in the Section 172 statement on page 74. The Board
considers that, taken together, the arrangements described deliver
an effective means of ensuring the Board stays alert to the views of
the workforce.
DIVISION OF RESPONSIBILITIES
Independence of non-executive directors
Half of the directors, excluding the Chairman, are non-executive
directors. The Board considers that all of its non-executive directors,
except for the Chairman, are independent when assessed against
the requirements of the UK Corporate Governance Code and their
knowledge, diversity of experience and other business interests
continue to enable them to contribute significantly to the work of
the Board. Michael Roney, the Chairman, met the independence
requirements set out in the Code on his appointment in 2017.
Francis Salway was appointed to the Board in June 2010 and has
therefore served as a director for more than nine years. Despite this
tenure, the Board considers that Francis remains independent as he
meets all of the other criteria specified in the Code and continues
to demonstrate objectivity and constructive challenge as a director,
as Chairman of the Remuneration Committee and as a member of
the Nomination and Audit Committees. We engaged with major
shareholders in February 2020 with regard to Francis’ continuing
tenure; please see the Nomination Committee report on page 90
with regard to consideration of the extension of Francis’ tenure.
The Board approved his continuation in office until the AGM in May
2021, subject to his re-election by shareholders at the 2020 AGM.
Francis’ continuation in office will support an orderly succession of
his role as Remuneration Committee Chairman once a replacement
has been selected and, until then, will allow the Board to retain
a diversity of experience through continuing access to Francis’
considerable knowledge.
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.
Noting of directors’ concerns
The Chairman encourages openness and debate at Board meetings
which leads to better decision making. Should any director have
concerns about the operation of the Board or the management of the
Company that cannot be resolved, such concerns would ordinarily (and
especially if requested by that director or the Chairman) be recorded
in the minutes of the relevant meeting. If, on resignation, any non-
executive director had any such concerns they would be invited to
provide a written statement to the Chairman that would be circulated
to the Board. No concerns have been raised in the year.
Senior Independent Director
Francis Salway is the Company’s Senior Independent Director.
In this role Francis is available to provide a sounding board for the
Chairman and to serve as an intermediary for the other directors
and shareholders.
Independent Director
Review of directors’ performance
The Senior
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.
At each Board meeting the Board receives reports on, and
discusses, the performance of the business. This includes scrutiny
of the performance of the executive directors against clear
financial objectives.
The Chairman held meetings during the year with the non-executive
directors without the executive directors present, which included
discussions on the performance of and succession for the
executive directors.
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.
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Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE GOVERNANCE REPORT
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.
Matters reserved to 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
items of capital expenditure,
share buybacks, dividend and treasury policies. It is also responsible for:
investments, significant
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.
Governance framework and culture
The structure of the Board is designed to ensure that it focuses on
strategy together with the monitoring of performance, control and
risk. The Board considers that the Company’s 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.
• 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
• 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
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.
Board of Directors
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 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 90
Committee Report
on pages 91 to 95
Committee Report
on pages 96 to 121
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.
Executive / operational management
The Chief Executive has delegated authority for the day-to-day management of the business to operational management comprising other executive directors and senior
management who have responsibility for their respective areas.
This includes important weekly NEXT Brand trading and capital expenditure meetings which consider the performance and development of the NEXT Brand through its different
distribution channels. This and other meetings also focus on risk management of business areas in respect of the NEXT Brand, including product, sales, customer experience,
property and stores, warehousing, systems and personnel.
86
Certain other important matters are subject to weekly or monthly
including sales,
reporting to the Board or Board Committee,
treasury operations and capital expenditure programmes.
Board Committees
As detailed in the governance structure diagram opposite the 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 the Company’s corporate website
nextplc.co.uk. The Chair of each Committee reports regularly to the
Board on how that Committee has discharged its responsibilities.
Board attendance
The table below shows the attendance at Board and Committee
meetings during the year to 25 January 2020. All of the independent
non-executive directors are members of the Nomination, Audit and
Remuneration Committees. We believe that this provides an
important opportunity for the 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.
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.
Role
Current Directors
Number of meetings held in the year
Lord Wolfson
Amanda James1
Richard Papp
Jane Shields
Michael Roney1
Francis Salway
Jonathan Bewes
Tristia Harrison²
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
Board
8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
Nomination
4
–
–
–
–
4/4
4/4
4/4
4/4
4/4
Audit
4
–
–
–
–
–
4/4
4/4
3/4
4/4
Remuneration
6
–
–
–
–
6/6
6/6
6/6
6/6
6/6
1. Michael Roney and Amanda James are not members of the Audit Committee, however they attend Audit Committee meetings during the year by invitation.
2. Due to unavoidable circumstances, Tristia Harrison was unable to attend the September Audit Committee meeting. In advance of the meeting, Tristia reviewed the meeting papers
and communicated her comments to the Company Secretary and Committee Chairman who ensured these were considered at the meeting. Tristia was also provided with an
update after the meeting.
External appointments during the year
As announced in January 2019, Dame Dianne Thompson joined the
Board of Walker Greenbank plc in February 2019 as a non-executive
director and chairman designate, becoming chair in April 2019.
Jonathan Bewes was appointed as a non-executive director and the
chair of the audit and risk committee of Sage Group plc with effect
from 1 April 2019. In addition he holds a non-board position at
Standard Chartered Bank.
After considering each of these appointments, the likely time
commitment required to fulfil these roles and the other appointments
held by these directors, the Board were satisfied that such
appointments should not inhibit the ability for Dame Dianne and
Jonathan to continue to effectively discharge their respective duties
and responsibilities as directors of NEXT.
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. Any decision to appoint or remove the
Company Secretary is a matter reserved to the Board.
The Company has an open culture and its 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 120.
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Strategic ReportGovernanceFinancial StatementsShareholder Information CORPORATE GOVERNANCE REPORT
COMPOSITION, SUCCESSION
AND EVALUATION
Director appointments and the
Nomination Committee
For information on the procedure for appointment of new directors
to the Board (including the use of external search firms), and the role
of the Nomination Committee in this process, refer to the Nomination
Committee Report on page 90. The Nomination Committee Report
also describes the work of the Committee in succession planning for
Board and senior management positions, as well as information on the
Company’s diversity approach.
includes four
Board composition and re-election
independent non-executive
The Board currently
directors (including the Senior Independent Director) and the
Chairman who all bring considerable knowledge, skills and experience
to the Group. The current director skills matrix is included in the
Nomination Committee Report on page 90. As is best practice,
the Board is continually assessed and periodically refreshed to ensure
it maintains an appropriate balance of skills and experience. The Board
recruits new non-executive directors at regular intervals to achieve
appropriate rotation and continuity.
There were no changes to the Board during the year.
The Company is currently undertaking a search process for a new non-
executive director. As discussed above with regard to independence
of non-executive directors, the Board has approved Francis Salway’s
continuation in office until the AGM in May 2021, subject to his re-
election by shareholders at the 2020 AGM. This will allow the Board
to continue to benefit from Francis’ valuable experience and will
support an orderly succession of his role as Remuneration Committee
Chairman once a successor has been selected.
Re-election of directors
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.
The specific reasons why the Board considers that each director’s
contribution is, and continues to be, important to the Company’s long
term sustainable success are set out in the directors’ biographies on
pages 80 and 81.
Board 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 the Group’s 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 broker
and external lawyers on the duties of a public 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.
Board effectiveness evaluation
During the year an internal evaluation of the Board, its Committees
and directors was undertaken, facilitated by the Company Secretary.
The evaluation process took place in the final quarter of the year.
Following a briefing provided by the Chairman and Company Secretary,
each of the directors was issued with a questionnaire prepared by
the Company Secretary designed to elicit the views and opinions of
individual directors on all aspects of the effectiveness of the Board and
its Committees. These included 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, as well as covering progress with the areas
for development identified in the previous year’s external evaluation.
The review highlighted that the Board is operating effectively,
offering good challenge and adding value. Examples of areas positively
reported included:
• The diversity of skills, experience and knowledge on the Board
• A valuable and thorough induction programme for new directors
The key areas identified as possible opportunities to develop the
Board’s effectiveness further include:
• Clearer articulation of the Board’s risk appetite
• Further consideration and communication of the succession and
development plans for Board and senior management
The Chairman and Company Secretary are putting in place appropriate
action plans in response to the evaluation findings and will review
progress during the course of 2020/21.
88
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 60 to 64) and the associated financial, operational and
compliance 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.
REMUNERATION
The Company’s remuneration policies and practices are designed
to support strategy and promote long term sustainable success.
The Board considers that they are aligned to the Company’s purpose
and values and linked to the successful delivery of the Company’s
long term strategy. You can read about the Company’s proposed new
remuneration policy, including the process of its development, and the
work of the Remuneration Committee in the Remuneration Report on
pages 96 to 121.
The Remuneration Report also contains information on the Company’s
compliance with the Code provisions relating to remuneration.
AUDIT, RISK AND INTERNAL CONTROL
Audit Committee and independent auditor
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 94 and 95.
Please also refer to:
• Page 130 for details of the independent auditor’s responsibilities
• Page 82 for the Board’s statement on the Annual Report and
Accounts being fair, balanced and understandable
Going concern and viability assessment
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out
in the Strategic Report, which also describes the Group’s financial
position, cash flows and borrowing facilities. Further information on
these areas is detailed in the financial statements. Information on
the Group’s financial management objectives, and how derivative
instruments are used to hedge its capital, credit and liquidity risks is
provided in Note 28 of the financial statements.
Shortly before signing the Annual Report and Accounts it became
clear that the impact of the Coronavirus could become significant.
The directors have reviewed the current financial performance and the
liquidity of the business, and assessed its resilience to a reduction in
sales through a series of stress tests. Further details of the assessment
are provided in the Chief Executive’s Review.
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 65.
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.
Risk management and internal control is a continuous process and
has been considered by the Board on a regular basis throughout
the year (see the description of the Group’s risk management and
internal control framework on page 58 for more information).
This includes identifying and evaluating principal and any emerging
risks, determining control strategies and considering how they may
impact on the achievement of the business objectives.
The Board has carried out a robust assessment of the principal and
emerging 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 59 in the Strategic Report for
further information.
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Strategic ReportGovernanceFinancial StatementsShareholder Information NOMINATION COMMITTEE REPORT
Membership and meetings
During the year the Committee comprised the following non-
executive directors:
Member
Michael Roney (Committee Chairman)
Jonathan Bewes
Tristia Harrison
Francis Salway
Dame Dianne Thompson
The Committee member attendance table is shown on page 87.
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 were updated during the year and 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. Having been
externally facilitated in 2018/19, an internal process was undertaken in
2019/20. Further details are set out on page 88. The review concluded
that the Committee continues to operate effectively.
Committee activities in 2019/20
Succession planning
During the year the Committee considered the succession
arrangements for the Board and for each of the operational directors
below Board level. 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
As stated in last year’s annual report, it was intended that Francis
Salway would step down from the Board immediately after the 2020
AGM, having been appointed in 2010. Having identified the need for
a non-executive director to replace Francis as non-executive director
and Chair of the Remuneration Committee, the Committee engaged
an external search firm, Heidrick & Struggles/JCA Group (JCA), to
assist with the search and appointment process. JCA has no other
connection with the Company. A comprehensive specification for the
desired candidate was agreed and the role brief was aligned to the
desired Board and Committee composition with reference to diversity,
the skills matrix, and governance principles for candidates to have at
least 12 months’ experience on a remuneration committee.
The Committee recognises that governance is an ethos rather than a
tick box exercise and, in this increasingly complex governance arena,
occasionally we have to balance conflicting governance requirements.
Having considered feedback from
interviews with short-listed
candidates, and mindful of its responsibility to appoint on merit
suitably strong members to the Board, the Nomination Committee
decided to recommence its search. To ensure that we continue to
have an appropriately independent Board, and to enable an orderly
handover once the right candidate has been found, the Board asked
Francis to remain on the Board for a further year until the 2021 AGM.
In doing so, the Committee took into account:
• The results of the Board performance evaluation, which confirmed
that Francis remained appropriately
independent and that
he continued to make a significant contribution to the Board,
particularly in his role as Remuneration Committee Chairman
throughout the remuneration policy renewal process
• The fact that Francis met all other independence criteria set out in
the UK Corporate Governance Code
• The average tenure of the non-executive directors at four years,
with the newest non-executive director having been appointed
in September 2018. Therefore, the independence of the Board
as a whole was unlikely to be compromised by the extension of
Francis’ term
• The importance of continuity and the value that experienced
directors can bring to the Board and the Group
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 to the Board for final approval.
The Nomination Committee is led by the Senior Independent
Director when dealing with the appointment of a successor to the
Board chairmanship.
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 joint third in the 2019
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 66.
90
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 2020. This report explains the
Committee’s role and its work during the year. In particular, the Committee has continued to challenge and consider the principal risks of the
business in light of how the business has evolved and the challenging external environment.
As noted in the Strategic Report, the customer shift away from Retail and towards the NEXT Online Platform continued in 2019. This trend
impacts the risk profile of the Company and, accordingly, during the year the Committee continued to focus on data and cyber security risk.
The maturity of the Group’s cyber programme continues to improve, reflecting the Group’s significant investment over the past few years,
although we recognise that cyber security is a constantly evolving risk. The Committee also received updates on aspects of the NEXT Finance
credit business, compliance with FCA regulations and an update on warehousing and distribution logistics.
The new accounting standard on leases (IFRS 16), which applies to NEXT for the first time for the year ended January 2020, was reviewed by the
Committee and is disclosed in our financial statements. The Group has adopted the fully retrospective approach and consequently has restated
prior year comparatives. Further details can be found in the Group Accounting Policies section of the financial statements.
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
19 March 2020
Membership and meetings
During the year the Committee comprised the following independent non-executive directors:
Member
Jonathan Bewes (Committee Chairman)
Tristia Harrison
Francis Salway
Dame Dianne Thompson
The Committee member attendance table is shown on page 87.
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 sector. Further details of the directors’ skills, experience and qualifications can be found in the biographies on pages 80 and 81.
The Committee’s roles and responsibilities are covered in its terms of reference which are available on our corporate website at nextplc.co.uk.
Updated terms of reference, which incorporated changes arising from the 2018 Corporate Governance Code, were approved by the Board
during the year.
During the year, the Committee held four scheduled meetings. The Group Finance Director and Chairman attended all of this year’s meetings by
invitation. The Committee meets without management present on a regular basis, and meets privately with each of the Head of Internal Audit
and the external auditor as necessary and at least annually. Executive directors and senior managers are invited to attend Committee meetings
regularly 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 was undertaken as part of the Board evaluation process. During 2019/20 this process
was facilitated internally, and further details are included on page 88. The review concluded that the Committee operates effectively.
Of course, we strive for continuous improvement and evaluations provide an opportunity to develop the Committee’s effectiveness further.
Suggestions from the 2018/19 external evaluation have been implemented during the year, including the production of a risk assurance map to
complement the existing risk assurance framework.
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AUDIT COMMITTEE REPORT
Role of the Committee
The Committee focuses on ensuring the integrity of the financial reporting and audit processes and the maintenance of sound internal control
and risk management systems in order to safeguard shareholder interests. In particular, it focuses on monitoring and/or reviewing:
• The integrity of financial and narrative reporting
• The viability and going concern statements
• NEXT’s systems of risk management and internal control
• The activities and effectiveness of the internal audit function
• The effectiveness of whistleblowing arrangements
• The effectiveness of the external audit process and the appropriateness of the relationship with the external auditor
Committee activities during 2019/20
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 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
Represents the largest asset class on the Group’s Balance Sheet (2020: Gross value
£1.4bn and allowance for expected credit losses of £172.0m).
Based on detailed reports and thorough discussions with management and
the external auditor, the Committee reviewed and assessed the basis and level
of provisions under IFRS 9 “Financial instruments” standard methodology and
their sensitivity and is satisfied that the judgements made were reasonable
and appropriate.
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.
The Group’s Balance Sheet
surplus of £133.4m
shows a
(2019: £125.0m), comprised of £1,027.3m assets and £893.9m defined benefit
pension schemes obligation.
funding
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,
discussed with the auditor its view on these assumptions, 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.
The Group Balance Sheet shows a net valuation of £527.6m. Taking into account the
results of the external auditor’s work on inventory, the Committee reviewed and
agreed the methodology for calculating the net realisable values of inventories,
which has been applied consistently with the previous year.
1. Online customer receivables and
related allowance for expected
credit losses
2. Hedge accounting
3. Pension scheme funding
and accounting
4. Inventory valuation
92
Reference to
financial statements
Note 13
Notes 27 and 28
Note 20
Page 134
Area of focus
Background and details
5. Accounting for leases
The Group has retrospectively applied IFRS 16 “Leases” with effect from the
2019/20 financial year. The work to collect the relevant data, implement a new
accounting system and agree the appropriate accounting policies and disclosures
has been significant. During the year the Committee and PwC reviewed all aspects
of IFRS 16 adoption and is satisfied that the methodology used and the judgements
and assumptions applied are reasonable.
Reference to
financial statements
Page 147
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
September 2019 and followed up in March 2020 by reviewing the
Group’s financial position and performance, budgets for 2020/21 and
three year cash projections which were stress tested under different
scenarios having regard to the principal risks faced by the business.
In addition, specific consideration was given to the potential risks
associated with the Coronavirus. This included a review of the stress
tests prepared by management. The stress tests set out the possible
cash impact for different levels of sales decline. It then sets out the
measures which the business could take to control costs, conserve
cash and meet its liabilities as they fall due. The Audit Committee
reviewed the key assumptions within the stress test and assessed the
viability of the counter measures identified by the business.
Further details of the Coronavirus stress test and the viability
assessment are provided in the Chief Executive’s review and the
Viability Statement. In addition, the Committee reported to the Board
that, in its view, the going concern assumption remained appropriate.
Fair, balanced and understandable
At the request of the Board, the Committee undertook an assessment
as to whether, in its view, the Annual Report and Accounts were fair,
balanced and understandable, and provided the necessary information
for shareholders to assess NEXT’s position and performance, business
model and strategy. In forming its opinion, the Committee considered
the results of management’s assessment of going concern, reviewed
the Annual Report and Accounts as a whole, and assessed the results of
processes undertaken by management to provide assurance that the
Group’s financial statements were fairly presented. These processes
included, but were not limited to:
• Review by senior management of the Annual Report to ensure that
the information presented was accurate and that the narrative was
consistent with the fact pattern
• Monthly Board meetings where the management accounts and
KPIs were reviewed to ensure that the business performance was
appropriately assessed, reported and understood
• Discussion with senior management of any significant judgements
or estimates made by management in preparing the Annual Report
The views of the external auditor on this matter were also considered
by the Committee. Having completed its assessment, the Committee
reported to the Board that it was able to make the corresponding
confirmation in its directors’ responsibility statement.
Risk management and internal control
While the Board retains ultimate responsibility for risk management,
the Committee reviews the overall effectiveness of risk management
within the business on a regular basis, and at least annually. During the
year the Committee reviewed the key current and emerging risks,
together with the associated controls and mitigating factors. At each
meeting during the year, the Committee received presentations from
management detailing risks and risk management in individual areas
of the business.
Further details regarding the risk framework and approach, together
with details of NEXT’s principal risks and risk assessment can be found
on pages 58 to 64.
During the year the Committee:
• Received regular updates from the IT and operations teams
covering various aspects of IT and cyber security
• Reviewed the results of Ernst & Young’s independent cyber security
maturity assessment
• Considered updates from the warehousing & distributions and
product merchandising businesses covering current and anticipated
risks together with corresponding mitigating actions
• Reviewed the risk appetite for data protection and agreed a
revised method of capturing residual data protection risk exposure
and controls
• Reviewed the Brexit preparations and plans for the business to
operate effectively if the UK and EU are unable to agree a trade
agreement by December 2020
• Reported to the board on our evaluation of the effectiveness of
the Group’s systems of internal control and risk management,
informed by reports from internal audit and PwC
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Strategic ReportGovernanceFinancial StatementsShareholder Information AUDIT COMMITTEE REPORT
The Committee continued to receive regular updates from the IT and
IT systems and cyber security
operations teams covering various aspects of IT and cyber security
during the year. These included a cyber security assessment progress
update performed by Ernst & Young LLP, which assessed the maturity
of the Group’s systems and provided recommendations for further
reinforcement, and updates from the compliance team on developing
a roadmap for further risk reduction.
The operations of the Group are reliant on an effective and efficient
Warehousing and logistics
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 80% 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 received updates from our warehousing
and logistics directors covering current and anticipated risks together
with corresponding mitigating actions and reviewed progress on a
significant four year warehouse expansion and reorganisation project
commenced in 2018.
During the year the Committee also received reports and presentations
Other risk management activities
from relevant senior management on other significant activities and
key control functions of the Group including:
• Regulatory compliance and developments in relation to our
consumer credit business
• Business continuity
• Code of Practice supplier audits (including ethical compliance)
• Anti Money Laundering
• Health and safety
• Pensions
• Taxation
During the year the Committee:
Internal audit
• Reviewed the level of internal audit resource, experience and
expertise and concluded that it was 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
ensuring that it was aligned to the key risks of the business
• Received an update at each Committee meeting from the Head of
Internal Audit on the internal audit work performed and the results
• Met the Head of Internal Audit without management present to
discuss the internal audit plan and resources
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 audit results
Using a structured framework, the Committee considered the
effectiveness of the internal audit function. It did so by considering
the function’s purpose and remit, organisation, processes, people
and expertise, and performance and communication. The Committee
is satisfied that the internal audit function has continued to perform
effectively during the year. The Committee received regular updates
about progress against the areas of improvement identified.
External auditor
The Audit Committee is responsible for recommending to the Board
the appointment, re-appointment, remuneration, and removal of the
external auditor. A resolution to propose the re-appointment of PwC
was approved by shareholders at the 2019 AGM. When considering
whether to recommend the re-appointment of the external
auditor, the Committee considers a range of factors, including the
effectiveness of the external audit, the period since the last audit
tender was conducted, and the ongoing independence and objectivity
of the external auditor.
PwC conducted its first audit of NEXT’s financial statements in 2018,
Independence and objectivity
following a competitive tender process. Andrew Lyon, the Lead
Audit Partner, has held his position since that time, and will serve
a maximum term of five annual audit cycles. The Committee will
conduct an audit services tender at least every ten years to ensure that
the independence of the external auditor is safeguarded.
PwC has reported to the Committee that, in its professional judgement,
it is independent within the meaning of regulatory and professional
requirements and the objectivity of the audit engagement partner and
audit staff is not impaired.
The Audit Committee has assessed the independence of the auditor,
and concurs with this statement. When assessing the independence
of the auditor, the Committee considers, amongst other things,
the length of tenure of the audit firm and the audit partner, the value
of non-audit fees provided by the external auditor, the relationship
with the auditor as a whole, and management responses to the
independence questions in the questionnaire conducted at the end
of the audit process.
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. An updated
policy was approved at the March 2020 Audit Committee meeting.
In addition, during the year, PwC split its Assurance and Audit practice
to create two distinct businesses. The split of these two practices is
designed to support the continued development of high-quality,
independent audits.
The Committee reviews audit and non-audit fees twice a year.
The Committee’s approval is required in advance for the provision
of any non-audit services by the external auditor. In any one year
the aggregate non-audit fees will not exceed £150,000 and, over a
rolling three year period, such fees are limited to 50% of the average
audit fee paid in the previous three years. In line with EU audit reform
regulations, the Audit Committee has set in place procedures to
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Based on these reviews, the Committee concluded that PwC had
applied appropriately robust challenge and scepticism throughout the
audit, that it possessed the skills and experience required to fulfil its
duties effectively and efficiently, and that the audit was effective.
Having reviewed the auditor’s independence and the effectiveness of
its audit, the Committee is satisfied that PwC should be re-appointed
as external auditor for the 2020/21 financial year.
The Company’s whistleblowing procedures ensure that employees,
Whistleblowing
suppliers and other third parties are able to raise concerns about
possible improprieties on a confidential basis. Concerns can be
raised by telephone or online to an independently provided service.
The policy also allows concerns to be reported directly to the Audit
Committee Chairman.
During the year, the Committee received updates at every meeting
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.
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 25 January 2020.
ensure only permitted non-audit services are provided by the auditor
and these are in line with the above policy. These procedures also
ensure that the new regulatory cap on permitted non-audit services of
70% of the average Group audit fee paid on a rolling three year basis,
effective for 2020/21, is not exceeded.
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. Non-audit
fees related to services provided in relation to the issue of a bond,
Corporate Responsibility Report assurance and turnover certificates.
Further details are provided in Note 3 to the financial statements.
It is the Committee’s responsibility to assess the effectiveness of the
Effectiveness and reappointment
external audit.
The Committee kept under review the effectiveness of the external
audit throughout the year. It did this through:
• Reviewing audit plans early in the planning stages and discussing
audit planning, audit quality, fees, accounting policies, audit findings
and internal control with PwC
• Reviewing feedback from the parties involved in the external
audit process, including PwC’s report on its own internal quality
procedures, the results of a survey completed by NEXT management
on their experience with the external auditor in respect of areas
such as audit strategy, professional scepticism, technical strength,
communication, and planning, and high-level feedback from the
Committee itself
• Reviewing the findings from the FRC’s annual audit inspection and
the actions PwC was taking as a consequence of the inspection,
particularly in relation to the audit of retail companies
• Assessing the extent to which PwC had addressed the minor
improvements identified by the FRC’s Audit Quality Review team in
respect of the 2017/18 audit
• Considering the areas in which PwC had challenged management’s
assumptions in key areas of judgement and the number and nature
of the accounting and control observations raised by the auditor
• Considering the manner in which the audit was conducted and the
audit areas in which most time was spent
The Audit Committee Chairman attended the audit close meeting
between the external auditor and management to ensure that he was
fully aware of:
• The issues that arose during the course of the audit and
their resolution
• The level of errors identified during the audit
• The interaction between management and the auditor
The external auditor attended all of this year’s Committee meetings.
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Contents
Part 1: Annual Statement from the Remuneration Committee Chairman
Part 2: Proposed Remuneration Policy
Part 3: Annual Remuneration Report
page 96
page 100
page 110
Remuneration compliance
This report complies with Schedule 8 of the Large and Medium-sized Companies and Group (Accounts and Reports) Regulations 2008,
as amended in 2013 and 2018, the 2018 UK Corporate Governance Code and the Listing Rules.
References to Profit Before Tax (PBT) and Earnings Per Share (EPS) in this Remuneration Report do not reflect the impact of IFRS 16 (Leases).
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
2019/20.
Pay and performance outcome for 2019/20
Total remuneration
Remuneration structures for NEXT’s executive directors are simple and the principles which underlie them are applied at management levels
below the Board and understood within the business. Our Policy provides for potential total remuneration below the median levels for
companies of our size and has a strong history of delivering value when performance merits this and of nil payouts when performance has
been weaker. This is a direct consequence of our use of clear and objective financial performance measures, without the use of subjective,
personal performance measures.
As outlined in our Strategic Report, NEXT performed well during the year in what continued to be an exceptionally challenging time for the retail
sector. The executive directors helped to deliver profit before tax of £728.5m and EPS of 459.8p, outperforming prior year results by 0.8% and
5.6% respectively, and achieving a record high EPS for the Group. The share price reflected this strong performance both in isolation and as
compared to our retail peers, increasing by 51% in the financial year and by 87% over the last three financial years.
This strong performance was reflected in the 2019/20 bonus awards and higher Long Term Investment Plan (LTIP) vesting rates (detailed below).
As a consequence, and also due to the increase in the value of the LTIP from a higher share price, total annual remuneration earned by our
executive directors in the financial year 2019/20 increased significantly on the prior year. The Remuneration Committee considers this an
appropriate and proportionate outcome against the backdrop of the Company’s performance.
Annual bonus
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 2019/20 annual bonus, reflecting the prospects of the business in a UK retail market which was expected to remain
very challenging.
The growth in pre-tax EPS in the year was above the threshold level set. In accordance with the bonus formula, a bonus of 29% of maximum
was earned (resulting in a bonus of 29% of salary for the other executive directors and 44% for Lord Wolfson). This compares to the bonuses in
2018/19 of 40% for the other executive directors and 20% for Lord Wolfson, who had been entitled to 60% of salary but waived his entitlement
to part of his bonus such that he received 20% of salary (being 13% of his maximum entitlement). Details of the targets set for 2019/20 are on
page 111.
The Committee considered the above payments to be appropriate and approved them without the exercise of any discretionary adjustment for
environmental, social, governance or other reasons.
Long Term Incentive Plan
LTIP awards are currently granted twice a year (each at up to 100% of base salary for executive directors and so totalling up to 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 67% as NEXT’s total shareholder return
(TSR) ranked sixth out of 21 companies in the comparator group and the second vested at 100% as NEXT’s TSR ranked third in the comparator
group. Of the estimated total value of the two LTIP awards, 34% is due to the increase in share price.
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During much of the performance periods for these LTIPs, the sector has been very challenging for all retailers. Due to the structural shift in
spending from retail stores to online, the executives have had to take a fresh look at almost everything: the structure of our store portfolio, the
in-store experience and the generation of alternative retail revenue streams, the management of our cost base, our sourcing, stock management,
our online systems, ecommerce and digital marketing, and our Online platform. As a result of this review, challenges and opportunities have
emerged and many of the steps management have taken have helped to bring about improvements in business performance.
The Committee concluded, after considering the economic underpin test, that the indicative levels of vesting according to the metrics of the
scheme were appropriate and allowed such vestings without adjustment. Details of the economic underpin test are provided on page 113 and
the comparator group is set out on page 116.
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.
Key remuneration decisions
The Committee addressed the following matters during the year:
Remuneration Policy renewal
Our current Directors’ Remuneration Policy will reach the end of its normal three year life at the 2020 AGM and accordingly a new Policy will be
submitted for shareholder approval at that meeting. The Committee has reviewed the current policy and, mindful of its responsibilities under
Provision 40 of the UK Corporate Governance Code, determined that the Policy’s structure remains aligned with the Company’s strategy and
purpose, and provides a strong and transparent link between pay and performance. The Policy is aligned to our values, 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.
As noted above, remuneration structures for NEXT’s executive directors are simple and the principles which underlie these are applied at
management levels below the Board and understood within the business. Our Policy provides for potential total remuneration below the median
levels for companies of our size and has a strong history of delivering proportionate value when performance merits this and of nil payouts when
performance has been weaker.
In light of this and after taking into account workforce remuneration and related policies, the Committee proposes only minor changes from our
current Directors’ Remuneration Policy, which we believe has served our shareholders well over many years.
The key changes are outlined below.
Share ownership guidelines
These will increase from the current level of 200% of salary to 225%, consistent with the proposed
increase in LTIP levels outlined below.
Post-cessation
shareholding guidelines
Post-cessation shareholding guidelines are proposed to be introduced at the same level of 225% of
salary for one year post-cessation. The Committee will have the normal discretion to disapply this in
exceptional circumstances.
LTIP
Pension
The post-cessation guidelines will apply and be enforced through the retention of any (after-tax) shares
vesting in respect of 2020 LTIP grants onwards into an escrow account until an amount equal to 225% of
salary is held.
It is proposed to increase the level of LTIP grants from 200% to 225% of salary. Performance will continue
to be wholly measured against relative TSR over a three year period. There will also continue to be a
subsequent two year holding period.
Lord Wolfson has volunteered to cap the service accrual under his Defined Benefit (DB) pension annually
so that the single figure value attributed to the DB portion of his pension is no more than 9% of salary
(giving a single figure of DB pension and salary supplement in aggregate of up to 24% of salary).
Post-cessation shareholding guidelines
Rationale for proposed changes
The introduction of post-cessation shareholding guidelines was considered at length by the Committee, taking into account the sector in which
the Company operates and feedback from investors. Within the fast-moving fashion retailing sector, the operational cycle is short and has
become even shorter within recent years, with new clothing ranges at NEXT now released every six weeks on average, thereby reducing sharply
the executive directors’ control and influence over the future direction of the Company once they leave their role. However, the Committee
acknowledged that post-cessation shareholding guidelines are being adopted as best practice and agreed to introduce such guidelines on a basis
which respects this context.
The Committee also took into account the longevity of the executive directors’ employment with NEXT (each of the executives has been at
NEXT in excess of 24 years) and their high share ownership levels, which demonstrate full commitment to the Company and alignment with
our shareholders.
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The Committee concluded that a one year holding period would be appropriate and recognises the potentially very significant impact of new
fashion ranges on the underlying performance of the Group, a matter which no executive director will contribute to more than 12 months
following his/her departure. The Committee also concluded that the post-cessation holding should be at a level consistent with the annual LTIP
award and so at 225% of salary.
LTIP
The proposed increase in LTIP awards (from 200% to 225% of salary) is modest and still leaves NEXT executives in the lower quartile on total
remuneration for FTSE 100 companies and FTSE 100 retailers, but it was felt to be appropriate in the context of comparative data and as a result
of revising terms to introduce post-cessation guidelines. This will be the first increase in variable pay opportunity for many years and, indeed,
follows prior falls as the withdrawal of the Share Matching Plan in 2014 led to a reduction in overall quantum.
The Committee will be seeking shareholder approval at the forthcoming 2020 AGM for changes to the Company’s LTIP rules to permit the
proposed increase in the percentage annual award described above.
Pension
The proposed position on pensions reflects the fact that NEXT has been leading on this issue, with more recent promotions to the Board
having a 5% pension allowance. In addition, after introduction of the proposed cap on the service accrual under Lord Wolfson’s Defined Benefit
pension (see below), all of the executive directors will be on pension arrangements no more generous than those offered to the wider colleague
population recruited at the same time as them so that the pension proposals align with the relevant all-employee populations.
Since shortly after joining NEXT in 1991, Lord Wolfson has been a member of a DB pension scheme, as was the normal practice at NEXT and
across the market more widely at the time. In 2012, the value of Lord Wolfson’s DB pension benefits was reduced when his salary was frozen for
DB pension purposes and he began to receive a 15% salary supplement as part of this renegotiation of terms by the Company.
The Committee, and Lord Wolfson himself, are cognisant of an external view in the market that pension contributions of 25% or higher are “too
much” and, to acknowledge this, Lord Wolfson has volunteered to cap the service accrual under his DB pension annually so that the single figure
value attributed to the DB portion of his pension is no more than 9% of salary (giving a single figure of DB pension and salary supplement in
aggregate of up to 24% of salary). The Committee is appreciative of Lord Wolfson’s offer to cap his pension in this way, acknowledging that he
has now twice taken a material reduction in the terms of his pension (the Committee considers that it would not be reasonable for him to take a
third reduction if shareholders’ views were to change again).
Our other executive directors receive pension contributions and/or salary supplements of 15% of salary and 5% of salary. These are consistent
with the levels available to staff at the time they joined and, therefore, consistent with the benefits enjoyed by other staff with an equivalent
length of service. For many years, employees promoted to the Board have not received any enhancement to their pension provision on joining
the Board.
Base salary and annual bonus – no changes
The Committee is not proposing any changes to the current policy on base salary. Any increases will be inflationary and, in normal circumstances,
in line with those awarded to other employees across the Company.
The Committee feels that, in the round, the current maximum bonus opportunities remain appropriate (150% of salary for the Chief Executive
and 100% of salary for the other executive directors, with any bonus in excess of 100% of salary being deferred for a period of two years). This is
notwithstanding the fact that this quantum is below the lower quartile position for companies of NEXT’s size.
Annual base salary review for 2020/21
The Committee reviewed and set the remuneration for the Chairman, executive directors and senior management. The executives received base
salary increases in February 2020 of 1.75%, 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.
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.
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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
• 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
delivering 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.
Malus and clawback
As part of the Remuneration Policy review, the Committee reviewed and updated the triggers for malus and clawback, strengthening them
to ensure that they have sufficient scope to capture any foreseeable circumstance in which the Committee may wish to apply malus and/
or clawback. In addition, as required by the UK Corporate Governance Code, the Committee also agreed to introduce a general overriding
discretion to reduce variable pay at the point of determination and to include this in the executive directors’ service agreements.
Other activity during 2019/20
Further information about the work of the Committee is on page 120.
Wider employee considerations and employee engagement
The Committee reviews remuneration arrangements across the Group and considers pay and employment conditions elsewhere in the Group
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 2018 Corporate Governance Code). It is also responsible for determining the targets for performance-
related pay schemes, approving any award of the Company’s shares under employee share option or incentive schemes, and overseeing 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 approximately 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 8,600 employees (circa 22% of our total UK and
Eire employees) held options or awards in respect of 6.4 million shares in NEXT at the financial year end.
During 2019 we enhanced the current range of workforce engagement activities by holding the first annual Recruit, Reward and Retain working
party meetings for our Head Office, Warehousing & Distribution, Retail and Online areas. Lord Wolfson, Dame Dianne Thompson (non-executive
director), our Group HR Director and a cross-section of workforce representatives from each area attended each of the meetings. In addition,
Lipsy and Next Sourcing have implemented company works councils and will be incorporated into the Recruit, Reward and Retain working party
meetings from 2020.
Along with the Recruit, Reward and Retain working party feedback, earlier this year the Committee reviewed and discussed a range of
“dashboard” information on important employee matters such as pay and reward, bonuses, benefits, diversity, equality of pay, internal
promotions, culture and behaviours, and learning and development. The Remuneration Policy review works best when decisions are made in
the context of the workforce as a whole rather than in isolation, and so the Committee took into account the output of the workforce dashboard
to ensure the executive directors’ pay policy is aligned to the Company’s strategy and, where relevant, to performance-related pay for managers
below Board level. At the conclusion of the Committee’s Remuneration Policy review, I circulated a letter to all of our employees setting out our
approach to the proposed changes.
Shareholder engagement
As noted above, during the year the Committee consulted with our largest shareholders and their representative bodies on our proposed
changes to the Remuneration Policy. We were pleased by the level of engagement and overall the feedback was positive. The only point raised
as a concern by a small number of our shareholders was that the initial proposal did not include post-cessation guidelines. Consequently,
the Committee considered and addressed this by adding such guidelines to the proposal. The Committee was keen to address the broader
market landscape on this issue while, as encouraged by the UK Corporate Governance Code, ensuring that arrangements are proportionate and
appropriately tailored to the specific business.
For further details regarding the feedback to the Board on shareholder views, please see page 76.
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2020 AGM
The Committee has been very mindful of the requirements of the 2018 Corporate Governance Code when determining remuneration policy
and practices. It 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 2020 AGM for our proposed Remuneration Policy, our 2019/20 Directors’ Annual Remuneration Report and the changes to the LTIP.
Francis Salway
Chairman of the Remuneration Committee
19 March 2020
Part 2: Proposed Remuneration Policy for the
Period 2020 to 2023
The proposed Remuneration Policy is set out in this section. At the AGM to be held on 14 May 2020 a resolution to adopt the proposed
Remuneration Policy will be put to shareholders for approval. The Policy is set to apply, subject to shareholders’ approval, for three years from
the 2020 AGM.
The table below summarises the Company’s policies with regard to each of the elements of remuneration for existing directors and the approach
to payments on external recruitment and termination. The key changes in the proposed Policy from the current Remuneration Policy which
expires at the 2020 AGM have been highlighted where necessary. Only minor changes from the current Directors’ Remuneration Policy are
proposed. The key changes are set out on pages 97 to 99.
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. For instance, 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 the figure specified in the 2017
Remuneration Policy of £850,000 subject to the amount of the
maximum base salary that may be paid to an executive director in
any year increasing in line with the growth in RPI from the date of
approval of that limit in the preceding Remuneration Policy in 2017.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No material changes.
100
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, no more than 20% of the
maximum bonus may be earned (the Committee will determine the
appropriate percentage each year and recent awards have been set
at a lower level). 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 109, 50% of maximum bonus has been assumed.
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
opportunity 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
•
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. 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
No material changes.
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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.
Maximum opportunity
The maximum possible aggregate value of awards granted to all
executive directors will be 225% of annual salary (i.e. typically 112.5%
every six months, although the first 2020 grant will be 100% and the
second, which follows the AGM, will be at 125%) and up to 300% in
exceptional circumstances.
The Committee reserves the right to vary these levels within the
overall annual limits described above. In addition, awards granted to
executive directors which vest must be taken in shares and the net
shares (after payment of tax and NIC) must be held for a minimum
period of two further years. The Committee reserves the right to
lengthen (but not reduce) the performance period and to further
increase the holding period or to introduce a retention requirement.
Performance measures and targets
Performance
is measured over a period of three years.
Currently performance is measured based on NEXT’s TSR against
a group (currently 20 other UK listed retail companies) which are,
in the view of the Committee, most comparable with NEXT in size
or nature of their business. Comparison against such a group is more
likely to reflect the Company’s relative performance against its
peers, thereby resulting in awards vesting on an appropriate basis.
Relative performance
Below median
Median
Upper quintile
Percentage vesting
0%
20%
100%
If no entitlement has been earned at the end of a three year
performance period then that award will lapse; there is no retesting.
The Committee may set different performance conditions for future
awards subject to consulting with major shareholders before any
significant changes are made.
Key changes to last approved policy
The maximum opportunity has been increased from 200% to 225%.
102
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, Jane Shields and Richard Papp 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 accruing service in an unfunded, unapproved
supplementary pension arrangement (SPA), described on page 114.
His future pension is 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 Richard Papp ceased to contribute to the Plan in
2011 and 2004 respectively. Their DB 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 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 (DC) section of
the Plan and the Company currently makes a contribution equal to 5%
of her salary into her pension plan. Amanda James can opt to receive
an equivalent cash supplement in lieu of this Company contribution.
Richard Papp is a deferred member of the DC section and receives
a 5% cash equivalent supplement. The arrangements for Amanda
James and Richard Papp are consistent with the pension provision
and alternatives available to employees who joined the DC section
of the Plan at a similar time. The 5% cash equivalent supplement is
only available to members who have exceeded the Annual or Lifetime
Allowance limits.
Bonuses are not taken into account in assessing pensionable earnings
in the Plan.
New employees of the Group can join the auto enrolment pension plan.
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 (plus any element of
pension which was accrued on bonus payments made prior to
2006, when bonus was removed from the definition of pensionable
earnings) could become payable.
The lump sum payable on death in service is four times base salary
under the SPA, three times base salary under the DB and DC sections
and one times base salary under the auto enrolment plan.
No DC contributions, or equivalent cash supplement payments,
will be made to an executive director in any year that will exceed the
level offered to the wider colleague population recruited at or about
the same time as them.
Lord Wolfson has volunteered to cap the service accrual under his
DB pension annually so that the single figure attributed to the DB
portion of his pension is no more than 9% of salary (giving single
figure of DB pension and salary supplement in aggregate of up to
24% of salary).
Any newly appointed executive directors, whether internal or
external appointments, will be invited to join a NEXT Defined
Contribution pension arrangement at the prevailing rate for staff
across NEXT at the time. This is currently an employer pension
contribution of 3% of pensionable salary.
Performance measures and targets
Not applicable.
Key changes to last approved policy
Newly appointed executive directors will receive the prevailing
pension contribution rate for staff across NEXT. Lord Wolfson has
voluntarily capped his pension at the figures specified above.
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Other benefits
Purpose and link to strategy
To provide market competitive non-cash benefits to attract and
retain high calibre individuals.
Operation
Executive directors receive benefits which may include the provision
of a company car or cash alternative, private medical insurance,
subscriptions to professional bodies and staff discount on Group
merchandise. A driver is also made available to the executive directors.
The Committee reserves discretion to introduce new benefits where
it concludes that it is in the interests of NEXT to do so, having regard
to the particular circumstances and to market practice, and reserves
flexibility to make relocation related payments.
Whilst not considered necessarily to be benefits, the Committee
reserves the discretion to authorise attendance by directors and
their family members (at the Company’s cost if required) at corporate
events and to receive reasonable levels of hospitality in accordance
with Company policies.
Reasonable business-related expenses will be reimbursed (including
any tax thereon).
Save As You Earn Scheme (Sharesave)
Purpose and link to strategy
To encourage all employees to make a long term investment in the
Company’s shares.
Operation
Executive directors can participate in the Company’s Sharesave scheme
which is HMRC approved and open to all employees in the UK. A similar
scheme is available to employees in Eire. Option grants are generally
made annually, with the exercise price discounted by a maximum of
20% of the share price at the date an invitation is issued. Options are
exercisable three or five years from the date of grant. Alternatively,
participants may ask for their contributions to be returned.
Maximum opportunity
During the policy period, the value of benefits (other than relocation
costs) paid to an executive director in any year will not exceed
£150,000. In addition, the Committee reserves the right to pay up
to £250,000 relocation costs in any year to an executive director
if considered appropriate to secure the better performance by
an executive director of their duties. Relocation benefits would
normally only be available for up to 12 months and the Committee
would make appropriate disclosures of any provided.
During the policy period, the actual level of taxable benefits provided
will be included in the single total figure of remuneration.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
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
No change.
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.
service contracts will
Future
published guidance.
take
into account
relevant
Maximum opportunity
Each of the executive directors has a rolling service contract.
Dates of appointment and notice periods are disclosed on page 108.
The contract is terminable by the Company on giving one year’s
notice and by the individual on giving six months’ notice. For directors
appointed prior to the date of approval of the Remuneration Policy in
2017, 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 directors appointed after that time, any payment in
lieu of notice is limited to their base salary only.
For directors appointed prior to the date of approval of the
Remuneration Policy in 2017, 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 executive
directors appointed after that date and any service contract since
that time 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 not automatic.
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
No material changes.
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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.
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; a director’s misconduct;
or circumstances that would
lead to a sufficiently significant
negative impact on the reputation and likely financial strength of the
Company. These provisions allow for the recovery of sums paid and/or
withholding of sums to be paid.
Chairman and non-executive director fees
Purpose and link to strategy
To ensure fees paid to the Chairman and non-executive directors
are competitive and comparable with other companies of
equivalent size and complexity so that the Company attracts
non-executive directors who have a broad range of experience and
skills to oversee the implementation of our strategy.
Operation
Remuneration of the non-executive directors is normally reviewed
annually and determined by the Chairman and the executive directors.
The Chairman’s fee is determined by the Committee (excluding
the Chairman).
Additional fees are paid to non-executive directors who chair
the Remuneration and Audit Committees, and act as the Senior
Independent Director. The structure of fees may be amended within
the overall limits.
External benchmarking is undertaken only occasionally and there is no
prescribed policy regarding the benchmarks used or any objective of
achieving a prescribed percentile level.
If the Chairman or non-executive directors are required to spend time
on exceptional Company business significantly in excess of the normal
time commitment, the Chairman will be paid £1,500 and the non-
executive directors £1,000 for each day spent. These are subject to an
annual review by the Board. Reasonable business related expenses will
be reimbursed (including any tax thereon).
Maximum opportunity
Not applicable.
Performance measures and targets
Not applicable.
Key changes to last approved policy
Strengthening of recovery and withholding provision to include
circumstances that would lead to a sufficiently significant negative
impact on the reputation and likely financial strength of the Company.
Maximum opportunity
The total of fees paid to the Chairman and the non-executive
directors in any year will not exceed the maximum level for such
fees from time to time prescribed by the Company’s Articles of
Association (currently £750,000 per annum).
Performance measures and targets
Non-executive directors receive the normal staff discount on Group
merchandise but do not participate in any of the Group’s bonus,
pension, share option or other incentive schemes.
Key changes to last approved policy
No material changes.
The policies as set out above would apply to the promotion of an existing Group employee to the Board.
106
The following principles will be applied on an internal appointment or the
recruitment of an external candidate to the Board
For internal appointments, and unless agreed otherwise with the new director, the Company will honour the contractual entitlements and other
incentives (e.g. options granted under the NEXT Share Matching Plan) awarded prior to the Board appointment.
For external recruits, the Committee will also aim to structure and agree a package which is in line with the same policies for existing executive
directors as set out above. However, consistent with the reporting regulations, the Committee reserves the right not to apply the caps contained
within the policy for fixed pay, either on joining or for any subsequent review within the life of this policy, although the Committee would
not envisage exceeding these caps in practice. In addition, the Committee may offer cash or share-based incentives when considered to be
necessary to secure a candidate and in the best interests of the Company and its shareholders. It may be necessary to make such awards on more
bespoke terms which differ from NEXT’s existing annual and share-based pay structures. Depending on the timing of an appointment it may be
necessary to use different performance criteria to other executive directors for any initial incentive awards. However, the Committee will not
authorise the payment of more than it considers necessary and will abide by the caps for such elements within the general policy.
Additional awards may be made to compensate for forfeiture of incentive awards in the previous employer, and may not be subject to the caps
applied to NEXT’s annual bonus plan or the LTIP. All such awards for external appointments, whether made under the annual bonus plan, LTIP or
otherwise, will be limited to the commercial value of the amounts forfeited and will take account of the nature, time periods and performance
requirements of those awards. In particular, the Committee’s starting point will be that any forfeited awards which are subject to continued
service or performance requirements are replaced by NEXT awards with broadly equivalent terms. However, the Committee may relax these
requirements in exceptional circumstances and where the Committee considers it to be less expensive for shareholders, for example where
service periods are materially complete and/or the replacement awards are materially discounted to reflect the conditions on forfeited awards.
The Committee will only authorise guaranteed or non pro-rated awards under the annual bonus plan where the Committee considers it is
necessary to secure recruitment and these would be limited to no more than the first year of appointment.
For external and internal appointments, the Committee may agree that the Company will meet such reasonable relocation expenses it considers
appropriate and/or make a contribution towards legal fees in agreeing employment terms.
The Company has not made an external appointment of an executive director for over 30 years and therefore this policy, which remains materially
unchanged from the last approved policy, has not been used since its implementation. All such appointments during this time have been through
internal promotions, so it is challenging to set out principles for an event that has not occurred in recent practice. Therefore, the above broad
policy, particularly for external appointments, represent guidelines considered to be reasonable by the Committee, but which will be considered
on the merits of each potential appointment on a case by case basis and taking account of evolving best practice.
Exercise of discretion
In line with market practice, the Committee retains discretion in relation to the operation and administration of the annual bonus, Deferred Share
Bonus Plan and LTIP. This discretion includes, but is not limited to:
• The timing of awards and payments
• The size of awards, within the overall limits disclosed in the policy table
• The determination of vesting
• The treatment of awards in the case of change of control or restructuring
• The treatment of leavers within the rules of the plan and the termination policy summary shown on page 105
• Adjustments needed in certain circumstances (for example, rights issue, corporate restructuring or special interim dividend)
While performance conditions will generally remain unchanged once set, the Committee has the usual discretions to amend the measures,
weightings and targets in exceptional circumstances (such as a major transaction) where the unamended conditions would cease to operate as
intended. Any such changes would be explained in the subsequent annual remuneration report and, if appropriate, be the subject of consultation
with the Company’s major shareholders. Consistent with best practice, the LTIP rules also provide that any such amendment must not make
the amended condition materially less difficult to satisfy than the original condition was intended to be prior to the occurrence of such event.
Adjustment to number of shares under deferred bonus and LTIP
The number of shares subject to deferred bonus and LTIP awards may be increased to reflect the value of dividends that would have been paid
in respect of any dates falling between the grant of awards and the date of vesting.
The terms of incentive plan awards may be adjusted in the event of a variation of the Company’s share capital, demerger or a similar event that
materially affects the price of the shares or otherwise in accordance with the plan rules.
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Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Share ownership guidelines
The minimum shareholding is 200% of salary for all executive directors and will be increased to 225% during the year (see below). An executive
director has up to five years from date of appointment to acquire the minimum shareholding. Shares in which the executive director, their spouse/
civil partner or minor children have a beneficial interest count towards the shareholding.
Subject to approval of the Remuneration Policy by shareholders at the May 2020 AGM, post-cessation shareholding guidelines will apply to
all executive directors. Directors must hold a minimum of 225% of salary for one year post-cessation. The Committee will have the normal
discretion to disapply this in exceptional circumstances. The post-cessation guidelines will apply and be enforced through the retention of any
(after-tax) shares vesting in respect of 2020 LTIP grants onwards into an escrow account until an amount equal to 225% of salary is held. When the
post-cessation guideline is introduced share ownership requirement will be raised from 200% to 225%.
Legacy commitments
The Committee reserves the right to honour all historic contractual entitlements and other incentives provided they were consistent with the
shareholder approved policy in place at the time they were agreed. Any such payments would be disclosed in the relevant Annual Remuneration
Report as necessary.
Stating maximum amounts for each element of remuneration
Where the above policy refers to the maximum amounts that may be paid in respect of any element of the policy (as required under the
Regulations) these will operate simply as caps and will not be indicative of any aspiration.
Consideration of shareholder views
During the year, the Committee consulted extensively with our largest shareholders and their representative bodies on our proposed changes to
the Remuneration Policy (as detailed on page 99). The specific shareholder views about remuneration are also communicated to the Committee
on an ongoing basis through inclusion in Board reports of shareholder feedback and statements made by representative associations.
The Committee remains committed to ongoing dialogue and shareholders and representative bodies are able to contact the Committee
Chairman directly if they wish to do so.
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:
Date of appointment
to the Board
Notice period where given
by the Company
Notice period where given
by the employee
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.
108
14 February 2017*
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
12 months
1 month
1 month
1 month
1 month
6 months
6 months
6 months
6 months
6 months
1 month
1 month
1 month
1 month
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.
The charts below indicate the level of remuneration that could be received by each executive director in accordance with the Directors’
Remuneration Policy in the first year to which the new policy applies (i.e. year to January 2021) at different levels of performance.
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.
Lord Wolfson (Chief Executive)
Fixed
100%
Total £1,063k
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)
52%
25%
22%
30%
18%
Total £2,046k
30%
24%
45%
36%
Total £4,134k
18%
Total £5,056k
0
1,000
2,000
AMOUNT £000
3,000
4,000
5,000
Amanda James (Group Finance Director)
Fixed
100%
Total £548k
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
54%
25%
20%
24%
22%
Total £1,021k
23%
18%
52%
41%
0
500
1,000
1,500
AMOUNT £000
2,000
Jane Shields (Group Sales and Marketing Director)
Fixed
100%
Total £597k
Total £2,168k
21%
2,500
Total £2,729k
3,000
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
56%
28%
22%
23%
21%
Total £1,056k
22%
18%
0
500
1,000
50%
40%
1,500
AMOUNT £000
Total £2,168k
20%
Total £2,712k
2,000
2,500
3,000
Richard Papp (Group Merchandise and Operations Director)
Fixed
100%
Total £530k
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
54%
25%
20%
24%
22%
Total £989k
23%
18%
0
500
1,000
52%
41%
1,500
AMOUNT £000
Total £2,101k
21%
Total £2,645k
2,000
2,500
3,000
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Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
In the charts on the previous page, the following assumptions have been made:
Fixed/minimum
Base salaries and salary supplement values as at 2020/21, and benefits values as shown in 2019/20 single figure of
remuneration. The pension value for Lord Wolfson has been capped at 24% of his salary (see page 98).
Mid-point/median
Includes the performance-related pay a director would receive in the scenario where:
• 50% of maximum annual bonus is earned
• 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 reporting regulations, this does not separately
include the impact of dividend accrual.
Maximum inc.
50% growth in share
price across relevant
performance period
NEXT employment conditions generally
Pay structures and employment conditions for other Group employees are driven by market and role comparatives and are also considered by the
Committee to ensure that any differences for directors are justified. Salary increases for the wider employee group are taken into consideration
when determining increases for executive directors and senior management.
In common with executive directors, all other employees are eligible to participate in annual bonus arrangements. The targets for these are
linked to performance of the Group, their operating function or personal performance.
These other employees are provided with a competitive package of benefits that includes the opportunity to participate in the Group’s pension
arrangements and staff discount on Group merchandise. In addition, 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. This plan is primarily aimed at middle
management and senior store staff. Options are set at the prevailing market price at the time of grant and are generally granted annually.
The Company also operates a Share Matching Plan for certain senior managers below Board level to encourage them to invest in shares in the
Company and receive a related matching award of shares based on certain underlying fully diluted post-tax EPS targets being achieved which
are set by the Remuneration Committee.
In order to encourage wider employee share ownership, the Company also operates all-employee Save As You Earn schemes in the UK and
Eire, in which all permanent employees (including executive directors) are eligible to participate. As shareholders, these employees have the
opportunity to express their views in the same way as other shareholders.
The Company did not consult with employees when drawing up the Directors’ Remuneration Policy but has communicated its recommended
approach to all employees. The Committee does not generally use any formal internal comparison metrics when setting directors’ remuneration,
other than the consideration of employee pay as described above, but has sought advice from FIT Remuneration Consultants LLP from time to
time on the appropriateness and competitiveness of remuneration structures in place within the Company.
Part 3: Annual Remuneration Report
This Annual Remuneration Report comprises a number of sections:
Implementation of Remuneration Policy
page 111
Payments for loss of office
Single total figure of remuneration
page 112
Performance and CEO remuneration comparison
Executive directors’ external appointments
page 114
Analysis of Chief Executive’s pay over 10 years
Pension entitlements
page 114
Change in remuneration of Chief Executive
Directors’ shareholding and share interests
page 114
Pay ratios
Scheme interests awarded during the financial year
page 116
Relative importance of spend on pay
Deferred bonus
page 117
Dilution of share capital by employee share plans
page 117
page 117
page 118
page 118
page 118
page 119
page 119
Performance targets for outstanding LTIP awards
page 117
Consideration of matters relating to remuneration
page 120
Payments to past directors
page 117
Voting outcomes at General Meetings
page 121
110
Annual Remuneration Report
The Remuneration Committee presents the Annual Remuneration Report, which, together with the Chairman’s introduction on pages 96 to 100,
will be put to shareholders for an advisory (non-binding) vote at the AGM to be held on 14 May 2020. 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 2019/20 and any significant changes in the way the policy will be
implemented in 2020/21.
Element of remuneration
Base salary
Policy implemented during 2019/20 and changes in 2020/21
Base salaries for the executives increased by 1.75% in February 2020, in line with the wider Company award.
The base salaries for the executive directors from February 2020 are:
£000
Lord Wolfson
Amanda James
Richard Papp
Jane Shields
2020/21
819
499
483
483
2019/20
805
490
475
475
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 2020, performance targets were set requiring pre-tax EPS growth of at least 4.1%
on the prior year, adjusted for special dividends and excluding exceptional gains, before any bonus became
payable (being pre-tax EPS of 554.7p). At this threshold, 12% bonus was payable. 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 13.2% (being pre-tax EPS of 603.2p).
Pre-tax EPS growth achieved in the year was 5.8%, being EPS of 564.0p. In accordance with the bonus
formula, a bonus of 29% of the maximum was earned which the Committee considered to be appropriate
and approved without adjustment.
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 2019/20. See Note 5 to the single total figure of remuneration table 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.
As detailed on page 98, the new Remuneration Policy proposal is to increase the level of LTIP grants from
200% to 225% of salary. LTIP grants in 2020/21 will be otherwise made on the same basis to the 2019/20
grants (with any changes to the TSR comparator group considered immediately prior to each grant).
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. See page 99 for details of
recent changes made to the malus and clawback provisions in the service contracts of the executive directors.
The fees of the Chairman and non-executive directors were increased by 1.75% in February 2020, in line
with the wider Company award. The Chairman, Michael Roney, will be paid an annual fee of £344,047
(2019/20: £338,130). The basic non-executive director fee for 2020/21 is £58,985 (2019/20: £57,971), with a
further £11,797 (2019/20: £11,594) paid to the Chairman of each of the Audit and Remuneration Committees
respectively, and to the Senior Independent Director.
No change in 2019/20. See page 98 for details of changes to Lord Wolfson’s pension effective from
February 2020.
Annual bonus
LTIP
Recovery and
withholding
provisions
Chairman and
non-executive
director fees
Pension
Other benefits
Save As You Earn scheme
(Sharesave)
No change.
No change.
111
Strategic ReportGovernanceFinancial StatementsShareholder Information 9
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Strategic ReportGovernanceFinancial StatementsShareholder Information
REMUNERATION REPORT
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, Jane Shields 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. In addition, Lord Wolfson is accruing service in an unfunded,
unapproved supplementary pension arrangement (see below).
Lord Wolfson and a small number of senior employees are entitled to receive a pension of two thirds of pensionable earnings as at October 2012
on retirement at age 65, which accrues uniformly throughout their pensionable service, subject to completion of at least 20 years’ pensionable
service by age 65. The deferred defined benefit pensions for Jane Shields and Richard Papp are based on their pensionable earnings at the time
they became deferred pensioners and accrued uniformly throughout their pensionable service. For details of Lord Wolfson’s voluntary cap of
the service accrual under his DB pension plan, which is effective from February 2020, please see page 98.
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 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 as at October 2012, 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 pensionable earnings as at October 2012. 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).
Further information on the Group’s pension defined benefit and defined contribution pension arrangements is provided in Note 20 to the
financial statements.
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
Tristia Harrison
Amanda James
Richard Papp
Michael Roney
Francis Salway
Jane Shields
Dame Dianne Thompson
Ordinary shares
Deferred Bonus
Shares1
LTIP2
Sharesave3
2020
1,380,890
1,750
1,000
22,253
20,452
38,275
9,040
62,594
nil
2019
1,528,639
1,750
nil
18,772
28,627
38,275
9,040
59,769
nil
2020
–
–
–
–
–
–
–
–
–
2019
–
–
–
–
–
–
–
–
–
2020
97,207
–
–
54,505
53,926
–
–
53,926
–
2019
91,316
–
–
47,426
49,137
–
–
49,137
–
2020
344
–
–
357
392
–
–
352
–
2019
344
–
–
357
392
–
–
352
–
1.
Full details of the basis of allocation and terms of the deferred bonus are set out on page 101.
2. The LTIP amounts above are the maximum potential conditional share awards that may vest subject to performance conditions described on page 102.
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.
There have been no other changes to the directors’ interests in the shares of the Company from the end of the financial year to 18 March 2020.
114
Minimum shareholding
The current 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. See page 97 for details of proposed changes and the introduction of post-
cessation guidelines. As at the 2019/20 financial year end, the value of shareholdings of the executives was 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 2020
12,132%
321%
304%
932%
Shareholding
guidelines achieved
Yes
Yes
Yes
Yes
The table below shows share awards held by directors and movements during the year. LTIPs are conditional share awards and Sharesaves
are options.
Maximum
receivable
at start of
financial
year
Awarded
during the
year
Shares
vested/
exercised in
the year
Date of award
Maximum
receivable
at end of
financial
year
Market
price at
award date
£
Option
price
£
Lord Wolfson
LTIP
Sharesave
Amanda James
LTIP
Sharesave
Richard Papp
LTIP
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Oct 2018
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Oct 2016
Oct 2018
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Sharesave
Oct 2016
10,360
14,790
16,552
18,897
17,245
13,472
–
–
91,316
344
4,870
6,952
8,907
10,169
9,279
7,249
–
–
47,426
108
249
357
5,575
7,958
8,907
10,169
9,279
7,249
–
–
49,137
392
Options
lapsed
10,360
4,8812
–
–
–
–
–
–
–
–
–
–
–
–
16,727
14,314
–
9,9092
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,185
8,716
–
4,6582
–
–
–
–
–
–
4,870
2,2942
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,873
8,449
–
5,3322
–
–
–
–
–
–
5,575
2,6262
–
–
–
–
–
–
–
–
–
–
–
16,552
18,897
17,245
13,472
16,727
14,314
97,207
344
–
–
8,907
10,169
9,279
7,249
10,185
8,716
54,505
108
249
357
–
–
8,907
10,169
9,279
7,249
9,873
8,449
53,926
392
Market
price on
date of
vesting/
exercise
£
–
59.02
–
–
–
–
–
–
Vesting date/
exercisable dates1
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
73.92
51.78
46.73
40.93
45.75
58.56
48.113
56.223
nil
nil
nil
nil
nil
nil
nil
nil
–
43.48
– Dec 2023 – Jun 2024
73.92
51.78
46.73
40.93
45.75
58.56
48.113
56.223
nil
nil
nil
nil
nil
nil
nil
nil
–
59.02
–
–
–
–
–
–
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
–
–
38.25
43.48
– Dec 2021 – Jun 2022
– Dec 2023 – Jun 2024
73.92
51.78
46.73
40.93
45.75
58.56
48.113
56.223
nil
nil
nil
nil
nil
nil
nil
nil
–
59.02
–
–
–
–
–
–
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
–
38.25
– Dec 2021 – Jun 2022
115
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Maximum
receivable
at start of
financial
year
Awarded
during the
year
Shares
vested/
exercised in
the year
Maximum
receivable
at end of
financial
year
Market
price at
award date
£
Option
price
£
Jane Shields
LTIP
Sharesave
Date of award
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Oct 2016
Oct 2018
5,575
7,958
8,907
10,169
9,279
7,249
–
–
49,137
70
282
352
–
–
–
–
–
–
9,873
8,449
–
–
Options
lapsed
5,575
2,6262
–
–
–
–
–
–
–
5,3322
–
–
–
–
–
–
73.92
51.78
46.73
40.93
45.75
58.56
48.113
56.223
nil
nil
nil
nil
nil
nil
nil
nil
–
–
8,907
10,169
9,279
7,249
9,873
8,449
53,926
70
282
352
Market
price on
date of
vesting/
exercise
£
–
59.02
–
–
–
–
–
–
Vesting date/
exercisable dates1
Jan 2019
Jul 2019
Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
–
–
–
–
–
–
38.25
43.48
– Dec 2021 – Jun 2022
– Dec 2023 – Jun 2024
1.
2.
3.
4.
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.
See page 113 for details of the performance conditions and vesting levels applicable to the LTIP schemes with performance periods ending in the financial year 2019/20.
The LTIP price at award date is NEXT’s average share price over the three months prior to the start of the performance period.
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 any exercise of options granted under the Sharesave scheme and the LTIP conditional share awards
that vested in the 2019/20 year totalled £1,490,000 (2018/19: £328,000).
Scheme interests awarded during the financial year ended January 2020
(audited information)
LTIP
Face value
Vesting if minimum
performance achieved
Performance period
Performance measures
In respect of the LTIP conditional share awards granted during the year 2019/20, 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
20% of the entitlement will be earned for relative TSR at median. Full vesting requires relative TSR in the upper quintile.
Mar 2019
£000
805
490
475
475
Sep 2019
£000
805
490
475
475
Total
£000
1,610
980
950
950
March 2019 grant: three years to January 2022.
September 2019 grant: three years to July 2022.
The LTIP performance measures are detailed on page 102. 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
Burberry
Dunelm
Halfords
Boohoo (September 2019 award only)
J Sainsbury
Carpetright
JD Sports
Marks & Spencer
Morrisons
Mothercare
N Brown
Superdry
Ted Baker
Tesco
W H Smith
Dividend roll-up
Debenhams (March 2019 award only)
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).
116
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 2019/20 annual
bonus for Lord Wolfson was 44%, so none is payable in shares.
Performance targets for outstanding LTIP awards
The maximum potential of each six-monthly LTIP award 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 2019 and August 2019 are shown opposite.
Boohoo replaced Debenhams for the August 2019 award, following Debenhams’ delisting.
The comparator group for the performance periods commencing in August 2016, February 2017, August 2017, February 2018 and August 2018
is the same as February 2019.
Payments to past directors (audited information)
There were no payments made to past directors during the 2019/20 financial year.
Payments for loss of office (audited information)
There were no payments made to any director in respect of loss of office during the 2019/20 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
over the ten year period ended January 2020.
NEXT plc performance chart 2010 to 2020 Total Shareholder Return
580
500
420
340
260
180
100
20
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
NEXT
FTSE All Share
FTSE General Retailers
Re-based to 29 January 2010 = 100
117
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
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Single figure of total
remuneration £000
Annual bonus pay-out
against maximum
opportunity1
100%
3,010
4,106
4,630
4,646
4,660
4,295
1,831
1,153
1,327
3,185
LTIP pay-out against
maximum opportunity2
65%
SMP pay-out against
maximum opportunity
n/a
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%
0%
0%
13%4
Two semi-annual awards vested at 61% and 20%
Two semi-annual awards vested at nil
Two semi-annual awards vested at 20% and nil
29% Two semi-annual awards vested at 67% and 100%
n/a
Entitlement waived3
Entitlement waived3
Did not participate in
2012–15 SMP
100%
n/a
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 2018/19
and 2019/20 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 because we believe it is the most appropriate comparator group and represents 85% of the Group’s workforce.
Lord Wolfson
UK/Eire Employees (average per FTE)
Salary
% change
2.0%
3.0%
Annual
bonus
% change
121.9%
5.0%
Taxable
benefits
% change
7.6%
0.6%
Lord Wolfson waived his entitlement to a portion of his 2018/19 annual bonus. Had he not done so, the annual bonus percentage change would
have been -26.1%.
Pay ratios
In line with new reporting requirements, set out below are ratios which compare the total remuneration of Lord Wolfson (as included in the single
total figure of remuneration table on page 112) to the remuneration of the 25th, 50th and 75th percentile of our UK employees. The disclosure
will build up over time to cover a rolling 10-year period.
Year
2019/20
Method
Option B
25th percentile
pay ratio
183:1
50th percentile
(median) pay ratio
178:1
75th percentile
pay ratio
128:1
118
We have used Option B in the legislation to calculate the full-time equivalent remuneration in the 2019/20 financial year for the 25th, 50th and
75th percentile UK employees, leveraging the analysis completed as part of our most recent UK gender pay gap reporting as at 5 April 2019.
As we have a very significant employee base, it was felt to be overly complicated to prepare single figure calculations for each individual.
Having identified the employees at these three percentiles using the gender pay gap data, we have then used the same methodology applied
in the CEO’s single figure calculation to the pay and benefits of the UK employees falling at these three percentiles. This includes base salary,
benefits, bonus, long term incentives and pension (if applicable). The Committee has considered the methodology and is confident the employees
identified are reasonably representative since the structure of their remuneration arrangements is in line with that of the majority of the UK
workforce. We consider that these ratios are broadly appropriate in the context of comparison with other retailers.
The base salary and total remuneration received during the financial year by the indicative employees on a full-time equivalent basis used in the
above analysis are set out below:
Base salary
Total remuneration
25th percentile
£17,200
£17,446
50th percentile (median)
£17,282
£17,859
75th percentile
£22,007
£24,891
The ratios disclosed above are affected by the following factors:
• Of our UK workforce of 37,300, over 90% work in our retail stores, customer contact centres and warehouses where, in line with the retail
sector more generally, rates of pay will not be as high as management grades and those employees based at our head offices in more
technical roles. The three indicative employees used in the calculations are either retail sales consultants or warehouse operatives
• The CEO has received shares relating to vesting of two LTIPs in the year. NEXT’s share price affects the value of these incentive plans whereas
typically incentive plans provided to our non-management employees are unaffected by our share price movements
Relative importance of spend on pay
The graph below illustrates for the years 2018/19 and 2019/20 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
£617.2m
+3.9%
£594.1m
2019/20
2018/19
£324.2m
£300.2m
-7.4%
£213.7m
£215.7m
-0.9%
Total wages and salaries
Buybacks
Ordinary dividends
Dilution of share capital by employee share plans
The Company monitors and complies with dilution limits in its various share scheme rules and has not issued 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 25 to the financial statements).
119
Strategic ReportGovernanceFinancial StatementsShareholder Information REMUNERATION REPORT
Consideration of matters relating to directors’ remuneration
Remuneration Committee
During the year the Committee comprised the following independent non-executive directors:
Member
Francis Salway (Committee Chairman)
Jonathan Bewes
Tristia Harrison
Michael Roney
Dame Dianne Thompson
Attendance at Committee meetings is shown on page 87.
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 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 (Aon), FIT Remuneration Consultants LLP (FIT) and Deloitte LLP (Deloitte) 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 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 provided independent
verification services of total shareholder returns for NEXT and the comparator group of companies under the LTIP. Deloitte provides other
consultancy services to the Group on an ad hoc basis.
During the year FIT was paid circa £46k, and Deloitte and Aon were each paid less than £6k 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.
120
Voting outcomes at General Meetings
To approve the Remuneration Policy
To approve the 2018/19
Remuneration Report
On behalf of the Board
AGM
2017
Votes for
107,107,291
%
for
98.6
Votes
against
1,471,317
%
against
1.4
Total
votes cast
108,578,608
% of shares
on register
73.8
Votes
withheld
900,892
2019
96,685,048
98.0
1,943,206
2.0
98,628,254
72.2 1,070,406
Francis Salway
Chairman of the Remuneration Committee
19 March 2020
121
Strategic ReportGovernanceFinancial StatementsShareholder Information DIRECTORS’ REPORT
Information contained in
Strategic Report
As permitted by section 414C of the Companies Act 2006, certain
information required to be included in the Directors’ Report has been
included in the Strategic Report. Specifically, this relates to:
•
information in respect of employee matters (including actions
taken to introduce, maintain or develop arrangements aimed
at employees, details on how the directors have engaged with
employees and had regard to employee interests, our approach to
investing in and rewarding the workforce, employee diversity and
the employment, training and advancement of disabled persons)
•
likely future developments
• risk management
• details on how the directors have had regard to the need to foster
business relationships with stakeholders
• greenhouse gas emissions
Financial instruments
Information on financial instruments and the use of derivatives is given
in Notes 26 to 29 to the financial statements.
Annual General Meeting
The Annual General Meeting (AGM) of NEXT plc will be held at
the registered office of Next plc, Desford Road, Enderby, Leicester
LE19 4AT on Thursday 14 May 2020 at 9.30 am. The Notice of Annual
General Meeting, which includes the business to be transacted at the
meeting, is set out from page 204.
Dividend waiver
The Trustee of the NEXT ESOT has waived dividends paid in the year on
the shares held by it; please refer to Note 25 to the financial statements
for further information.
Share capital and major shareholders
Details of the Company’s share capital are shown in Note 22 to the financial statements.
The Company was authorised by its shareholders at the 2019 AGM to purchase its own shares. During the financial year the Company purchased
and cancelled 5,376,718 ordinary shares with a nominal value of 10p each (none of which were purchased off-market), at a cost of £300.2m and
representing 3.9% of its issued share capital at the start of the year.
At the financial year end 25 January 2020, the Company had 133,228,915 shares in issue. Subsequent to the end of the financial year and before
the start of the closed period, the Company purchased for cancellation 279,639 of its own shares at a cost of £19.3m. As at 18 March 2020 the
number of shares in issue was 132,949,276.
As at 25 January 2020, 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
No. of voting
rights at date of
notification
14,555,000
15,449,829
13,738,106
5,515,870
Notifications received as at 25 January 2020
% of voting rights at
date of notification
Nature of
holding
10.92
9.97
9.76
4.01
Indirect interest
Indirect interest
Indirect interest
Direct interest
Date of
notification
3 January 2020
8 January 2014
8 June 2018
4 April 2019
122
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 2020 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 specifies the deadlines for exercising voting rights.
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities and voting
rights. There are no restrictions on the transfer of ordinary shares in
the Company other than certain restrictions imposed by laws and
regulations (such as insider trading laws and market requirements
relating to closed periods) and requirements of internal rules and
procedures whereby directors and certain employees of the Company
require prior approval to deal in the Company’s securities.
The Company’s Articles may only be amended by a special resolution
at a General Meeting. Directors are elected or re-elected by ordinary
resolution at a General Meeting; the Board may appoint a director but
anyone so appointed must be elected by ordinary resolution at the
next General Meeting. Under the Articles, directors retire and may
offer themselves for re-election at a general meeting at least every
three years. However, in line with the provisions of the UK Corporate
Governance Code, all directors stand for re-election annually.
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 of the Company
or Next Group plc, Next Group plc’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 Next Group
plc’s corporate bonds will be entitled to call for redemption of the
bonds by Next Group plc or the Company as guarantor 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 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.
Branches
NEXT, through various subsidiaries, has established branches in a
number of different countries in which the business operates.
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 this 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
Shareholder waivers of dividends
In January 2020, NEXT published a Profit Before Tax (PBT) central guidance forecast for the year
to January 2020 of £727m. Actual PBT for the period was £728.5m. These PBT amounts are on a
pre-IFRS 16 basis.
The NEXT Employee Share Ownership Trust waived its rights to receive dividends during the year.
No further LR 9.8.4 disclosures are required.
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
This Directors’ Report, comprising pages 80 to 123, has been approved by the Board and is signed on its behalf by
Amanda James
Group Finance Director
19 March 2020
123
Strategic ReportGovernanceFinancial StatementsShareholder Information 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 25 January 2020 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 25 January 2020; the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income, the Consolidated and Parent Company Statements of Changes in Equity and the Consolidated Cash Flow Statement for
the 52 week period then ended; the Group Accounting Policies; and the notes to the financial statements.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Parent Company.
Other than those disclosed in the Audit Committee Report, we have provided no non-audit services to the Group or the Parent Company in the
period from 27 January 2019 to 25 January 2020.
Our audit approach
Overview
• Overall Group materiality: £36.0m (2019: £36.0m), based on 5% of profit before tax.
• Overall Parent Company materiality: £26.0m (2019: £30.0m), 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 six other reporting units (components).
• Six 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.
Key audit
matters
• Recoverability of customer receivables (Group).
•
Inventory being in excess of net realisable value (Group).
• Valuation of financial instruments (Group).
• Accounting for defined benefit pension arrangements (Group).
•
IFRS 16 transition (Group).
• Going concern and impairment consideration relating to Coronavirus (Group).
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.
124
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 70 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 and UK
Tax legislation. 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 (bonuses) payments. The Group engagement
team shared this risk assessment with the component auditors 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 auditors included:
• Discussions with management, including consideration of known or suspected instances of non-compliance with laws and regulation
and fraud;
•
Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by senior
management; and
• Challenging assumptions and judgements made by management in their significant accounting estimates and judgements, in particular in
relation to recoverability of directory 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 92, the Major Sources of Estimation
Uncertainty and Judgment within the Group Accounting Policies and note 13 for
Customer and Other Receivables.
An allowance of £171.5m (2019: £165.5m) is recognised against customer
receivables of £1,405.6m (2019: £1,372.7m).
NEXT’s provisioning methodology uses historical loss experience to quantify,
on a discounted and probability weighted basis, the cash shortfalls expected
to be incurred, under different macro-economic scenarios, as a result of future
projected default scenarios.
Manual overlays are then applied to address identified risks which are not captured
fully by the historical information. In arriving at these overlays, management has
considered the Bank of England’s ongoing concern – both as Central Bank and as
Regulator – regarding increasing consumer debt levels and affordability, along
with the key drivers to the performance of the customer receivables. The key
manual overlays applied relate to future projections regarding probability of
default and cash collection forecasts (both leading up to and following default).
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 (including data feeds).
We used financial services specialists and actuarial experts to critically assess
management’s approach, based on the key drivers of performance for the
customer receivables, against the requirements of IFRS 9 and emerging
best practice.
We tested the key inputs to the provision calculated by management, which
are the historical default experience and expected future recoveries, as
well as the stratification of the year end book by arrears position, customer
indebtedness index and expected month of default.
We tested, on a sample basis, the appropriateness of management’s
assumptions, based on NEXT’s historical experience and expected levels of
future default.
We challenged and validated the appropriateness of NEXT’s manual overlays,
based on our knowledge of the customer receivables, expected future
customer payment assumptions, projected default scenarios and wider
macro-economic factors. As part of this analysis, we considered whether all
drivers impacting the performance of the customer receivables had been
appropriately captured by management.
We tested, on a sample basis, whether the performing customer receivables
were genuinely performing, in order to obtain evidence that receivables
were appropriately recorded.
We assessed the adequacy and clarity of the accounting policy and credit risk
disclosures made in relation to customer receivables.
We developed our own independent expectation of the allowance amount
and concluded that the position taken by management was reasonable.
125
Strategic ReportGovernanceFinancial StatementsShareholder Information INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NEXT PLC
Key audit matter
Group
Inventory being in excess of net realisable value
Refer to the Audit Committee Report on page 92 and the Major Sources of
Estimation Uncertainty and Judgment 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
Valuation of financial instruments
Refer to the Audit Committee Report on page 92, the Major Sources of Estimation
Uncertainty and Judgment within the Group Accounting Policies and notes 27 and
28 for financial instruments.
The nature of the Group’s business means that it is exposed to fluctuations in
foreign exchange rates on purchases and sales. As such, the Group takes out a
number of foreign exchange derivatives which are valued on a mark to market
basis and are therefore valued on an estimated basis with reference to market
inputs rather than directly observable market values. The Group also has in place
interest rate derivatives on a similar basis.
Group
Accounting for defined benefit pension arrangements
Refer to the Audit Committee Report on page 92, the Major Sources of Estimation
Uncertainty and Judgment within the Group Accounting Policies and note 20 for
pension benefits.
The defined benefit pension schemes obligation 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 IAS19 and IFRIC 14 as to when a net
pension surplus should be recognised.
Group
IFRS 16 transition
Refer to the Audit Committee Report on page 91, the Major Sources of Estimation
Uncertainty and Judgment within the Group Accounting Policies and the
Adoption of new accounting standards, interpretations and amendments in the
Group Accounting Policies.
The Group has fully retrospectively applied IFRS 16 from 27 January 2019 so the
financial statements for the year ended 25 January 2020 are the first accounts
presented under IFRS 16 and prior years presented have been restated.
The Group has implemented a new IT system to calculate IFRS 16 numbers.
The Group have taken judgements in their adoption of IFRS 16 including the
assessment of lease term and discount rate applied to the leases.
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 examined 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 these data
points back to the underlying lease agreements. We have tested the controls
in relation to the IT system to enable us to place reliance that the IT system is
performing the IFRS 16 calculations accurately.
We agree 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.
We have reviewed the disclosures in the financial statements and we are
satisfied that they are consistent with the evidence obtained and compliant
with IAS 8 and IFRS 16.
126
Key audit matter
Going concern and impairment consideration relating
Group
to Coronavirus
During the course of the latter stages of finalisation of the financial statements,
the potential impact of Coronavirus became significant. As a result, management
(including the Board and Audit Committee) invested a significant amount of time
to fully consider the implications on NEXT.
Management considered implications for the Group’s going concern assessment,
impairment of certain assets and appropriate disclosure in the Annual Report and
accounts, by developing stress test scenarios to model potential impacts.
How our audit addressed the key audit matter
We reviewed management’s stress test scenarios including levers available
to management to mitigate the impacts. Based on the information available
at the time of the directors’ approval of the financial statements and us
signing our audit opinion, we consider the scenarios to be reasonable whilst
noting the impact of Coronavirus on future sales and other inputs is currently
difficult to quantify. We challenged management on the key assumptions
included in the scenarios and confirmed management’s mitigating actions
are within their control.
We considered the potential impact on the balance sheet, specifically around
online debt, inventory, store fixed assets, right of use assets and pension
surplus and do not consider there to be any indicators of material impairment
as at the balance sheet date or subsequently (for disclosure only).
We reviewed management’s disclosures in relation to the Coronavirus
potential impact and found them to be consistent with the stress test
scenarios performed.
Our reporting on going concern is set out below.
We determined that there were no key audit matters applicable to the Parent Company to communicate in our report.
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 (components), 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 six 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 seven 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.
Six of the seven 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.
127
Strategic ReportGovernanceFinancial StatementsShareholder Information INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NEXT PLC
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 (2019: £36.0m).
Based on 5% of profit before tax.
Parent Company
£26.0m (2019: £30.0m).
financial statements
Based on 1% of total assets.
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 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 £7.8 million to £34.0 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)
(2019: £1.8m) and £1.5m (Parent Company audit) (2019: £1.5m) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
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 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.
In reaching our conclusion, we have taken into account the potential
Outcome
impact of Coronavirus as described in our key audit matter above.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s and Parent
Company’s ability to continue as a going concern.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic Report, 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).
128
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
Strategic Report and Directors’ Report
for the period ended 25 January 2020 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)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement on page
Corporate Governance Statement
89 about internal controls and risk management systems in relation to financial reporting processes and on page 84 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 on
pages 84 to 89 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)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the
We have nothing material to add or draw attention to regarding:
solvency or liquidity of the Group
• The directors’ confirmation on page 59 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 65 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)
We have nothing to report in respect of our responsibility to report when:
Other Code Provisions
• The statement given by the directors, on page 82, 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 92 and 93 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.
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
Directors’ Remuneration
2006. (CA06)
129
Strategic ReportGovernanceFinancial StatementsShareholder Information INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF NEXT PLC
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 82, 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 auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
is
located on the FRC’s website at:
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 3 years, covering the
years ended 27 January 2018 to 25 January 2020.
Andrew Lyon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
East Midlands
19 March 2020
130
GROUP
FINANCIAL
STATEMENTS
132 Consolidated Income Statement
133 Consolidated Statement of Comprehensive Income
134 Consolidated Balance Sheet
135 Consolidated Statement of Changes in Equity
136 Consolidated Cash Flow Statement
137 Group Accounting Policies
149 Notes to the Consolidated Financial Statements
131
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany 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 (losses)/gains
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
52 weeks to
25 January
2020
Notes
£m
52 weeks to
26 January
2019
Restated
£m
3,997.5
268.7
4,266.2
(2,584.2)
(41.5)
1,640.5
(517.0)
(267.7)
(1.5)
854.3
(0.4)
853.9
0.2
(105.6)
748.5
(138.3)
610.2
3,917.1
250.3
4,167.4
(2,562.2)
(52.7)
1,552.5
(457.5)
(255.4)
1.4
841.0
0.1
841.1
0.4
(107.9)
733.6
(134.5)
599.1
472.4p
468.8p
441.7p
439.3p
1, 2
13
3
3
5
5
6
8
8
The Consolidated Income Statement and Earnings Per Share for the 52 weeks to 26 January 2019 have been restated to reflect the impact
of IFRS 16 “Leases” (refer to Notes 1 and 32).
The Notes 1 to 32 are an integral part of these consolidated financial statements.
132
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
Cost of hedging
– fair value movements
Tax relating to items which may be reclassified
Subtotal items that may be reclassified
Other comprehensive income
Total comprehensive income for the year
52 weeks to
25 January
2020
£m
610.2
52 weeks to
26 January
2019
Restated
£m
599.1
Notes
20
6
6
2.8
(0.5)
2.3
2.0
10.5
0.1
(2.8)
9.8
12.1
622.3
18.6
(3.2)
15.4
(5.3)
73.2
0.5
(13.0)
55.4
70.8
669.9
133
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany CONSOLIDATED BALANCE SHEET
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use asset
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
Lease liabilities
Other financial liabilities
Current tax liabilities
Non-current liabilities
Corporate bonds
Provisions
Other financial liabilities
Lease liabilities
Other liabilities
Deferred tax liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
25 January
2020
£m
Notes
26 January
2019
Restated
£m
9
10
11
12
20
14
6
13
14
15
16
17
11
18
19
21
18
11
17
6
578.5
44.2
852.7
5.0
133.4
48.4
55.7
1,717.9
527.6
1,315.3
24.2
1.7
86.6
1,955.4
3,673.3
(73.7)
(592.0)
(172.3)
(32.6)
(79.2)
(949.8)
(1,163.7)
(17.3)
(7.8)
(1,078.7)
(14.5)
–
(2,282.0)
(3,231.8)
441.5
441.5
564.9
42.6
943.8
5.1
125.0
41.5
41.9
1,764.8
502.8
1,285.4
23.4
9.9
156.3
1,977.8
3,742.6
(377.3)
(596.3)
(175.6)
(9.4)
(85.1)
(1,243.7)
(905.2)
(15.7)
(9.2)
(1,190.7)
(9.1)
(2.8)
(2,132.7)
(3,376.4)
366.2
366.2
The financial statements were approved by the Board of directors and authorised for issue on 19 March 2020. They were signed on its behalf by:
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
134
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
At 27 January 2018
Profit for the year
Other comprehensive
income/(expense) for the year
Total comprehensive
income/(expense) for the year
Share buybacks and
commitments (Note 22)
ESOT share purchases and
commitments (Note 25)
Shares issued by ESOT
Share option charge
Reclassified to cost of inventory
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
At 26 January 2019
Profit for the year
Other comprehensive
income/(expense) for the year
Total comprehensive
income/(expense) for the year
Share buybacks and
commitments (Note 22)
ESOT share purchases and
commitments (Note 25)
Shares issued by ESOT
Share option charge
Reclassified to cost of inventory
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
At 25 January 2020
Share
premium
account
£m
0.9
–
Capital
redemption
reserve
£m
15.4
–
Share
capital
£m
14.5
–
ESOT
reserve
£m
(231.6)
–
Cash flow
hedge
reserve
£m
(42.9)
–
Foreign
currency
translation
£m
3.3
–
Cost of
hedging
reserve
£m
–
–
Other
reserves
(Note 23)
£m
(1,443.8)
–
Retained
earnings
Restated
£m
1,970.5
599.1
Total
equity
Restated
£m
286.3
599.1
–
–
(0.6)
–
–
–
–
–
–
13.9
–
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
(61.9)
21.9
–
–
–
–
16.0
–
–
–
(271.6)
–
–
–
0.6
–
–
–
–
–
–
–
(94.2)
80.9
–
–
–
–
13.3
–
–
0.9
–
–
16.6
–
–
(284.9)
60.3
60.3
–
–
–
–
(21.0)
4.0
–
0.4
–
7.7
7.7
–
–
–
–
(40.5)
7.7
–
(24.7)
(5.3)
(5.3)
–
–
–
–
–
–
–
(2.0)
–
2.0
2.0
–
–
–
–
–
–
–
–
0.4
0.4
–
–
–
–
–
–
–
0.4
–
0.1
0.1
–
–
–
–
–
–
–
–
–
–
–
–
15.4
70.8
614.5
669.9
(324.2)
(324.2)
–
(6.6)
13.8
–
(61.9)
15.3
13.8
(21.0)
3.7
(215.7)
366.2
610.2
–
–
(1,443.8)
–
(0.3)
(215.7)
2,052.0
610.2
–
–
–
–
–
–
–
2.3
12.1
612.5
622.3
(300.2)
(300.2)
–
(15.4)
14.7
–
(94.2)
65.5
14.7
(40.5)
–
–
0.5
–
–
(1,443.8)
13.6
(213.6)
2,163.6
21.3
(213.6)
441.5
135
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany CONSOLIDATED CASH FLOW STATEMENT
Cash flows from operating activities
Operating profit
Depreciation, impairment and loss on disposal of property, plant and equipment
Depreciation on right-of-use asset and gain on exit of leases
Amortisation of intangible assets
Share option charge
Share of loss of associate
Exchange movement
Increase in inventories and right of return asset
Increase in customer and other receivables
(Decrease)/increase in trade and other payables
Net pension contributions less income statement charge
Cash generated from operations
Corporation taxes paid
Net cash from operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Movement in capital accruals
Payments to acquire property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of subsidiary
Purchase of shares in associate
Net cash from investing activities
Cash flows from financing activities
Repurchase of own shares
Purchase of shares by ESOT
Disposal of shares by ESOT
(Repayment)/proceeds from unsecured bank loans
Issue of corporate bonds
Lease repayment
Interest paid (including lease interest)
Interest received
Dividends paid (Note 7)
Net cash from financing activities
Net increase in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Closing cash and cash equivalents (Note 30)
136
52 weeks to
25 January
2020
£m
52 weeks to
26 January
2019
Restated
£m
853.9
124.9
138.1
–
14.7
0.1
1.7
(25.6)
(34.0)
(3.3)
(5.3)
1,065.2
(138.0)
927.2
(138.8)
2.4
(136.4)
0.3
(3.0)
–
(139.1)
(300.2)
(94.2)
66.9
(215.0)
250.2
(162.6)
(100.9)
0.2
(213.6)
(769.2)
18.9
34.0
–
52.9
841.1
122.3
138.0
0.3
13.8
–
(4.3)
(36.2)
(97.6)
35.8
(0.2)
1,013.0
(144.2)
868.8
(128.6)
5.4
(123.2)
0.3
–
(3.0)
(125.9)
(325.0)
(61.9)
15.8
120.0
–
(146.1)
(105.7)
0.2
(215.7)
(718.4)
24.5
8.5
1.0
34.0
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 25 January 2020 (last year 52 weeks to 26 January 2019).
In adopting the going concern basis for preparing the financial statements, the directors have considered the business activities including the
Group’s principal risks and uncertainties. Based on the Group’s cash flow forecasts and projections, the Board is satisfied that the Group has
adequate resources to continue in operational existence and therefore it is appropriate to adopt the going concern basis in preparing the
consolidated financial statements for the year ended 25 January 2020.
These policies have been consistently applied to all the years presented, unless otherwise stated. The Group applies for the first time IFRS 16
“Leases”, IFRIC 23 “Uncertainty over Income Tax Treatments” and “Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform”.
Refer to pages 147 and 148 for details of the impact on adoption of 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 sell 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 27.
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).
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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.
Dividends
Final dividends are recorded in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends
are recorded in the period in which they are approved and paid.
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 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 5–10 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 quarterly 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
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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. Transaction 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 in Note 13.
For details on hedge accounting refer to Note 28.
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;
• 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; or
• the Group has taken actions not to pursue collection, for example in instances of bankruptcy or individual voluntary arrangement.
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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 Note 13.
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 142. 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 de-recognition 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 are 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 SPPI criterion.
Impairment
In accordance with the accounting policy for impairment – financial assets, the Group recognises an allowance for 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.
The Group has taken the simplification available under IFRS 9 paragraph 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.
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Customer and Other Receivables
Impairment
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
(continued)
ECL is the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted at the original 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 might affect ECLs.
(continued)
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 “Impairment losses on customer and
other receivables”.
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 customer indebtedness,
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 when a customer fails to engage in a repayment
plan with the Group. If recoveries are subsequently made after receivables have been written off, they are recognised in profit or loss.
The key assumptions in the ECL calculation are:
PD:
EAD:
LGD:
“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, based on historical payment practices. The debt is segmented by arrears
stage, Experian’s Consumer Indebtedness Index (a measure of customers’ affordability) and expected time of default.
“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.
“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 that are integrated into the model, in order to evaluate a range of possible outcomes as
is required by IFRS 9. 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.
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).
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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.
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.
Beginning 28 January 2018 (i.e. under IFRS 9 “Financial instruments”), the Group designates 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.
The amounts accumulated in the cash flow hedge reserve 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.
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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 30 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 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 or LTIP award is considered an integral part of the
grant itself, and the charge is treated as a cash-settled transaction. For cash-settled awards, the fair value of the liability is determined at each
Balance Sheet date and the cost is recognised in the Income Statement over the vesting period.
Taxation
Taxation, comprised of current and deferred tax, is charged or credited to the Income Statement unless it relates to items recognised in other
comprehensive income or directly in equity. In such cases, the related tax is also recognised in other comprehensive income or directly in equity.
Current tax liabilities are measured at the amount expected to be paid, based on tax rates and laws that are enacted or substantively enacted at
the Balance Sheet date.
Deferred tax is accounted for using the Balance Sheet liability method 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.
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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 as a finance cost.
Lease Accounting
Group as lessee
At inception of a contract the Group assesses whether the contract is or contains a lease. A lease is present where the contract conveys, over a
period of time, the right to control the use of an identified asset in exchange for consideration.
Where a lease is identified the Group recognises a right-of-use asset and a corresponding lease liability, except for short-term leases (defined as
leases with a lease term of 12 months or less) and leases of low value assets.
Lease liability – initial recognition
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease
payments are discounted at the Group’s incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in-substance fixed payments), less any lease incentives;
• variable lease payments such as those that depend on an index or rate (such as RPI), initially measured using the index or rate at the
commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options where the Group is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the Consolidated Balance Sheet, split between current and non-current liabilities.
Lease liability – subsequent measurement
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments made.
Lease liability – re-measurement
The lease liability is re-measured where:
• there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised
lease payments using a revised discount rate or;
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which
cases the lease liability is re-measured by discounting the revised lease payments using the initial discount rate (unless the lease payments
change is due to a change in a floating interest rate, in which case a revised discount rate is used) or;
• the lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-measured
by discounting the revised lease payments using a revised discount rate.
When the lease liability is re-measured, an equivalent adjustment is made to the right-of-use asset unless its carrying amount is reduced to zero,
in which case any remaining amount is recognised in profit or loss.
Where the lease liability is denominated in a foreign currency it is retranslated at the Balance Sheet date with foreign exchange gains and losses
recognised in profit or loss.
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Right-of-use asset – initial recognition
The right-of-use asset comprises the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement date and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Where the Group has an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the
underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37.
The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.
The right-of-use asset is presented as a separate line in the Balance Sheet.
Right-of-use asset – subsequent measurement
Right-of-use assets are depreciated over the shorter of the lease term and useful life of the underlying asset.
Impairment
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in
the ‘Impairment – non-financial assets’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset.
The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-
lease components as a single arrangement. The Group has not used this practical expedient.
Short term leases and low value assets
For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless
another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The Group as lessor
The Group enters into lease agreements as a lessor with respect to some of its properties.
Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all
the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.
When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified
as a finance or operating lease by reference to the right-of-use asset arising from the head lease.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over
the lease term.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment
outstanding in respect of the leases.
Major Sources of Estimation Uncertainty and Judgement
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.
Expected credit losses on Online customer and other receivables
The provision for the allowance for expected credit losses (refer to Note 13) 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 customer indebtedness and other credit data.
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 £9.0m increase and £9.0m decrease, respectively, in the allowance for Expected Credit Losses (ECL). The choice
of a 10% change for the determination of sensitivity represents a reasonable, but not extreme, variation in typical customer indebtedness.
145
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
Major Sources of Estimation Uncertainty and Judgement
Expected credit losses on Online customer and other receivables
A 2% movement upwards (or downwards) in the expected rate of cash collectable following default reduces (or increases) the allowance for ECL
by £2.0m. The choice of a 2% change for the determination of sensitivity represents a reasonable, but not extreme variation in the collection rate.
(continued)
(continued)
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
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 20. 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 judgements
Significant judgements, apart from those involving estimations, that are applied in the preparation of the consolidated financial statements are
discussed below:
Leases
Management exercises judgement in determining the lease term on its lease contracts. Within its lease contracts, particularly those in respect of
its retail business, break options are included to provide operational and financial security should store performance be different to expectations.
At inception of a lease, management will typically assess the lease term as being the full lease term as such break options are not typically
considered reasonably certain to be exercised.
As stated in the accounting policies, the discount rate used to calculate the lease liability is based on the incremental borrowing rate.
Incremental borrowing rates are determined monthly and depend on the lease term, currency and start date of the lease. The incremental
borrowing rate is determined based on a series of inputs including: the risk free rate based on government bond rates; country specific risk
and NEXT bond yields. The impact of an increase of 0.5% on the discount rate applied to the 2020 right-of-use asset, depreciation charge, lease
liability and finance cost is presented below.
Right-of-use asset
Depreciation
Lease liability
Finance cost
£50m decrease
£10m decrease
£35m decrease
£6m increase
Financial instruments
The Group has recognised that the value of Financial Instruments and related hedging activity is material to the accounts and relates to a
potentially complex area of financial reporting. As a consequence this has been identified as a Key audit matter by the Auditors and an Area of
Focus for the Audit Committee. These instruments are valued on a marked to market basis and are therefore valued with reference to market
inputs rather than directly observable market values and with limited or no management judgement or estimation required.
146
Adoption of new accounting standards, interpretations and amendments
For the financial period ended 25 January 2020 the Group has adopted IFRS 16 “Leases” for the first time and early adopted the “Amendments to
IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform” issued in September 2019. The nature and effect of these changes is disclosed below.
Several other amendments and interpretations apply for the first time in 2020, 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 16 “Leases”
The Group applies, for the first time, IFRS 16 “Leases”. Several other amendments and interpretations apply for the first time in 2020, but do not
have an impact on the consolidated financial statements of the Group.
IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019. The Group applied IFRS 16 retrospectively, restating prior
year comparatives. It applied the practical expedient to grandfather the definition of a lease on transition and apply the recognition exemption
for both short term and low value leases.
Restating the 2018/19 financial statements upon transition, NEXT recognised an opening right-of-use asset of £948.9m and a lease liability of
Impact to financial statements
£1,379.6m. Including adjustments for working capital which existed under IAS 17, the retained earnings of the Group on transition reduced by
£196.3m. This adjustment did not cause any hindrance to the distribution of dividends to shareholders.
The most significant lease liabilities relate to property and in particular the retail store portfolio. The lease liability under IFRS 16 is lower than
that shown in the operating lease commitment note previously presented (in accordance with IAS 17) primarily due to the discounting of 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 reflected an increase to profit before taxation for the year ending January 2020 of £20.0m (2019: £10.7m). Operating profit
increased by £81.8m (2019: £79.1m) as the depreciation on right-of-use assets was lower than the IAS 17 rental charge. Interest costs charged
to the Income Statement increased by £61.8m (2019: £68.4m) with the addition of higher finance costs on the newly recognised lease liability.
The adoption of IFRS 16 did not impact the Group’s effective tax rate.
There was no impact on cash flows, although the presentation of the Cash Flow Statement changed significantly, with an increase in net cash
inflows from operating activities of £224.4m (2019: £214.5m) offset by an increase in net cash outflows from financing activities of £224.4m
(2019: £214.5m). Disclosure of the transitional impact on adoption of IFRS 16 is presented in Note 32.
IFRIC 23
The Group adopted IFRIC 23 on 27 January 2019. The interpretation explains how to recognise and measure deferred and current income tax
assets and liabilities where there is uncertainty over the tax position. In particular it addresses;
• how to determine the appropriate unit of account, and that each uncertain tax treatment should be considered separately or together as a
group, depending on which approach better predicts the resolution of the uncertainty
• that the entity should assume a tax authority will examine the uncertain tax treatments and have full knowledge
• that the entity should reflect the effect of the uncertainty in its income tax accounting when it is not probable that the tax authorities will
accept that treatment
• that the impact of the uncertainty should be measured using either the most likely amount or the expected value method, depending on
which method better predicts the resolution of the uncertainty
• that the judgements and estimates made must be reassessed whenever circumstances have changed or there is new information that affects
the judgements
The adoption of this interpretation did not have a material impact on the Group’s financial statements.
147
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany GROUP ACCOUNTING POLICIES
Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform
The Group has elected to early adopt the ‘Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform’ issued in September 2019.
In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the
start of the reporting period or were designated thereafter.
The amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected
by IBOR reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge
ineffectiveness should continue to be recorded in the income statement. Furthermore, the amendments set out triggers for when the reliefs will
end, which include the uncertainty arising from interest rate benchmark reform no longer being present. The Group has set up a project team
to monitor and assess developments.
In summary, the reliefs provided by the amendments that apply to the Group are:
•
In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Group has assumed that the GBP LIBOR
interest rate on which the cash flows of the interest rate swap that hedges fixed-rate debt is not altered by IBOR reform.
• The Group has assessed whether the hedged GBP LIBOR risk component is a separately identifiable risk only when it first designates fixed rate
debt within a hedge relationship and not on an ongoing basis.
Note 28 discloses the uncertainty arising from IBOR reform for hedging relationships for which the Group applied the reliefs.
Alternative performance measures (APMs)
Management exercises judgement in determining the adjustments to apply to IFRS measurements in order to derive suitable APMs. As set out
on page 56, APMs are used as management 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.
148
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Segmental Analysis
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”,
IFRS 16 “Leases” and unrealised gains or losses on derivatives which do not qualify for hedge accounting.
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. The CODM uses the total sales as a key metric in assessing segment performance; accordingly this is
presented below and then reconciled to the statutory revenue.
During the financial year to 25 January 2020, the CODM has altered the internal reporting of finance costs allocated to NEXT Finance. The NEXT
Finance segment revenue represents the interest charged to customers on their credit account balance. Previously the customer receivables
were treated as being fully funded by external debt. Following a review of this allocation it was decided to treat these as being 85% funded
through debt. Consequently an allocation of finance costs was made on this basis. This allocation better reflects the utilisation of funds across
the business. The impact of this change has increased the NEXT Finance profit by £6.4m (2019: £6.1m) but had no impact on overall Group profit.
Further details on the Finance cost of funding are provided in the Chief Executive’s Review.
Segment sales and revenue
52 weeks to 25 January 2020
Total sales
excluding
VAT
£m
2,146.6
1,851.9
268.7
56.9
9.5
4,333.6
13.1
15.1
4,361.8
–
4,361.8
Commission
sales
adjustment
£m
(134.3)
(3.4)
–
–
–
(137.7)
–
–
(137.7)
–
(137.7)
IFRS 15
adjustments
£m
42.4
(0.3)
–
–
–
42.1
–
–
42.1
–
42.1
External
revenue
£m
2,054.7
1,848.2
268.7
56.9
9.5
4,238.0
13.1
15.1
4,266.2
–
4,266.2
Internal
revenue
£m
1.6
3.3
–
–
533.4
538.3
81.8
196.2
816.3
(816.3)
–
Total
segment
revenue
£m
2,056.3
1,851.5
268.7
56.9
542.9
4,776.3
94.9
211.3
5,082.5
(816.3)
4,266.2
NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment sales/revenue
Eliminations
Total
149
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Segmental Analysis
Segment sales and revenue
(continued)
(continued)
Total sales
excluding
VAT
£m
1,918.8
1,955.1
250.3
62.2
6.9
4,193.3
15.1
12.5
4,220.9
–
4,220.9
52 weeks to 26 January 2019
Commission
sales
adjustment
£m
(92.5)
(1.2)
–
–
–
(93.7)
(0.1)
–
(93.8)
–
(93.8)
IFRS 15
adjustments
£m
38.3
2.0
–
–
–
40.3
–
–
40.3
–
40.3
External
revenue
£m
1,864.6
1,955.9
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
1,864.6
1,960.5
250.3
62.2
550.1
4,687.7
95.4
215.4
4,998.5
(831.1)
4,167.4
NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment sales/revenue
Eliminations
Total
Segment profit
The view of segment profit used by the CODM does not include the impact of IFRS 16 because the IFRS 16 profit before tax is not used in internal
reporting. The prior year segment profit results have been restated for the change in the allocation of finance costs to NEXT Finance.
Segment profit
NEXT Online
NEXT Retail
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 (losses)/gains
Trading profit
Share of results of associates and joint venture
Finance income
Finance costs
Profit before tax excluding IFRS 16
IFRS 16
Profit before tax including IFRS 16
2020
£m
399.6
163.9
146.7
6.2
32.0
748.4
13.0
(2.2)
759.2
(6.8)
36.3
(14.7)
(1.5)
772.5
(0.4)
0.2
(43.8)
728.5
20.0
748.5
2019
Restated
£m
352.6
212.3
127.3
6.2
29.6
728.0
11.0
6.7
745.7
(5.4)
34.0
(13.8)
1.4
761.9
0.1
0.4
(39.5)
722.9
10.7
733.6
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.
150
1. Segmental Analysis
Segment assets, capital expenditure and depreciation
(continued)
Property, plant and
equipment
Capital
expenditure
Depreciation
2020
£m
345.4
127.4
–
0.5
2.6
2.4
100.2
578.5
2019
£m
382.6
95.0
–
0.8
2.5
3.8
80.2
564.9
2020
£m
68.8
52.3
–
–
1.1
0.1
16.5
138.8
2019
£m
93.0
31.8
–
0.1
0.9
1.3
1.5
128.6
2020
£m
96.8
19.8
–
0.1
1.2
1.0
0.3
119.2
2019
£m
99.1
18.4
–
0.3
1.1
0.9
0.3
120.1
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
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 right-of-use assets,
depreciation on right-of-use assets and 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, right-of-use 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
2020
£m
3,665.0
317.6
189.9
58.3
35.4
4,266.2
2020
£m
583.4
6.3
4.3
28.7
622.7
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
2. Total Revenue
The Group’s disaggregated revenue recognised under contracts with customers relates to the following categories and operating segments:
NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
52 weeks to 25 January 2020
Credit
account
interest
£m
–
–
268.7
–
–
–
–
268.7
Royalties
£m
–
–
–
5.3
–
2.3
–
7.6
Rental
income
£m
–
–
–
–
–
–
15.1
15.1
Total
£m
2,054.7
1,848.2
268.7
56.9
9.5
13.1
15.1
4,266.2
Sale of goods
£m
2,054.7
1,848.2
–
51.6
9.5
10.8
–
3,974.8
151
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2. Total Revenue
(continued)
NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total
3. Operating Profit
Group operating profit is stated after charging/(crediting):
Depreciation on tangible assets
Depreciation on right-of-use assets
Loss on disposal of property, plant and equipment
Impairment charges on tangible assets
Impairment on right-of-use assets
Amortisation of intangible assets
Contingent rentals payable
Cost of inventories recognised as an expense
Write-down of inventories to net realisable value
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
Sale of goods
£m
1,864.6
1,955.9
–
56.7
6.9
12.9
–
3,897.0
2020
£m
119.2
140.3
1.2
4.5
1.2
–
2.8
1,462.1
117.4
1,579.5
Total
£m
1,864.6
1,955.9
250.3
62.2
6.9
15.0
12.5
4,167.4
2019
Restated
£m
120.1
138.0
0.4
1.8
1.2
0.3
3.7
1,450.2
102.8
1,553.0
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 (losses)/gains reported in the Income Statement represent foreign exchange losses of £1.5m (2019: gains of £1.4m) in respect of derivative
contracts which do not qualify for hedge accounting under IFRS 9.
Other foreign exchange differences recognised in the Income Statement were gains of £7.4m (2019: £11.1m).
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
2020
£000
269
408
677
138
815
2019
£000
297
445
742
145
887
Other assurance services relate to audit work on Corporate Social Responsibility reporting, turnover certificates for store leases and work to
support the debt substitution (see Parent Company accounts, note C5, for details on debt substitution).
152
4. Staff Costs and Key Management Personnel
Total staff costs were as follows:
Wages and salaries
Social security costs
Other pension costs
Share-based payments expense – equity-settled
Share-based payments benefit – cash-settled
Total
2020
£m
617.2
44.8
35.3
697.3
14.7
(0.3)
711.7
2019
£m
594.1
43.3
29.2
666.6
13.8
(0.7)
679.7
Share-based payments comprise Management options, Sharesave options and potential LTIP and SMP awards, details of which are given in
Note 24.
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
2020
£m
656.8
1.2
32.5
21.2
711.7
2019
£m
618.3
1.9
32.0
27.5
679.7
Average employees
Full-time equivalents
2020
Number
39,504
59
4,317
313
44,193
2019
Number
39,427
113
4,116
272
43,928
2020
Number
23,888
45
4,317
295
28,545
2019
Number
23,687
90
4,116
258
28,151
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.
2020
£m
3.2
0.2
2.5
5.9
2019
£m
3.1
0.1
1.9
5.1
153
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
5. Finance Income and Costs
Interest on bank deposits
Other fair value movements
Other interest receivable
Finance income
Interest on bonds and other borrowings
Other fair value movements
Finance costs on lease liability
Finance costs
2020
£m
0.1
–
0.1
0.2
43.6
0.2
61.8
105.6
2019
Restated
£m
0.1
0.2
0.1
0.4
39.5
–
68.4
107.9
Online account interest is presented as a component of revenue.
6. Taxation
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 143.
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
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-taxable (income)/non-deductible expenses
Overseas tax differentials
Adjustments in respect of prior years
Effective total tax rate on profit before taxation
2020
£m
141.8
(0.4)
141.4
(3.8)
0.7
138.3
2020
%
19.0
(0.3)
(0.1)
(0.1)
18.5
2019
Restated
£m
140.5
(2.3)
138.2
(2.3)
(1.4)
134.5
2019
Restated
%
19.0
0.5
(0.2)
(1.0)
18.3
154
6. Taxation
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)
Deferred tax:
Pension benefit obligation
Fair value movements on derivative instruments
Tax charge in other comprehensive income
Current tax:
Share-based payments
Exchange loss recognised outside of profit or loss
Deferred tax:
Fair value movements on derivative instruments
Share-based payments
Tax (credit) in the Statement of Changes in Equity
2020
£m
0.5
2.8
3.3
2020
£m
(4.5)
–
(7.7)
(9.1)
(21.3)
2019
Restated
£m
3.2
13.0
16.2
2019
£m
(1.0)
(0.8)
(4.0)
2.1
(3.7)
Deferred tax
Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences that arise when the carrying value
of assets and liabilities differ between accounting and tax treatments. Deferred tax assets represent the amounts of income taxes recoverable
in the future in respect of those differences, while deferred tax liabilities represent the amounts of income taxes payable in the future in respect
of those differences.
The deferred tax asset is made up of:
Accelerated capital allowances
Revaluation of derivatives to fair value
Pension benefit obligations
Share-based payments
IFRS 16 Leases
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
IFRS 16 Leases
Other temporary differences
Recognised in Other Comprehensive Income
Recognised in the Statement of Changes in Equity
At the end of the year
2020
£m
10.0
5.1
(22.7)
17.4
38.2
7.7
55.7
2020
£m
39.1
3.7
0.3
2.2
(3.7)
0.6
(3.3)
16.8
55.7
2019
Restated
£m
6.3
(0.1)
(21.3)
6.1
41.9
6.2
39.1
2019
Restated
£m
49.8
3.9
(0.2)
0.5
(2.1)
1.5
(16.2)
1.9
39.1
155
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
6. Taxation
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
2020
£m
34.7
Unrecognised
deferred tax
2020
£m
5.9
Gross value
2019
£m
34.7
Unrecognised
deferred tax
2019
£m
5.9
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
Deferred taxes reflected in these financial statements have been measured using the enacted tax rates at the Balance Sheet date. This includes
the enacted UK corporation tax rate of 17% for deferred taxes which was expected to take effect from 1 April 2020. Following the Budget on
11 March 2020 and the expectation that the headline UK corporation tax rate will remain at 19%, 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, which 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 25 January 2020
Final ordinary dividend for year to Jan 2019
Interim ordinary dividend for year to Jan 2020
Year to 26 January 2019
Final ordinary dividend for year to Jan 2018
Interim ordinary dividend for year to Jan 2019
Paid
1 Aug 2019
2 Jan 2020
Pence per
share
110p
57.5p
Paid
1 Aug 2018
2 Jan 2019
Pence per
share
105p
55p
Cash Flow
Statement
£m
140.3
73.3
213.6
Cash Flow
Statement
£m
141.9
73.8
215.7
Statement
of Changes
in Equity
£m
140.3
73.3
213.6
Statement
of Changes
in Equity
£m
141.9
73.8
215.7
No final dividend is proposed but instead the current intention is to announce a second interim dividend at the end of June for payment sometime
between August and October in the event that (i) the worst of the virus has passed by that time and (ii) that our finances permit the payment.
The Trustee of the ESOT has waived dividends paid in the year on shares held by the ESOT.
156
8. Earnings Per Share
Basic Earnings Per Share
2020
including
IFRS 16
472.4p
2019
including
IFRS 16
441.7p
2020
excluding
IFRS 16
459.8p
2019
excluding
IFRS 16
435.3p
Basic Earnings Per Share is based on the profit for the year attributable to the equity holders of the Parent Company divided by the net of the
weighted average number of shares ranking for dividend less the weighted average number of shares held by the ESOT during the period.
Diluted Earnings Per Share
2020
including
IFRS 16
468.8p
2019
including
IFRS 16
439.3p
2020
excluding
IFRS 16
456.3p
2019
excluding
IFRS 16
433.0p
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 2,424,915 non-dilutive share options in the current year (2019: 3,508,782).
Fully diluted Earnings Per Share
2020
including
IFRS 16
449.1p
2019
including
IFRS 16
421.0p
2020
excluding
IFRS 16
437.1p
2019
excluding
IFRS 16
414.9p
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 an Alternative
Performance Measure (APM) used for the purposes of the Share Matching Plan, described further in Note 24.
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
2020
610.2
134.8
(5.6)
129.2
1.0
130.2
129.2
6.7
135.9
2019
Restated
599.1
140.8
(5.2)
135.6
0.7
136.3
135.6
6.7
142.3
As detailed in the Remuneration Report, the annual bonus for executive directors is determined by reference to underlying pre-tax Earnings
per Share of 564.0p (2019: 532.9p). This is calculated using 52 week underlying pre-tax profit, excluding IFRS 16, of £728.5m (2019: £722.9m) 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.
157
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
9. Property, Plant and Equipment
Cost
At January 2018
Exchange movement
Additions
Disposals
At January 2019
Exchange movement
Additions
Disposals
At January 2020
Depreciation
At January 2018
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2019
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2020
Carrying amount
At January 2020
At January 2019
At January 2018
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
79.5
–
1.3
–
80.8
–
16.6
–
97.4
8.4
–
0.2
–
–
8.6
–
0.3
–
–
8.9
88.5
72.2
71.1
9.4
–
–
(0.2)
9.2
–
–
–
9.2
1.6
–
–
–
(0.2)
1.4
–
–
–
–
1.4
7.8
7.8
7.8
1,728.5
(0.2)
127.3
(70.6)
1,785.0
0.1
122.2
(48.9)
1,858.4
1,248.5
(0.2)
119.9
1.8
(69.9)
1,300.1
0.1
118.9
4.5
(47.4)
1,376.2
482.2
484.9
480.0
Total
£m
1,817.4
(0.2)
128.6
(70.8)
1,875.0
0.1
138.8
(48.9)
1,965.0
1,258.5
(0.2)
120.1
1.8
(70.1)
1,310.1
0.1
119.2
4.5
(47.4)
1,386.5
578.5
564.9
558.9
At January 2020 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£38.2m (2019: £63.8m).
Plant and Equipment includes leasehold improvements. Impairment charges relate to the impairment of shop fittings on loss-making stores.
158
10. Intangible Assets
Cost
At January 2018 and January 2019
Arising on acquisitions
At January 2020
Amortisation and impairment
At January 2018
Amortisation provided during the year
At January 2019
Amortisation provided during the year
At January 2020
Carrying amount
At January 2020
At January 2019
At January 2018
The carrying amount of goodwill is allocated to the following cash generating units:
NEXT Sourcing
Lipsy
Marie Claire Beauty
Brand names
and
trademarks
£m
Goodwill
£m
4.0
0.3
4.3
3.7
0.3
4.0
–
4.0
0.3
–
0.3
44.2
1.3
45.5
1.6
–
1.6
–
1.6
43.9
42.6
42.6
2020
£m
30.5
12.1
1.3
43.9
Total
£m
48.2
1.6
49.8
5.3
0.3
5.6
–
5.6
44.2
42.6
42.9
2019
£m
30.5
12.1
–
42.6
In July 2019 the group acquired 100% of the share capital of Marie Claire Beauty Limited.
Goodwill is tested for impairment at the Balance Sheet date on the basis of value in use calculations.
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 0% (2019: 10% growth rate) and discounted at a pre-tax rate of 10% (2019: 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 5% (2019: 2% to 13%) and discounted at a pre-tax rate of 12% (2019: 12%).
In assessing the recoverable amount of goodwill, internal budgets for next year were used and extrapolated for nine further years using a growth
Marie Claire Beauty
rate of 2% to 5% and discounted at a pre-tax rate of 12%.
For NEXT Sourcing, Lipsy and Marie Claire Beauty the calculated value in use significantly exceeded the carrying value of the goodwill and no
impairment was recognised (2019: £Nil). If the assumptions were flexed to assume a growth rate of 0% throughout the 10 year period then
the recoverable amount of goodwill would still exceed its carrying value. Therefore, there is no reasonably possible change in any of the key
assumptions that would give rise to impairment.
159
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
11. Leases
Right-of-use assets
Buildings
Stores
Equipment
Vehicles
Lease liability
Current
Non-current
Additions to the right-of-use assets
Depreciation on right-of-use assets
Buildings
Stores
Equipment
Vehicles
Finance costs on leases
Expense on short term and low value leases
Expense on variable leases
Additions to right-of-use assets include new leases and extensions to existing lease agreements.
2020
£m
133.0
705.0
4.9
9.8
852.7
2020
£m
(172.3)
(1,078.7)
(1,251.0)
40.0
2020
£m
16.2
117.3
1.9
4.9
140.3
2020
£m
(61.8)
7.1
2.8
2019
£m
147.2
785.5
3.0
8.1
943.8
2019
£m
(175.6)
(1,190.7)
(1,366.3)
123.1
2019
£m
15.9
116.8
1.3
4.0
138.0
2019
£m
(68.4)
5.8
3.7
160
12. Associates, Joint Venture and Other Investment
Cost
At January 2018
Additions
Retained profit/(loss)
Disposals
At January 2019
Additions
Retained loss
Disposals
At January 2020
Amortisation/Impairment
At January 2018
Provided during the year
Impairment charge
Disposals
At January 2019
Provided during the year
Impairment charge
Disposals
At January 2020
Carrying amount
At January 2020
At January 2019
At January 2018
*
relates to the purchase of a 30% share in Custom Gateway Limited.
Interests in
associates
and
joint venture
£m
Other
investment
£m
1.3
3.0*
–
–
4.3
–
(0.1)
–
4.2
0.2
–
–
–
0.2
–
–
–
0.2
4.0
4.1
1.1
1.0
–
–
–
1.0
–
–
–
1.0
–
–
–
–
–
–
–
–
–
1.0
1.0
1.0
Total
£m
2.3
3.0
–
–
5.3
–
(0.1)
–
5.2
0.2
–
–
–
0.2
–
–
–
0.2
5.0
5.1
2.1
161
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
13. 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
Other trade receivables
Less: allowance for expected credit losses
Presentation of the above, split by total receivables and allowances:
Net customer receivables
Other trade receivables
Less: allowance for expected credit losses
Prepayments*
Other debtors
Amounts due from associate and joint venture
2020
£m
1,455.5
(49.9)
1,405.6
(171.5)
1,234.1
26.4
(0.5)
1,260.0
1,405.6
26.4
1,432.0
(172.0)
1,260.0
38.8
13.3
3.2
1,315.3
2019
Restated
£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
37.2
14.7
3.0
1,285.4
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% (2019: 23.9%) at the year-end date, except for £6.0m (2019: £3.1m) of next3step balance that bears interest at
29.9% (2019: 29.9%).
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 allocated to the Risk band
1 (defined in Note 28), 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 £1,200m (2019: £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 27).
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.
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.
* Prepayments in 2019 have been restated as a result of the adoption of IFRS 16 (see Note 32).
162
13. 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 26 January 2019
New assets originated/recoveries
Transfers from lifetime ECL to credit impaired
Financial assets derecognised during the period
Amounts written off
At 25 January 2020
(continued)
2020
Credit
Impaired
£m
79.0
(12.5)
55.4
(25.9)
(8.2)
87.8
Lifetime ECL
£m
1,317.5
96.0
(55.4)
–
(13.9)
1,344.2
An analysis of the changes in the impairment allowance for customer receivables and other trade receivables is as follows:
Loss allowance
At 26 January 2019
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 25 January 2020
2020
Credit
Impaired
£m
(73.4)
11.0
(49.8)
1.9
23.2
7.4
(79.7)
Lifetime ECL
£m
(92.6)
(4.2)
3.9
(0.4)
–
1.0
(92.3)
Total
£m
1,396.5
83.5
–
(25.9)
(22.1)
1,432.0
Total
£m
(166.0)
6.8
(45.9)
1.5
23.2
8.4
(172.0)
An analysis of changes in the gross carrying amount in relation to customer receivables and other trade receivables in the prior year is as follows:
Gross carrying amount
At 27 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
2019
Credit
Impaired
£m
58.0
(10.8)
55.8
(17.9)
(6.1)
79.0
Lifetime ECL
£m
1,219.3
165.0
(55.8)
–
(11.0)
1,317.5
Total
£m
1,277.3
154.2
–
(17.9)
(17.1)
1,396.5
An analysis of the changes in the impairment allowance for customer receivables and other trade receivables in the prior year is as follows:
Loss allowance
At 27 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)
(7.5)
4.0
(4.2)
–
0.8
(92.6)
Total
£m
(138.8)
2.5
(47.4)
(5.2)
16.5
6.4
(166.0)
New assets originated and recoveries have been represented as a combined figure to simplify the presentation of movements in the period.
163
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
13. Customer and Other Receivables
(continued)
Opening balance
Impairment
Amounts recovered
Charged to the Income Statement
Used during the year
Total movement
Closing balance
Opening balance
Impairment
Amounts recovered
Charged to the Income Statement
Used during the year
Total movement
Closing balance
Information on the Group’s credit risk in relation to customer receivables is provided in Note 28.
2020
Credit
Impaired
£m
(73.4)
Lifetime ECL
£m
(92.6)
(6.5)
0.9
(5.6)
5.9
0.3
(92.3)
(37.6)
1.7
(35.9)
29.6
(6.3)
(79.7)
2019
Credit
Impaired
£m
(53.1)
Lifetime ECL
£m
(85.7)
(12.6)
1.1
(11.5)
4.6
(6.9)
(92.6)
(47.0)
5.8
(41.2)
20.9
(20.3)
(73.4)
Total
£m
(166.0)
(44.1)
2.6
(41.5)
35.5
(6.0)
(172.0)
Total
£m
(138.8)
(59.6)
6.9
(52.7)
25.5
(27.2)
(166.0)
164
14. Other Financial Assets
Foreign exchange contracts
Interest rate derivatives
2020
2019
Current
£m
1.7
–
1.7
Non-current
£m
–
48.4
48.4
Current
£m
9.9
–
9.9
Non-current
£m
–
41.5
41.5
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge exchange risk arising from the
Group’s merchandise purchases (refer to Note 29). 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 19).
15. Cash and Short Term Deposits
Cash at bank and in hand
Short term deposits
2020
£m
86.6
–
86.6
2019
£m
156.3
–
156.3
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.
16. Bank Loans and Overdrafts
Bank overdrafts and short term borrowings
Unsecured committed bank loans
2020
£m
33.7
40.0
73.7
2019
£m
122.3
255.0
377.3
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 29).
17. Trade Payables and Other Liabilities
Trade payables
Refund liabilities
Other taxation and social security
Deferred revenue from sale of gift cards
Share-based payment liability
Other creditors and accruals
2020
Current
£m
212.8
5.4
73.4
74.9
0.2
225.3
592.0
Non-current
£m
–
–
–
–
0.2
14.3
14.5
2019 Restated
Current
£m
209.4
6.2
68.3
75.4
0.2
236.8
596.3
Non-current
£m
–
–
–
–
0.2
8.9
9.1
Trade payables do not bear interest and are generally settled on 30 day terms. Other creditors and accruals do not bear interest.
165
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
18. Other Financial Liabilities
Foreign exchange contracts
Interest rate derivatives
2020
2019
Current
£m
32.6
–
32.6
Non-current
£m
–
7.8
7.8
Current
£m
9.4
–
9.4
Non-current
£m
–
9.2
9.2
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 28). 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 19).
19. Corporate Bonds
Corporate bond 5.375% repayable 2021
Corporate bond 3.000% repayable 2025
Corporate bond 4.375% repayable 2026
Corporate bond 3.625% repayable 2028
Balance sheet value
Nominal value
2020
£m
327.0
250.0
286.7
300.0
1,163.7
2019
£m
327.5
–
277.7
300.0
905.2
2020
£m
325.0
250.0
250.0
300.0
1,125.0
2019
£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
2025 bonds (new in year)
Fixed
2026 bonds
Floating
2028 bonds
Fixed
Total
2020
Nominal
value
£m
2020
Aggregate
interest
rate
2019
Nominal
value
£m
2019
Aggregate
interest
rate
5.375%
150.0
5.200%
50.0
5.150%
50.0
50.0
5.050%
25.0 6m LIBOR + 1.9%
325.0
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
3.0%
–
–
250.0
6m LIBOR +1.4%
250.0
6m LIBOR +1.4%
300.0
1,125.0
3.625%
300.0
875.0
3.625%
Interest rate risk management is explained in Note 28 and the fair values of the corporate bonds are shown in Note 27.
166
20. 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”). Next also contributes to the People’s Pension which it
uses as its auto-enrolment vehicle.
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.
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 will
be converted to buy-out in due course and the Original Plan will then be dissolved.
The 2013 Plan was established in 2013 via the transfer of liabilities and assets from the Original Plan. This arrangement provides benefits to the
majority of members whose pensions were not insured with Aviva. From November 2012, the future accrual of benefits for remaining active
employee members has been based on pensionable earnings frozen at that time, rather than final earnings.
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 25 January 2020 this buy-in policy has a value of £92m (2019: £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 increased the IAS 19 liabilities of the
Plan by £0.4m and was recognised in the 2019 disclosures.
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 in 2018. Members pay 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 affected by the change to pensionable salary in 2012 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.
167
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits
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).
(continued)
Principal risks
The following table summarises the principal risks associated with the Group’s defined benefit arrangements:
Investment risk
Interest rate risk
Inflation risk
Longevity risk
The present value of defined benefit liabilities is calculated using a discount rate set by reference to high quality
corporate bond yields. If plan assets underperform corporate bonds, this will create a deficit. Investment risk in the
Original Plan is negligible, as almost all liabilities in this plan are covered by the insurance contracts.
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 take
inflation into account. 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 26% 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 within Administrative expenses are
as follows:
2013
Plan
£m
5.6
–
(4.1)
2.3
3.8
2020
Original
Plan
£m
–
–
(0.1)
0.1
–
SPA
£m
0.4
–
0.5
–
0.9
2013
Plan
£m
7.8
0.4
(3.1)
1.8
6.9
2019
Original
Plan
£m
–
–
(0.1)
0.1
–
Total
£m
6.0
–
(3.7)
2.4
4.7
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:
2020
2013
Plan
£m
Original
Plan
£m
18.8
2.3
(130.1)
(111.3)
(12.9)
(10.6)
SPA
£m
0.2
(3.2)
(3.0)
Total
£m
21.3
(146.2)
(124.9)
2013
Plan
£m
–
56.0
56.0
2019
Original
Plan
£m
2.5
4.8
7.3
116.9
10.8
–
127.7
(38.7)
(7.3)
5.6
0.2
(3.0)
2.8
17.3
–
1.3
18.6
SPA
£m
0.4
–
0.4
–
0.8
SPA
£m
0.3
1.0
1.3
–
Total
£m
8.2
0.4
(2.8)
1.9
7.7
Total
£m
2.8
61.8
64.6
(46.0)
Actuarial gains due to liability
experience
Actuarial (losses)/ gains due to
liability assumption changes
Return on plan assets greater
than/ (less than) discount rate
Actuarial gains/(losses)
recognised in other
comprehensive income
168
20. Pension Benefits
Balance sheet valuation
The net defined benefit pension asset recognised in the Consolidated Balance Sheet is analysed as follows:
(continued)
2020
2013
Plan
£m
Original
Plan
£m
(735.1)
883.6
148.5
(141.5)
143.7
2.2
SPA
£m
(17.3)
–
(17.3)
Total
£m
(893.9)
1,027.3
133.4
2013
Plan
£m
(617.8)
757.2
139.4
2019
Original
Plan
£m
(134.5)
136.5
2.0
SPA
£m
(16.4)
–
(16.4)
Total
£m
(768.7)
893.7
125.0
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:
2020
2019
2013
Plan
£m
617.8
5.6
–
17.7
0.1
(17.4)
139.6
(18.8)
(9.5)
735.1
Original
Plan
£m
134.5
–
–
3.5
–
(7.1)
16.1
(2.3)
(3.2)
141.5
SPA
£m
16.4
0.4
–
0.5
–
(3.0)
3.6
(0.2)
(0.4)
17.3
Total
£m
768.7
6.0
–
21.7
0.1
(27.5)
159.3
(21.3)
(13.1)
893.9
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
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 £893.9m was comprised of approximately 29% relating to active participants,
44% relating to deferred participants and 27% relating to pensioners.
Plan assets
Changes in the fair value of defined benefit pension assets were as follows:
2020
2019
2013
Plan
£m
757.2
7.3
0.1
(17.4)
21.8
116.9
(2.3)
883.6
Original
Plan
£m
136.5
–
–
(7.1)
3.6
10.8
(0.1)
143.7
SPA
£m
–
–
–
–
–
–
–
–
Total
£m
893.7
7.3
0.1
(24.5)
25.4
127.7
(2.4)
1,027.3
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
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
169
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. 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
2020
2019
2013
Plan
£m
169.4
70.4
116.8
323.7
109.9
92.3
1.1
883.6
Original
Plan
£m
–
–
–
2.4
–
141.2
–
143.6
Total
£m
169.4
70.4
116.8
326.1
109.9
233.5
1.1
1,027.2
%
16.5
6.9
11.4
31.7
10.7
22.7
0.1
100.0
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
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 2020 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
2020
2019
Original
plan
1.70%
3.25%
2.25%
–
3.10%
2.15%
2013 and
SPA
1.75%
2.80%
1.90%
–
2.75%
1.90%
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%
2020
2019
Pensioner
aged 65
Non-
pensioner
aged 45
Pensioner
aged 65
Non-
pensioner
aged 45
22.3
24.2
24.5
26.5
22.6
24.8
24.4
26.6
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. In previous years, the RPI assumption for the 2013 Plan and SPA allowed for the inflation risk premium of 0.2% per annum, however
this was updated to 0.3% per annum for the 2020 year end to allow for the RPI reform expected from 2030. As in previous years, the Original Plan
does not allow for an inflation risk premium because its assets and liabilities are almost fully matched.
The rate of consumer price inflation (CPI) is set lower than the assumption for retail price inflation, reflecting the long term expected gap
between the two indices.
170
20. 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 3 All Pensioner tables (with a multiplier of 101% for male and female pensioners and 103%
for male non-pensioners and 100% for female non-pensioners). Future improvement trends have been allowed for in line with the most recent
CMI core projection model (CMI 2018) with a long term trend towards 1.5% per annum and a smoothing factor of 7.5.
(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 25 January 2020
£77m decrease
£60m decrease
£2m increase
£18m 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
An 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 2019 the 2013 Plan was estimated to be fully funded on a Technical Provisions basis with a surplus in the region of £28m,
therefore a deficit contribution was not payable in January 2020.
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.
The 2013 Plan is currently undergoing a triennial funding valuation as at 30 September 2019, which is expected to show a small deficit at that
point in time on the Technical Provisions basis. Discussions with the Trustee are advanced and the Valuation is expected to be formalised shortly.
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 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
2020
£m
18.0
12.6
7.3
37.9
2019
£m
14.3
7.2
7.7
29.2
171
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits
Contributions
Employer contributions to the defined benefit section in the year ahead are expected to be around £11m assuming a contribution of £4m is paid
in October 2020, although in practice this is contingent on the funding (Technical Provisions) level 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 £13m, including
salary sacrifice contributions.
(continued)
(continued)
21. Provisions
At the beginning of the year
Provisions made in the year
Utilisation of provisions
Unwind of discount
At the end of the year
Provision is made for the committed cost or estimated exit costs of properties occupied by the Group.
22. 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
2020
Shares ‘000
2019
Shares ‘000
138,606
(5,377)
133,229
144,882
(6,276)
138,606
Property costs
2020
£m
15.7
1.0
–
0.6
17.3
2020
£m
13.9
(0.6)
13.3
2019
Restated
£m
17.1
0.9
(2.9)
0.6
15.7
2019
£m
14.5
(0.6)
13.9
Cost
£m
324.2
324.2
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
2020
Shares
‘000
5,377
Cost
£m
300.2
300.2
2019
Shares
‘000
6,276
Subsequent to the end of the financial year and before the start of the closed period, the Company purchased for cancellation 279,639 shares
at a cost of £19.3m.
23. 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 of £1,460.7m less share premium account of £3.8m and capital redemption reserve of £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 of £0.7m, less the unrealised component of revaluations of properties arising under previous accounting standards of £5.1m as at the
date of transition to IFRS.
172
24. 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
2020
2019
Weighted
average
exercise
price
£47.71
£53.85
£43.15
£51.59
£50.36
£57.99
No. of
options
5,582,795
1,477,311
(416,282)
(525,669)
6,118,155
1,794,711
Weighted
average
exercise
price
£47.12
£47.35
£36.66
£49.23
£47.71
£53.85
No. of
options
6,118,155
1,521,902
(1,581,139)
(417,763)
5,641,155
1,509,481
Options were exercised on a regular basis throughout the year and the weighted average share price during this period was £64.35 (2019: £53.95).
Options outstanding at 25 January 2020 are exercisable at prices ranging between £20.70 and £70.80 (2019: £13.99 and £70.80) and have a
weighted average remaining contractual life of 6.2 years (2019: 5.9 years), as analysed in the table below:
Exercise price range
£13.99 – £41.09
£41.12 – £48.23
£48.38
£51.84 – £61.27
£66.95 – £70.80
2020
2019
Weighted
average
remaining
contractual
life
(years)
5.9
2.9
8.2
8.4
4.7
6.2
No. of
options
1,391,365
1,057,631
1,021,695
1,308,102
862,362
5,641,155
Weighted
average
remaining
contractual
life
(years)
5.1
3.5
9.2
6.6
5.7
5.9
No. of
options
2,229,862
894,123
1,118,063
859,435
1,016,672
6,118,155
173
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
24. 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. Under the current 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 which is permitted 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
2020
No. of
options
39,454
9,018
–
(11,782)
36,690
–
2019
No. of
options
45,564
10,374
–
(16,484)
39,454
–
The weighted average remaining contractual life of these options is 5.0 years (2019: 5.4 years). During the year ending 25 January 2020 and
26 January 2019 no SMP options were exercised as the awards did not vest.
Long Term Incentive Plan (LTIP)
As explained in the Remuneration Report, the Group operates an equity-settled LTIP scheme for executive directors and other senior executives.
Performance conditions for the LTIP awards are detailed in the Remuneration Report.
The following table summarises the movements in nil cost LTIP awards during the year:
Outstanding at beginning of year
Granted
Vested
Forfeited
Outstanding at end of year
2020
Awards
476,889
195,015
(47,654)
(81,501)
542,749
2019
Awards
487,442
186,306
(11,442)
(185,417)
476,889
The weighted average remaining contractual life of these options is 1.4 years (2019: 1.5 years).
Profit Sharing Bonus Plan
The Profit Sharing Bonus Plan provides for options over shares in NEXT for senior employees of Lipsy Limited. Under the arrangement, a profit
bonus equal to 3.6% of the average of the post tax profits of Lipsy and any subsidiaries of Lipsy in respect of the financial years ending January
2023 and January 2024, multiplied by ten is payable. Fifty per cent of the profit bonus will be settled in cash with the balance settled in either
shares in NEXT (calculated based on the share price at the date of grant) or in cash, or a combination thereof, at the choice of the participants.
The participants also have a right to receive up to a 15% cash draw down of value in each year up to an aggregate of 60% based on the average
of the post-tax profits of the two most recent financial years of Lipsy in each year (Draw Down). The value of the profit bonus will be reduced to
reflect any value which has been received under the Draw Down.
The Share Awards are structured as nil cost options and during the year 159,164 options were granted in accordance with the terms of the Plan
and remained outstanding at the year end. As the Profit Sharing Bonus Plan can be cash-settled, the recognition of a liability on the balance
sheet is remeasured to fair value each reporting period until it is settled, with any change in fair value recorded in profit or loss. The liability is
recognised within Other creditors, non-current liabilities.
174
24. Share-based Payments
Fair value calculations
The fair value of Management, Sharesave and Share Matching Plan options granted is calculated at the date of grant using a Black-Scholes option
pricing model. Expected volatility was determined by calculating the historical volatility of the Company’s share price over a period equivalent
to the expected life of the option. The expected life applied in the model is based on historical analyses of exercise patterns, taking into account
any early exercises. The following table lists the inputs to the model used for options granted in the years ended 25 January 2020 and 26 January
2019 based on information at the date of grant:
(continued)
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
Share Matching Plan
Share price at date of grant
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Weighted average fair value per option
2020
£56.46
£56.46
30.00%
4 years
0.78%
2.83%
£10.35
2020
£60.28
£48.23
29.44%
3.2 years
0.46%
2.74%
£14.90
2020
£58.50
Nil
31.30%
3 years
0.76%
0.00%
£58.50
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
The fair value of 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 25 January 2020 and 26 January 2019 based on information at the
date of grant:
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
2020
£48.11
Nil
32.47%
3 years
0.67%
0.00%
£23.83
2019
£48.75
Nil
30.62%
3 years
0.95%
0.00%
£22.78
175
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
24. Share-based Payments
Fair value calculations
(continued)
(continued)
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
2020
£59.88
Nil
29.01%
3 years
0.46%
0.00%
£29.87
2019
£54.00
Nil
31.40%
3 years
0.87%
0.00%
£26.27
From September 2017, for all new LTIP awards, dividend accruals (both in respect of special and ordinary dividends) may be payable on
vested awards.
25. 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 to satisfy all awards
which vest/are exercised in accordance with the terms of the various share-based schemes detailed in Note 24.
At 25 January 2020 the ESOT held 5,430,961 (2019: 5,463,200) ordinary shares of 10p each in the Company, the market value of which amounted
to £390.7m (2019: £261.0m). Details of outstanding share awards and options are shown in Note 24.
The consideration paid for the ordinary shares of 10p each in the Company held by the ESOT at 25 January 2020 and 26 January 2019 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 in respect of employee share schemes
2020
2019
Shares
‘000
1,551
1,583
£m
94.2
65.5
Shares
‘000
1,085
448
£m
61.9
15.3
Proceeds of £66.9m (2019: £15.8m) were received on the exercise of Management and Sharesave options. The amount shown in the Statement
of Changes in Equity of £65.5m (2019: £15.3m) 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 £80.9m (2019: £21.9m).
At 18 March 2020, employee share options over 84,382 shares had been exercised subsequent to the Balance Sheet date and had been satisfied
by ordinary shares issued by the ESOT.
176
26. 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
Lease liabilities
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**
2020
£m
0.3
49.8
1,276.2
86.6
1.0
(2.3)
(38.1)
(1,251.0)
(1,163.7)
(73.7)
(442.4)
2019
Restated
£m
0.1
51.3
1,247.8
156.3
1.0
(0.6)
(18.0)
(1,366.3)
(905.2)
(377.3)
(435.3)
* Prepayments of £38.8m (2019: £37.2m) and other debtors of £0.3m (2019: £0.4m) do not meet the definition of a financial instrument.
** Other taxation and social security payables of £73.4m (2019: £68.3m), deferred income of £74.9m (2019: £75.4m), share-based payment liabilities of £0.4m (2019: £0.4m) and
other creditors of £15.4m (2019: £28.3m) do not meet the definition of a financial instrument.
27. 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
2020
2019
Carrying
amount
£m
463.7
700.0
1,163.7
Fair value
£m
481.6
772.0
1,253.6
Carrying
amount
£m
455.2
450.0
905.2
Fair value
£m
461.3
469.0
930.3
Corporate bonds are held at amortised cost adjusted for the fair value changes attributable to the interest rate risk being hedged.
177
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
27. 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”:
Hierarchy level
Level 1
Inputs
Quoted prices in active markets
for identical assets or liabilities
(continued)
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
includes accrued
Market value
interest and change
in credit
risk and interest rate risk and is
therefore different to the reported
carrying amounts.
Valuation
include
techniques
forward pricing and swap models
using net present value calculation
of future cash flows. The model
inputs include the foreign exchange
spot and
rates, yield
forward
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.
28. 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.
178
28. 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)
2020
Bank loans and overdrafts
Lease liabilities
Trade and other payables
Corporate bonds
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
2019 restated
Bank loans and overdrafts
Lease liabilities
Trade and other payables
Corporate bonds
Derivatives: net settled
Derivatives: gross settled
Cash inflows
Cash outflows
Total cash flows
Less than
1 year
£m
73.7
214.0
420.3
46.8
754.8
(6.4)
(881.6)
905.6
772.4
Less than
1 year
£m
377.3
239.5
425.5
39.3
1,081.6
(6.0)
(885.5)
878.6
1,068.7
1 to 2
years
£m
–
199.9
12.7
371.8
584.4
(6.8)
–
–
577.6
1 to 2
years
£m
–
209.5
7.5
39.3
256.3
(5.7)
–
–
250.6
2 to 5
years
£m
–
457.9
–
87.9
545.8
(16.8)
–
–
529.0
2 to 5
years
£m
–
483.8
–
407.9
891.7
(13.6)
–
–
878.1
Over
5 years
£m
–
694.0
–
872.9
1,566.9
(11.0)
–
–
1,555.9
Over
5 years
£m
–
752.4
–
637.2
1,389.6
(11.1)
–
–
1,378.5
Total
£m
73.7
1,565.8
433.0
1,379.4
3,451.9
(41.0)
(881.6)
905.6
3,434.9
Total
£m
377.3
1,685.2
433.0
1,123.7
3,619.2
(36.4)
(885.5)
878.6
3,575.9
At 25 January 2020, the Group had borrowing facilities of £450.0m (2019: £625.0m) committed until November 2024, in respect of which all
conditions precedent have been met. £40.0m of the facility was drawn down at January 2020 (2019: £255.0m).
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 19.
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.
179
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
28. Financial Instruments:
Financial Risk Management and Hedging Activities
Effect of IBOR reform
Following the financial crisis, the reform and replacement of benchmark interest rates such as GBP LIBOR and other interbank offered rates
(‘IBORs’) has become a priority for global regulators. There is currently uncertainty around the timing and precise nature of these changes.
The Group’s most significant risk exposure affected by these changes relates to its corporate bonds. The notional amount of interest rates swaps
designated within fair value hedges relating to LIBOR is disclosed below.
(continued)
In calculating the change in fair value attributable to the hedged risk for the fixed-rate bond, the Group has assumed that pre-existing fallback
provisions in the corporate bonds do not apply to IBOR reform and that no other changes to the terms of the hedged items or hedging instruments
are anticipated.
The hedge ineffectiveness can arise from:
• Different interest rate curve applied to discount the hedged item and the hedging instrument
• 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
2020
£m
40.6
2019
£m
32.3
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 25 January 2020
Nominal amount (£m)
Average price
At 26 January 2019
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
48.4 Other financial assets
(7.8) Other financial liabilities
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
6.8
1.5
425.0
150.0
41.5 Other financial assets
(9.2) Other financial liabilities
(6.1)
3.0
At 25 January 2020
Interest rate swaps – assets
Interest rate swaps – liabilities
At 26 January 2019
Interest rate swaps – assets
Interest rate swaps – liabilities
* The carrying amount of derivatives includes £1.9m of interest accrual (2019: £1.9m).
180
28. Financial Instruments:
Financial Risk Management and Hedging Activities
Effect of IBOR reform
The impact of the hedged items on the Balance Sheet is as follows:
(continued)
(continued)
Carrying amount
£m
275.0
Accumulated fair
value adjustments
£m Line item in the Balance Sheet
38.8
Corporate bonds
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
8.5
275.0
30.2
Corporate bonds
3.3
At 25 January 2020
Fixed-rate borrowings
At 26 January 2019
Fixed-rate borrowings
The ineffectiveness recognised in the Income Statement for the period ended 25 January 2020 was a loss of £0.2m (2019: gain of £0.2m).
Foreign currency risk
The Group’s principal foreign currency exposures arise from the purchase of overseas sourced products. Group policy allows for these
exposures to be hedged for up to 24 months ahead in order to fix the cost in Sterling. This hedging activity involves the use of spot, forward and
option contracts.
The market value of outstanding foreign exchange contracts is reported regularly at Board level, and reviewed in conjunction with percentage
cover taken by season and current market conditions in order to assess and manage the Group’s ongoing exposure.
The Group does not have a material exposure to currency movements in relation to the translation of overseas investments and consequently
does not hedge any such exposure. The Group’s net exposure to foreign currencies, taking hedging activities into account, is illustrated by the
sensitivity analysis in Note 29.
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
2020
£m
(29.0)
(1.9)
(30.9)
2019
£m
0.9
(0.4)
0.5
181
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
28. Financial Instruments:
Financial Risk Management and Hedging Activities
Foreign currency hedges
Derivatives designated in hedging relationships at 25 January 2020:
(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
* 6 currencies are hedged, which are individually not material to the financial statements.
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
(continued)
Maturity
1–6 months 6–12 months
236.8
1.25
497.8
1.26
More than
one year
–
–
53.4
1.17
52.2
–
–
1.8
Various currencies*
–
–
–
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*
Total
734.6
1.26
53.4
1.17
54.0
Total
844.4
1.32
9.7
1.12
47.0
* 4 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
167.4
1,095.7
Carrying amount
£m Line item in the Balance Sheet
1.7 Other financial assets
(32.6) Other financial liabilities
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
35.4
(24.9)
368.4
515.0
9.9 Other financial assets
(9.4) Other financial liabilities
53.6
20.1
At 25 January 2020
Foreign exchange contracts
Foreign exchange contracts
At 26 January 2019
Foreign exchange contracts
Foreign exchange contracts
182
Closing cash
flow hedge
reserve
£m
1.2
(0.7)
Closing cost
of hedging
reserve
£m
–
0.5
Amount
reclassified
from OCI to
the Income
Statement
£m
(0.1)
–
Line item in
the Income
Statement
Revenue
–
28. Financial Instruments:
Financial Risk Management and Hedging Activities
Foreign currency hedges
The impact of the hedged items on the Balance sheet is as follows:
(continued)
25 January 2020
(continued)
26 January 2019
Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
(1.0)
11.5
Closing cash
flow hedge
reserve
£m
(1.1)
(28.9)
Closing cost
of hedging
reserve
£m
–
0.1
Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
1.2
72.5
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:
Ineffectiveness
recognised in
Income
Statement
£m
–
–
Recycled to
cost of
inventories
£m
–
(40.4)
Cost of
hedging
recognised in
OCI
£m
–
–
Year ended 25 January 2020
Highly probable forecast sales
Highly probable forecast stock purchases
Year ended 26 January 2019
Highly probable forecast sales
Highly probable forecast stock purchases
–
–
–
(20.3)
–
0.5
0.7
–
Revenue
–
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 £1,260.0m at the reporting date (2019: £1,230.5m). These are detailed in Note 13.
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 creditworthiness 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
2020 there were 2.64m active customers (2019: 2.58m) with an average balance of £532 (2019: £533). The Group’s outstanding receivables
balances and impairment losses are detailed in Note 13. 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 a value of £26.8m at January 2020 (2019: £23.5m) were on Reduced Payment Indicator (RPI) plans. An allowance
for Expected Credit Losses (ECLs) of £18.0m (2019: £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 customer indebtedness would otherwise suggest. Any modification gain or loss recognised
is immaterial to the financial statements.
The Group uses Experian Delphi for Customer Management which provides a suite of characteristics and scores to monitor the credit behaviour
of new and existing customers. The principal score for making risk decisions around credit limit changes, and monitoring the risk of associated
sales, is the Account and Arrears Management (“AAM”) score. The principal measure to assess a customer’s ability to afford repayments, and our
allowance for expected credit losses under IFRS 9, is the Consumer Indebtedness Index (“CII”). The CII is a score within the range of 1 to 99.
A lower CII score is representative of a lower level of risk associated with the debt (i.e. a lower CII score indicates the customer has a greater
ability to afford repayments).
183
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
28. Financial Instruments:
Financial Risk Management and Hedging Activities
Credit risk
The following table contains an analysis of customer and other receivables segmented by CII score. For the purpose of this analysis trade
receivables are recognised in Risk band 1.
(continued)
(continued)
Risk exposure determined by CII score
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
Gross carrying amount before credit impaired
Credit impaired
Gross carrying amount after credit impaired
Loss allowance
Carrying amount
Analysis of customer receivables and other trade receivables, stratified by credit grade, is as follows:
2020
Total
£m
648.8
355.3
239.3
100.8
1,344.2
87.8
1,432.0
(172.0)
1,260.0
1–30
days past
due
£m
Current
£m
631.3
333.9
212.5
67.8
–
1,245.5
2020
Customer receivables and other trade receivables
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
Otherwise impaired
Total
Loss allowance
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
Otherwise impaired
Total
Expected loss rate %
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
Otherwise impaired
Total
0.6%
3.4%
10.8%
22.3%
–
4.3%
(3.9)
(11.4)
(23.0)
(15.2)
–
(53.5)
13.6
12.9
13.6
8.6
–
48.7
(0.2)
(1.0)
(2.2)
(2.8)
–
(6.2)
1.8%
7.4%
16.4%
32.4%
–
12.7%
31–60
days past
due
£m
61–90
days past
due
£m
91–120
days past
due
£m
> 120
days past
due
£m
Payment
plans
£m
0.8
1.7
2.8
3.5
–
8.8
(0.1)
(0.5)
(1.3)
(2.4)
–
(4.3)
14.9%
32.0%
46.5%
68.1%
–
49.6%
0.2
0.5
1.5
2.7
–
4.9
(0.1)
(0.2)
(1.0)
(2.0)
–
(3.3)
20.5%
51.2%
62.1%
73.7%
–
66.9%
–
0.2
1.0
2.7
–
3.9
–
(0.1)
(0.6)
(2.1)
–
(2.8)
–
53.3%
62.4%
80.7%
–
74.1%
0.1
0.4
0.8
4.3
87.8
93.4
(0.1)
(0.3)
(0.6)
(3.2)
(79.7)
(83.9)
34.2%
66.7%
75.8%
74.2%
90.8%
89.8%
2.8
5.7
7.1
11.2
–
26.8
(1.2)
(3.0)
(4.4)
(9.4)
–
(18.0)
42.7%
52.7%
61.7%
84.2%
–
67.1%
2019
Total
£m
612.7
354.5
246.1
104.2
1,317.5
79.0
1,396.5
(166.0)
1,230.5
Total
£m
648.8
355.3
239.3
100.8
87.8
1,432.0
(5.6)
(16.5)
(33.1)
(37.1)
(79.7)
(172.0)
0.9%
4.7%
13.8%
36.8%
90.8%
12.0%
184
28. Financial Instruments:
Financial Risk Management and Hedging Activities
Credit risk
(continued)
1–30
days past
due
£m
Current
£m
595.2
334.3
219.0
69.5
–
1,218.0
2019
Customer receivables and other trade receivables
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
Otherwise impaired
Total
Loss allowance
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
Otherwise impaired
Total
Expected loss rate %
Risk band 1 (CII<=10)
Risk band 2 (10>CII=<20)
Risk band 3 (20>CII=<47)
Risk band 4 (47>CII)
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%
31–60
days past
due
£m
61–90
days past
due
£m
91–120
days past
due
£m
(continued)
> 120
days past
due
£m
Payment
plans
£m
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%
0.4
0.3
0.6
2.9
79.0
83.2
(0.1)
(0.2)
(0.4)
(2.1)
(73.4)
(76.2)
22.6%
66.2%
63.6%
71.9%
92.9%
91.5%
2.1
4.7
6.6
10.1
–
23.5
(1.1)
(2.8)
(4.6)
(9.4)
–
(17.9)
51.6%
60.9%
69.9%
92.6%
–
76.2%
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%
Customer receivables and other trade receivables have been represented to separately identify those customers under RPI plans as the directors
do not regard these customers as being overdue.
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 (2019: £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 30, 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.
185
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
29. 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
2020
£m
(1.4)
1.4
2019
£m
(2.6)
2.6
2020
£m
(1.4)
1.4
2019
£m
(2.6)
2.6
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
2020
£m
(4.2)
–
2.1
–
2019
£m
(0.8)
–
(1.1)
–
2020
£m
(47.3)
(1.6)
58.2
1.9
2019
£m
(49.1)
0.6
54.7
(0.7)
Year-end exchange rates applied in the above analysis are US Dollar 1.31 (2019: 1.32) and Euro 1.19 (2019: 1.15). 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.
186
30. Analysis of Net Debt
Cash and short term deposits
Overdrafts and short term borrowings
Cash and cash equivalents
Unsecured committed bank loans
Corporate bonds
Fair value hedges of corporate bonds
Net debt excluding leases
Current lease liability
Non-current lease liability
Net debt including leases
January
2019
£m
156.3
(122.3)
34.0
(255.0)
(905.2)
30.4
(1,095.8)
(175.6)
(1,190.7)
(1,366.3)
(2,462.1)
Other non-cash charges
Cash flow
£m
Fair value
changes
£m
IFRS 16
£m
18.9
215.0
(250.2)
–
(16.3)
224.4
–
224.4
208.1
–
–
(8.3)
8.3
–
–
–
–
–
–
–
–
–
–
(221.1)
112.0
(109.1)
(109.1)
January
2020
£m
86.6
(33.7)
52.9
(40.0)
(1,163.7)
38.7
(1,112.1)
(172.3)
(1,078.7)
(1,251.0)
(2,363.1)
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
2020
£m
6.6
0.9
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
2020
£m
0.4
0.1
2.9
The loan of £2.9m 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).
2020
£m
(0.7)
–
2019
£m
7.0
0.5
2019
£m
0.7
0.5
2.5
2019
£m
(0.4)
–
187
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany 52 weeks to
25 January
2020
Excluding
IFRS 16
£m
4,266.2
(2,706.7)
1,559.5
(517.8)
(267.7)
(1.5)
772.5
(0.4)
772.1
0.2
(43.8)
728.5
(134.6)
593.9
52 weeks to
26 January
2019
Excluding
IFRS 16
£m
4,167.4
(2,693.2)
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
Adjustments
on
adoption of
IFRS 16
£m
–
81.0
81.0
0.8
–
–
81.8
–
81.8
–
(61.8)
20.0
(3.7)
16.3
Adjustments
on
adoption of
IFRS 16
£m
–
78.3
78.3
0.8
–
–
79.1
–
79.1
–
(68.4)
10.7
(2.0)
8.7
52 weeks to
25 January
2020
£m
4,266.2
(2,625.7)
1,640.5
(517.0)
(267.7)
(1.5)
854.3
(0.4)
853.9
0.2
(105.6)
748.5
(138.3)
610.2
52 weeks to
26 January
2019
Restated
£m
4,167.4
(2,614.9)
1,552.5
(457.5)
(255.4)
1.4
841.0
0.1
841.1
0.4
(107.9)
733.6
(134.5)
599.1
Notes
(i)
(i)
(v)
Notes
(i)
(i)
(v)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
32. IFRS 16 transition note
Impact on profit for the period
Total revenue
Cost of sales
Gross profit
Distribution costs
Administrative costs
Other losses
Trading profit
Share of results of associates and joint venture
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit attributable to equity holders
Impact on profit for the period
Total revenue
Cost of sales
Gross profit
Distribution costs
Administrative costs
Other gains
Trading profit
Share of results of associates and joint venture
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit attributable to equity holders
188
32. IFRS 16 transition note
Impact on net assets and retained earnings as at 25 January 2020
(continued)
25 January
2020
£m
IFRS 16
Adjustment
£m
25 January
2020
£m
Notes
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use asset
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
Lease liabilities
Other financial liabilities
Current tax liabilities
Non-current liabilities
Corporate bonds
Provisions
Other financial liabilities
Lease liabilities
Other liabilities
Deferred tax liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
(ii)
(v)
(iv)
(iv)
(iii)
(iv)
(iii)
(iv)
578.5
44.2
–
5.0
133.4
48.4
17.5
827.0
527.6
1,367.9
24.2
1.7
86.6
2,008.0
2,835.0
(73.7)
(640.6)
–
(32.6)
(79.2)
(826.1)
(1,163.7)
(12.4)
(7.8)
–
(212.1)
–
(1,396.0)
(2,222.1)
612.9
612.9
–
–
852.7
–
–
–
38.2
890.9
–
(52.6)
–
–
–
(52.6)
838.3
–
48.6
(172.3)
–
–
(123.7)
–
(4.9)
–
(1,078.7)
197.6
–
(886.0)
(1,009.7)
(171.4)
(171.4)
578.5
44.2
852.7
5.0
133.4
48.4
55.7
1,717.9
527.6
1,315.3
24.2
1.7
86.6
1,955.4
3,673.3
(73.7)
(592.0)
(172.3)
(32.6)
(79.2)
(949.8)
(1,163.7)
(17.3)
(7.8)
(1,078.7)
(14.5)
–
(2,282.0)
(3,231.8)
441.5
441.5
189
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
32. IFRS 16 transition note
Impact on net assets and retained earnings as at 26 January 2019
(continued)
26 January
2019
£m
IFRS 16
Adjustment
£m
Notes
26 January
2019
Restated
£m
(ii)
(v)
(iv)
(iv)
(iii)
(iv)
(iii)
(iv)
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
–
–
943.8
–
–
–
41.9
985.7
–
(54.4)
–
–
–
(54.4)
931.3
–
44.4
(175.6)
–
–
(131.2)
–
(5.4)
–
(1,190.7)
208.4
–
(987.7)
(1,118.9)
(187.6)
(187.6)
564.9
42.6
943.8
5.1
125.0
41.5
41.9
1,764.8
502.8
1,285.4
23.4
9.9
156.3
1,977.8
3,742.6
(377.3)
(596.3)
(175.6)
(9.4)
(85.1)
(1,243.7)
(905.2)
(15.7)
(9.2)
(1,190.7)
(9.1)
(2.8)
(2,132.7)
(3,376.4)
366.2
366.2
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use asset
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
Lease liabilities
Other financial liabilities
Current tax liabilities
Non-current liabilities
Corporate bonds
Provisions
Other financial liabilities
Lease liabilities
Other liabilities
Deferred tax liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
190
32. IFRS 16 transition note
Impact on net assets and retained earnings as at 27 January 2018
(continued)
27 January
2018
£m
IFRS 16
Adjustment
£m
Notes
27 January
2018
Restated
£m
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use asset
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
Lease liabilities
Other financial liabilities
Current tax liabilities
Non-current liabilities
Corporate bonds
Provisions
Other financial liabilities
Lease liabilities
Other liabilities
Total liabilities
NET ASSETS
TOTAL EQUITY
(ii)
(v)
(iv)
(iv)
(iii)
(iv)
(iii)
(iv)
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
–
–
948.9
–
–
–
44.0
992.9
–
(55.7)
–
–
–
(55.7)
937.2
–
39.9
(165.8)
–
–
(125.9)
–
(6.7)
–
(1,213.8)
212.9
(1,007.6)
(1,133.5)
(196.3)
(196.3)
558.9
42.9
948.9
2.1
106.2
48.1
49.8
1,756.9
466.7
1,192.5
23.4
5.7
53.5
1,741.8
3,498.7
(180.0)
(540.3)
(165.8)
(59.3)
(95.3)
(1,040.7)
(908.5)
(17.1)
(12.4)
(1,213.8)
(19.9)
(2,171.7)
(3,212.4)
286.3
286.3
191
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
32. IFRS 16 transition note
(i)
Income Statement
Under the previous accounting standard for leases, IAS 17, lease costs were recognised on a straight line basis over the term of the lease.
The Group recognised these costs within cost of sales and distribution costs.
(continued)
On adoption of IFRS 16 these costs have been removed and replaced with costs calculated on an IFRS 16 basis. The impact of removing these
costs on the January 2020 Income Statement was £222.1m (2019: £217.1m).
Under IFRS 16 the right-of-use asset is depreciated over the lease term. The Group has recognised the depreciation costs on the right-of-use
asset in cost of sales. The impact of this adjustment in the January 2020 Income Statement was £140.3m (2019: £138.0m).
The costs under IAS 17 were higher than the depreciation costs recognised under IFRS 16 which has resulted in a net credit under IFRS 16 to
cost of sales and distribution costs. The net impact of this adjustment in the January 2020 Income Statement was £81.8m (2019: £79.1m).
Under IFRS 16 finance costs are charged on the lease liability recognised. These costs are recognised within finance costs. The impact of this
adjustment on the January 2020 Income Statement was £61.8m (2019: £68.4m).
The net impact of the above adjustments to the January 2020 profit before tax was £20.0m (2019: £10.7m).
(ii) Right-of-use asset
IFRS 16 has resulted in the recognition of a right-of-use asset. This asset represents the Group’s contractual right to access an identified asset
under the terms of the lease contract.
(iii) Lease liability
IFRS 16 has resulted in the recognition of a lease liability. This liability represents the Group’s contractual obligation to minimum lease
payments during the lease term.
The element of the liability payable in the next 12 months is recognised as a current liability with the balance recognised in non-
current liabilities.
(iv) Working capital
Under IAS 17 certain lease incentives, rent prepayments, accruals and similar amounts were held on the balance sheet as part of working
capital. Such balances are no longer recognised as all payments, lease incentives and related costs are reflected in either the right-of-use
asset or the lease liability.
(v) Taxation
A deferred tax asset has been recognised on the transition to IFRS 16 representing the timing difference on the amounts taken to reserves.
The deferred tax asset created at the point of transition will unwind over the life of the leases held at the date of transition.
192
PARENT
COMPANY
FINANCIAL
STATEMENTS
194 Parent Company Balance Sheet
195 Parent Company Statement of Changes in Equity
196 Notes to the Parent Company Financial Statements
193
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany PARENT COMPANY BALANCE SHEET
Fixed assets
Investments
Other financial assets
Current assets
Other debtors
Corporation tax
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
25 January
2020
£m
26 January
2019
£m
Notes
C2
C3
C4
C5
C5
C6
C6
C6
C7
2,475.7
–
2,475.7
154.1
0.1
0.2
154.4
2,475.7
41.5
2,517.2
405.2
–
21.6
426.8
(502.2)
(347.8)
(508.6)
(81.8)
2,127.9
2,435.4
–
(502.2)
(914.4)
(1,423.0)
2,127.9
1,521.0
13.3
0.9
16.6
(284.8)
985.2
1,396.7
13.9
0.9
16.0
(271.6)
985.2
776.6
2,127.9
1,521.0
The profit for the year dealt with in the accounts of the Company is £1,134.6m (2019: £561.0m).
The financial statements were approved by the Board of directors and authorised for issue on 19 March 2020. They were signed on its behalf by:
Lord Wolfson of Aspley Guise
Chief Executive
Amanda James
Group Finance Director
194
PARENT COMPANY STATEMENT OF
CHANGES IN EQUITY
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
At 26 January 2019
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
14.5
–
–
–
(0.6)
–
–
–
–
13.9
–
–
–
(0.6)
–
–
–
–
Share
premium
account
£m
0.9
–
–
–
Capital
redemption
reserve
£m
15.4
–
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
–
0.6
–
–
–
–
16.0
–
–
–
0.6
–
–
–
–
ESOT
reserve
£m
(231.6)
–
–
–
Other
reserves
£m
985.2
–
–
–
Profit and
loss account
£m
748.3
561.0
–
561.0
Total
equity
£m
1,532.7
561.0
–
561.0
–
–
(324.2)
(324.2)
(61.9)
21.9
–
–
(271.6)
–
–
–
–
(94.1)
80.9
–
–
–
–
–
–
985.2
–
–
–
–
–
–
–
–
–
(6.6)
13.8
(215.7)
776.6
1,134.6
–
1,134.6
(61.9)
15.3
13.8
(215.7)
1,521.0
1,134.6
–
1,134.6
(300.2)
(300.2)
–
(15.4)
14.7
(213.6)
(94.1)
65.5
14.7
(213.6)
At 25 January 2020
13.3
0.9
16.6
(284.8)
985.2
1,396.7
2,127.9
195
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 137 to
148. 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.
C2. Investments
The £2,475.7m (2019: £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
Marie Claire Beauty Limited
Next (Asia) Limited
Next Sourcing Limited Shanghai Office
Next AV s.r.o.
Next Brand Limited
Next Distribution Limited
Next-E-NA Portugal, Unipessoal LDA
Next Europe & North Africa Morocco SARL
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
Registered office address
Desford Road, Enderby, Leicester, LE19 4AT, UK
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
Pinewood Court, Larkwood Way, Tytherington Business Park, Macclesfield, SK10 2XR
Desford Road, Enderby, Leicester, LE19 4AT, UK
7 Dolgorukovskaya Street, 127006, Moscow, Russian Federation
Desford Road, Enderby, Leicester, LE19 4AT, UK
14/F Cityplaza 1, 1111 King’s Road, Taikoo Shing, Quarry Bay, Hong Kong
Suites 2501–02, 25F Lippo Plaza, 222 Huai Hai Middle Road, Shanghai, China
Pribinova 8, 811 09, Bratislava, Slovakia
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
R. dos Transitários 182 RCH, 4455–565 Matosinhos, Portugal
Jean Jaures SARL, 49 rue Jean Jaurès, Quartier Gauthier, 6ème étage, Apt N° 12, Casablanca, Morocco
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
Next Sourcing Services (India) Private Limited
Next Sourcing VM Limited
Next Sweden AB
Next Commercial Trading (Shanghai) Co Limited 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
NSL Limited
Desford Road, Enderby, Leicester, LE19 4AT, UK
Project Norwich Limited
McSwiney, Semple, Hankin-Birke & Wood PC, PO Box 2450, 280 Main Street, New London, NH 03257, USA
Perimeter Technology Inc.
Desford Road, Enderby, Leicester, LE19 4AT, UK
Retail Restaurants Limited
The Next Directory Limited
The Paige Group Limited
Ventura Group Limited
Ventura Network Distribution Limited
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
196
% 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
100
100
100
50
100
100
100
100
C3. Other Financial Assets
Other financial assets comprise interest rate derivatives as detailed in Note 14 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
Accruals and other creditors
2020
£m
154.1
–
–
154.1
2019
£m
400.0
0.4
4.8
405.2
2020
2019
Current
£m
–
–
–
502.1
–
0.1
502.2
Non-current
£m
–
–
–
–
–
–
–
Current
£m
–
255.0
37.0
192.6
1.0
23.0
508.6
Non-current
£m
905.2
–
–
–
–
9.2
914.4
Further information on the Company’s corporate bonds is given in Note 19. Other financial liabilities include interest rate swaps carried at fair
value (refer to Note 18).
During the prior year, 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.
C6. Share Capital, ESOT and Other Reserves
Details of the Company’s share capital and share buybacks are given in Note 22. ESOT transactions are detailed in Note 25. Other reserves in the
Company Balance Sheet of £985.2m (2019: £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 £284.8m (2019: £271.6m). At January 2020,
therefore, the amount available for distribution by reference to these accounts is £1,111.9m (2019: £505.0m). 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.
197
Strategic ReportGovernanceFinancial StatementsShareholder InformationGroupCompany SHAREHOLDER
INFORMATION
199 Half Year and Segment Analysis
200 Five Year History
201 Glossary
204 Notice of Meeting
216 Other Shareholder Information
198
HALF YEAR AND SEGMENT ANALYSIS (UNAUDITED)1
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 Finance2
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment profit
Recharge of interest2
Other activities
Net finance costs
Profit before tax excluding IFRS 16
IFRS 16
Profit before tax including IFRS 16
First
half
£m
Second
half
£m
52 weeks to
Jan 2020
£m
874.3
1,004.9
134.0
28.9
3.4
5.9
7.4
2,058.8
56.0
177.1
75.8
3.1
16.9
5.7
0.2
334.8
17.8
(11.7)
(21.3)
319.6
7.8
327.4
977.6
1,141.7
134.7
27.9
6.1
7.2
7.8
2,303.0
107.9
222.5
70.9
3.1
15.1
7.3
(2.4)
424.4
18.5
(11.7)
(22.3)
408.9
12.2
421.1
1,851.9
2,146.6
268.7
56.9
9.5
13.1
15.2
4,361.8
163.9
399.6
146.7
6.2
32.0
13.0
(2.2)
759.2
36.3
(23.4)
(43.6)
728.5
20.0
748.4
First
half
£m
925.1
892.3
122.0
30.9
2.9
7.8
5.2
1,986.2
73.2
163.3
60.9
3.0
14.8
3.6
4.4
323.2
16.8
(9.5)
(19.4)
311.1
3.8
314.9
Second
half
£m
1,030.0
1,026.5
128.3
31.3
4.0
7.3
7.3
2,234.7
139.1
189.3
66.4
3.2
14.8
7.4
2.3
422.5
17.2
(8.2)
(19.7)
411.8
6.9
418.7
52 weeks to
Jan 2019
Restated2
£m
1,955.1
1,918.8
250.3
62.2
6.9
15.1
12.5
4,220.9
212.3
352.6
127.3
6.2
29.6
11.0
6.7
745.7
34.0
(17.7)
(39.1)
722.9
10.7
733.6
1. As defined in Note 1 to the Consolidated Financial Statements.
2. Refer to the note on change in prior year comparatives on page 149.
199
Strategic ReportGovernanceFinancial StatementsShareholder Information FIVE YEAR HISTORY (UNAUDITED)
Excluding IFRS 16
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)
Taxation
Profit after taxation
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
4,361.8
4,266.2
4,220.9
4,167.4
4,117.5
4,090.7
4,136.8
4,097.3
4,213.7
4,176.9
772.1
(43.6)
728.5
–
(134.6)
593.9
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
Total equity
612.9
553.8
482.6
510.5
311.8
Shares purchased for cancellation
5.4m
6.3m
2.2m
3.6m
2.2m
158.0p
180.0p
416.7p
416.7p
158.0p
–
441.3p
441.3p
158.0p
240.0p
442.5p
450.5p
Dividends per share – ordinary
– special
Basic Earnings Per Share
Underlying (52 weeks)
Total
IFRS 16 basis
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
174.0p
–
459.8p
459.8p
2020
£m
4,361.8
4,266.2
853.9
(105.4)
748.5
–
–
(138.3)
610.2
165.0p
–
435.3p
435.3p
2019
£m
4,220.9
4,167.4
841.1
(107.5)
733.6
–
–
(134.5)
599.1
Total equity
441.5
366.2
Shares purchased for cancellation
5.4m
6.3m
Dividends per share – ordinary
174.0p
165.0p
Basic Earnings Per Share
Underlying (52 weeks)
Total
472.4p
472.4p
441.7p
441.7p
1. Underlying is shown pre-exceptional items.
2. As defined in Note 1 to the Consolidated Financial Statements.
200
GLOSSARY
Alternative Performance Measures (APMs)
APM Definition
Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
Those customers who have purchased products using
Average active customers
their Online account, or received a standard account
statement in the last 20 weeks. Customers can be
either Online credit or cash customers.
The average amount of money owed by all nextpay
Average debtor balance
and next3step customers less any provision for bad
debt. This represents the total balances we expect to
recover averaged across the relevant period.
None
None
Active customers have a strong correlation with interest
income on the Finance P&L and helps drive understanding on
movements in income.
Reconciliation
not applicable.
to closest equivalent statutory measure
Average debtor balance has a strong correlation with interest
income on the Finance P&L and helps drive understanding on
movements in income. It also helps to evaluate the overall health
of the balance sheet for the Finance business.
The average debtor balance
in FY20 was £1,185m.
The statutory accounts do not disclose the monthly debtor
balance but they do disclose the year-end balance in Note 13 to
the financial statements.
The charge taken in relation to the performance of our
Bad debt charge
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.
Difference between the cost of stock and initial
Bought-in gross margin
selling price, expressed as a percentage of achieved
total VAT exclusive selling prices.
Retail store total sales less cost of sales, payroll,
Branch profitability
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.
Interest is charged to the NEXT Finance business
Cost of funding
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.
VAT exclusive sales from Online credit customers
Credit sales
who have purchased using their online account,
income charges and
inclusive of any
delivery charges, and after deducting any applicable
promotional discounts.
interest
Impairment losses Measurement of the quality of the online debtor book. A lower
bad debt charge indicates that the quality and recoverability of
the balance is higher.
None
None
The bad debt charge is the total of the in-year impairment
charge, less amounts recovered. This is presented in Note 13
of the Financial Statements.
Bought-in gross margin is a measure of the profit made on the
sale of stock at full price. This is a key internal management
metric for assessing category performance.
Reconciliation
not applicable.
to closest equivalent statutory measure
Measurement of the Retail business profit by physical branch.
Provides an indication of the performance of the store portfolio.
Reconciliation to closest equivalent statutory measure
not applicable.
None
Required to evaluate the underlying profitability of the
Finance business.
There is no statutory equivalent as this is a metric specific to how
the Group manages its funding and cost allocations.
However the closest measure would be to take external interest,
excluding lease interest, per Note 5 of the Financial Statements,
and multiply this by 85%.
Note 5 interest cost excluding leases is £43.8m, 85% of which is
£37.2m. Actual cost of funding £36.3m (disclosed in Note 1).
None
Credit sales are a direct indicator of the performance and
profitability of the Finance business.
Reconciliation
not applicable.
to closest equivalent statutory measure
201
Strategic ReportGovernanceFinancial StatementsShareholder Information GLOSSARY
Alternative Performance Measures (APMs)
APM Definition
Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
Divisional profit before interest and tax, excluding
Divisional operating profit
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) excluding
The level of growth in EPS provides a suitable measure
IFRS 16
of the financial health of the Group and its ability to
deliver returns to shareholders. Refer to Note 8 of the
financial statements.
Total sales excluding items sold in our mid-season,
Full price sales
end-of-season or Black Friday Sale events and our
Clearance operations and includes interest income
relating to those sales.
The gross interest billed to nextpay and next3step
Interest income
customers, before any deduction for unpaid interest
on bad debt.
Change in sales from Retail stores which have been
Like-for-like sales
open for at least one full year.
None
Segment profit
A direct indicator of the performance of each division making up
the total Group operating profit. A commonly used metric that
provides a useful method of performance comparison across
the Group.
The divisional operating profits are the same as the Segment
profits presented in Note 1 of the Financial Statements. They do
not include the impact of IFRS 16.
Earnings per share
(including IFRS 16)
A measure of the financial health of the Group and its ability to
deliver returns to shareholders. A commonly used metric that
can be used to compare performance to other businesses.
To reconcile the EPS excluding IFRS 16 to the statutory EPS the
impact of IFRS 16 on the profit after taxation must be included in
the Earnings part of the EPS calculation.
Note 8 of the Financial Statements presents both EPS excluding
IFRS 16 and EPS including IFRS 16.
Revenue – sale
of goods
Full price sales are a direct indicator of the performance and
profitability of the business.
Revenue – credit
account interest
Interest income is a direct indicator of the performance and
profitability of the Finance business.
This is presented on the face of the Income Statement and note
1 of the Financial Statements.
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.
Reconciliation
not applicable.
to closest equivalent statutory measure
Statutory net debt
This measure is a good indication of the strength of the
Group’s balance sheet position and is widely used by credit
rating agencies.
Comprises cash and cash equivalents, bank loans,
Net debt
corporate bonds, fair value hedges of corporate
bonds but excludes lease debt.
Net debt is a measure of the Group’s indebtedness.
Profit after deducting markdowns and all direct and
Net operating margin
indirect trading costs, expressed as a percentage of
achieved total sales.
None
As used in the Annual Report this excludes the debt on leases
unless otherwise stated.
Net debt is reconciled to statutory net debt (which includes
leases) in Note 30 of the Financial Statements.
A measure of the profitability of the Group. A commonly
used metric that can be used to compare performance to
other businesses.
Net margin measures whether profitability is changing at a
higher or lower rate relative to revenue.
The profit, including interest income and the bad debt
Net profit (NEXT Finance)
charge, and after the allocation of central overheads
and the cost of funding.
The Net profit for the Finance Business is presented in Note 1
to the financial statements. It does not include the impact of
IFRS 16.
Profit before tax
A measure of direct profitability of the Finance business.
202
APM Definition
Return on Capital Employed – ROCE
The NEXT Finance net profit (after the interest charge
(NEXT Finance)
relating to the cost of funding), divided by the average
debtor balance.
Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
None
A commonly used metric that can be used to compare
performance to other financial businesses.
It measures the profit (ie return) relative to the amount of capital
employed. The higher the ROCE the greater the return for the
capital employed in the business.
The ROCE for NEXT Finance in the year to January 2020
was calculated by dividing the Operating profit for segment
of £146.7m by the average debt balance of £1,185m. As a
percentage this is 12.4% (2019: 11.2%).
The Operating profit for the segment is disclosed in Note 1 to the
financial statements.
Cash flow after capital expenditure, interest, tax and
Surplus cash
ordinary dividends but before financing any increase
in Online debtors.
None
A measure of the cash generated by the business after it has
funded its operations in the year.
It provides a useful metric of the potential funds generated in the
year that could be used to finance an increase in Online growth
or other investment activity. This is calculated by reference to
the statutory cash flow and Note 13 to the financial statements:
VAT exclusive full price and markdown sales including
Total sales
the full value of commission based sales and interest
income (as described and reconciled in Note 1 of the
financial statements).
Like-for-like sales, excluding stores impacted by
Underlying like-for-like sales
new openings. This is a measure of the annual
performance of stores taking into account the impact
of new store openings on existing stores.
Share
Underlying profit and Earnings Per
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.
Cash generated from operations:
Cash from investing activities:
Lease repayment:
Interest paid:
Dividends:
ESOT:
+85% of debt book (Note 13):
Surplus cash:
£m
927.2
(139.1)
(162.6)
(100.9)
(213.6)
(27.3)
23.0
306.7
Revenue – sale of
goods
Total sales are a direct indicator of the performance and
profitability of the business.
Total sales are reconciled to Statutory sales in Note 1 to the
Financial Statements.
None
None
This metric enables the performance of the Retail stores to
be measured on a consistent year-on-year basis, without
distortion from new openings, and is a common term used in
the retail industry.
This metric enables the profitability of the Group and its ability
to return funds to shareholders to be evaluated consistently year
on year, and against other businesses.
EPS is disclosed in Note 8 of the Financial Statements. The group
has not incurred any exceptional items in either the year January
2020 or the year to January 2019.
However, as used in the CEO report, underlying profit and EPS
exclude the impact of IFRS 16, Leases.
To reconcile the underlying EPS to the statutory EPS the impact
of IFRS 16 on the profit after taxation must be included in the
Earnings part of the EPS calculation.
Note 8 of the Financial Statements presents both EPS excluding
IFRS 16 and EPS including IFRS 16.
203
Strategic ReportGovernanceFinancial StatementsShareholder Information NOTICE OF MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR
IMMEDIATE ATTENTION.
3
To approve the Directors’ Remuneration Report (excluding the
Directors’ Remuneration Policy) set out on pages 96 to 121.
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 registered office of Next plc, Desford Road, Enderby,
Leicester LE19 4AT on Thursday 14 May 2020 at 9.30 am.
Potential impact of Coronavirus (COVID-19) on the AGM
The Company is closely monitoring developments relating to the
current outbreak of COVID-19, including the related public health
guidance and legislation issued by the UK Government. At the time of
publication of this Notice, the UK Government has prohibited public
gatherings of more than two people and non-essential travel, save in
certain limited circumstances.
In light of these measures, the AGM this year will be run as a closed
meeting and shareholders will not be able to attend in person.
The Company will make arrangements such that the legal requirements
to hold the meeting can be satisfied through the attendance of a
minimum number of people and the format of the meeting will be
purely functional.
Shareholders are therefore strongly encouraged to submit a proxy vote
in advance of the meeting. Details on how to submit your proxy vote by
post, online or through CREST are set out on pages 214 and 215 of this
Notice. Given the current restrictions on attendance, shareholders are
encouraged to appoint the Chairman of the Meeting as their proxy rather
than a named person who will not be permitted to attend the meeting.
Shareholders may submit queries on resolutions to be put to
the AGM using the form available on the Company’s website at
nextplc.co.uk/contact-us.
This situation is constantly evolving, and the UK Government may
change current restrictions or implement further measures relating to
the holding of general meetings during the affected period. Any changes
to the AGM (including any change to the location of the AGM) will
be communicated to shareholders before the meeting through
our website at nextplc.co.uk/investors/shareholder-information/
company-meetings and, where appropriate, by RIS announcement.
The following resolutions will be proposed at the AGM, resolutions
1 to 19 as ordinary resolutions and 20 to 26 as special resolutions.
Further information on these resolutions can be found in the
Appendix to this Notice.
1
2
To receive and adopt the accounts and reports of the directors and
auditor for the year ended 25 January 2020.
To approve the Directors’ Remuneration Policy, the full text of
which is contained in the Directors’ Remuneration Report and set
out on pages 100 to 110.
To re-elect the following directors who are seeking annual re-election
in accordance with the UK Corporate Governance Code:
4 Jonathan Bewes
5 Tristia Harrison
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 2021 AGM of
the Company.
14 To authorise the Audit Committee, on behalf of the Board, to
set the remuneration of the Company’s auditor in respect of
its appointment for the period ending at the conclusion of the
next AGM.
15 That the directors be authorised to amend the rules of the NEXT
Long Term Incentive Plan (LTIP) to reflect a change in the maximum
opportunity for participants, as explained on page 98.
16 Extension of Next Share Matching Plan
That the rules of the Next Share Matching Plan 2010 (the
“SMP”), produced in draft to this meeting (the terms of which
are summarised in Appendix 2 to this Notice of Meeting) and, for
the purposes of identification, initialled by the Chairman, be and
are hereby extended for a further ten years and the directors be
authorised to:
a.
do all acts and things which they may consider necessary or
expedient for the purposes of implementing and giving effect
to the SMP; and
b.
establish and/or extend further plans based on the SMP
but modified to take account of local tax, exchange control
or securities laws in overseas territories, provided that any
shares made available under such further plans are treated as
counting against the limits on individual or overall participation
in the SMP.
17 Extension of Next Sharesave Plan
That the rules of the Next Sharesave Plan 2010 (the “Sharesave”),
produced in draft to this meeting (the terms of which are
summarised in Appendix 3 to this Notice of Meeting) and, for
the purposes of identification, initialled by the Chairman, be and
are hereby extended for a further ten years and the directors be
authorised to:
a.
make such modifications to the Sharesave as they may
consider appropriate in order to qualify for tax-advantaged
status under Schedule 3 to the Income Tax (Earnings and
Pensions) Act 2003; and
204
b.
do all acts and things which they may consider necessary or
expedient for the purposes of implementing and giving effect
to the Sharesave.
20 General disapplication of pre-emption rights
That, subject to resolution 19 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 £664,000 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 14 August 2021; 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).
21 Additional disapplication of pre-emption rights
That, subject to resolutions 19 and 20 being passed:
a.
the directors be given the power to allot additional equity
securities for cash;
b.
the power under paragraph (a) above (other than in connection
with a rights issue) shall be:
i.
ii.
limited to the allotment of equity securities having a
nominal amount not exceeding in aggregate £664,000
representing 5% of the issued ordinary share capital; and
used only for the purposes of financing (or refinancing,
if the authority is to be used within six months after the
original transaction) a transaction which the directors
determine to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on
Disapplying Pre-emption Rights most recently published
by the Pre-Emption Group prior to the date of this notice;
c.
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 14 August 2021; and
d.
other than in respect of authorities granted pursuant to
resolution 20, 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).
c.
establishing and/or extending further plans based on the
Sharesave (including the 2009 Sharesave Plan (Republic of
Ireland)) but modified to take account of local tax, exchange
control or securities laws in overseas territories, provided
that any shares made available under such further plans are
treated as counting against the limits on individual or overall
participation in the Sharesave.
18 Extension of Next Management Share Option Plan
That the rules of the Next Management Share Option Plan 2014
(the “MSOP”), produced in draft to this meeting (the terms of which
are summarised in Appendix 4 to this Notice of Meeting) and, for
the purposes of identification, initialled by the Chairman, be and
are hereby extended for a further ten years and the directors be
authorised to:
a.
make such modifications to the MSOP as they may consider
appropriate in order to qualify for tax-advantaged status
under Schedule 4 to the Income Tax (Earnings and Pensions)
Act 2003; and
b.
do all acts and things which they may consider necessary or
expedient for the purposes of implementing and giving effect
to the MSOP; and
c.
establish and/or extend further plans based on the MSOP
but modified to take account of local tax, exchange control
or securities laws in overseas territories, provided that any
shares made available under such further plans are treated as
counting against the limits on individual or overall participation
in the MSOP.
19 Directors’ authority to allot shares
That:
a.
i.
ii.
the directors be authorised to allot equity securities (as defined
in Section 560 of the Companies Act 2006 (the “2006 Act”)) in
the Company:
up to a maximum nominal amount of £4,400,000 (as reduced
by any equity securities allotted under paragraph (a)(ii)
below); and
up to a maximum nominal amount of £8,800,000 (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 14 August 2021.
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).
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Strategic ReportGovernanceFinancial StatementsShareholder Information
NOTICE OF MEETING
22 On-market purchase of own shares
24 Increasing the Company’s borrowing powers
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 19,929,000 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 23 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;
That the Articles be amended by deleting the present article 67
(borrowing powers) and replacing it with a new article 67 in order
to increase the directors’ powers to incur borrowings from the
higher of £2bn or an amount equal to two times adjusted total
equity to the higher of £2.5bn or an amount equal to two times
adjusted total equity (as defined in the Articles) of the Company.
For these purposes borrowings do not include operational leases.
25 Routine amendments to the articles of association
That the articles of association produced to the meeting and signed
by the Chairman of the meeting for the purpose of identification,
are adopted as the articles of association of the Company in
substitution for, and to the exclusion of, the Company’s existing
articles of association.
26 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
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 14 August 2021;
Seonna Anderson
Company Secretary
Registered Office: Desford Road, Enderby, Leicester LE19 4AT
14 April 2020
e.
f.
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.
23 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, HSBC
Bank plc and Barclays Bank plc (the “Bank(s)”) (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 on pages 208 to 210.
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 14 August 2021 (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).
206
APPENDIX 1
Explanatory notes to resolutions
1 To receive and adopt the report and accounts
Shareholders are asked to receive and adopt the Strategic Report,
Directors’ Report, and the financial statements for the year ended
25 January 2020, together with the report of the auditor.
2 To approve the Directors’ Remuneration Policy
The Directors’ Remuneration Policy is being submitted for shareholder
approval as part of the normal three-year cycle. Minor changes are
proposed from the current Policy; details are set out on pages 97
to 110.
Subject to shareholder approval, the Policy, in the form set out on
pages 100 to 110 of the annual report for the year ended 25 January
2020, will be effective from the conclusion of this AGM.
3 To approve the Directors’
Remuneration Report
The Directors’ Remuneration Report sets out the pay and benefits
received by each of the directors for the year ended 25 January
2020 and is subject to an advisory vote by shareholders. The Report
(excluding the Directors’ Remuneration Policy) is set out on pages 96
to 121 of the annual report for the year ended 25 January 2020.
4–12 Directors
In accordance with the UK Corporate Governance Code 2018,
all directors will stand for re-election at this year’s AGM.
Directors’ biographies are set out on pages 80 and 81 of the annual
report and provide a summary of the range of skills, knowledge and
experience of each director.
Following a formal performance evaluation, the Chairman confirms
that each director has demonstrated that they continue to be an
effective and valuable member of the Board and that they remain
committed to their role (including making sufficient time available for
Board and Committee meetings and other duties).
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.
Francis Salway is the longest serving non-executive director, having
been appointed in June 2010. In our January 2019 Annual Report we
disclosed that Francis intended to step down from the Board at the
2020 AGM. During 2019, the Nomination Committee conducted an
external search process to appoint a replacement for Francis Salway
as non-executive director and Chair of the Remuneration Committee.
The role profile was aligned to the desired Board composition, taking
into account the Board’s skills matrix and diversity, and governance
principles for candidates to have at least 12 months’ experience on a
remuneration committee.
in this
We recognise that governance is an ethos rather than a tick box
increasingly complex governance arena,
exercise and,
occasionally we have to balance conflicting governance requirements.
Having considered feedback from
interviews with short-listed
candidates, and mindful of its responsibility to appoint on merit
suitably strong members to the Board, the Nomination Committee
has decided to recommence its search. To ensure that we continue to
have an appropriately independent Board, and to enable an orderly
handover once the right candidate has been found, the Board asked
Francis to stay on the Board for a further year until the 2021 AGM.
In doing so, the Committee took into account:
• the results of the Board performance evaluation, which confirmed
that Francis remained appropriately
independent and that
he continued to make a significant contribution to the Board,
particularly in his role as Remuneration Committee chairman
throughout the remuneration policy renewal process;
• the average tenure of the non-executive directors at four years,
with the newest non-executive director having been appointed in
September 2018. Therefore, the independence of the Board as a
whole was unlikely to be compromised by the extension of Francis’
term; and
• the importance of continuity and the value that experienced
Directors can bring to the Board and the Group.
The Board therefore recommends his re-election.
13 and 14 Appointment and remuneration
of auditor
On the recommendation of the Audit Committee, the Board
proposes that PwC be reappointed as auditor of the Company.
Resolution 14 proposes that the auditor’s remuneration be determined
by the Audit Committee.
15 NEXT Long Term Incentive Plan
Authority is being sought to amend the NEXT Long Term Incentive
Plan (LTIP) rules to reflect an increase in the maximum opportunity
to be awarded to participants under the LTIP from 200% to 225%.
This change is being introduced as part of the revised Directors’
Remuneration Policy and further details are set out on page 98.
16-18 Extension of Management
Share Option Plan, Share Matching Plan and
Sharesave Plan
Resolutions 16, 17 and 18 seek authority from shareholders to continue
to operate the MSOP, SMP and Sharesave for a period of ten years
from the 2020 AGM. Each plan is a revised and updated version of the
previous plan that has been operated by the Company for employees
for many years. In particular, each plan has been adapted so that it may
operate over new issue shares, treasury shares or shares purchased in
the market.
A summary of the principal terms of each share plan is set out in
Appendices 2, 3 and 4 to this Notice.
207
Strategic ReportGovernanceFinancial StatementsShareholder Information NOTICE OF MEETING
19 Renewal of the powers of directors to
allot shares
This ordinary resolution 19(a)(i) seeks authority to allow the directors to
allot ordinary shares up to a maximum nominal amount of £4,400,000,
representing approximately one third of the Company’s existing
issued share capital, excluding treasury shares, as at 18 March 2020.
In accordance with institutional guidelines, resolution 19(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 £8,800,000, representing approximately two thirds of the
Company’s existing issued share capital, excluding treasury shares, as at
that date. As at 18 March 2020 (being the latest practicable date prior
to publication of this document) the Company’s issued share capital
amounted to £13,294,928 comprising 132,949,276 ordinary shares of
10 pence each. No shares were 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 2021 or, if earlier, 14 August 2021.
20 and 21 Authority to disapply
pre-emption rights
In special resolution 20 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 £664,000, representing 5% of the issued ordinary
share capital of the Company as at 18 March 2020. This authority also
allows the directors, with-in the same aggregate limit, to sell for cash,
shares that may be held by the Company in treasury.
Special resolution 21 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 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 2021 or, if earlier,
14 August 2021.
22 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 18 March 2020,
NEXT has returned over £4.4bn to shareholders by way of share
buy-backs and over £3.8bn in dividends, of which £0.9bn 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.
208
Share buybacks have not been made at the expense of investment in
the business. Over the last five years, NEXT has invested over £680m in
capital expenditure to support and grow the business.
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 outstanding
employee share options and share awards are generally satisfied by
the transfer of market-purchased shares from the ESOT (refer to Note
25 to the financial statements).
The renewed authority will expire at the AGM in 2021 or, if earlier,
14 August 2021.
23 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 2019
AGM up to 18 March 2020.
• 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.
Special resolution 17, passed at the Company’s 2019 AGM, granted
authority to the Company to make on-market purchases of a maximum
number of 20,637,000 shares and expires on the earlier of the date of
the 2020 AGM or 16 August 2020. 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 2020 AGM or 16 August 2020. Pursuant to those
authorities and up to 18 March 2020, the Company has bought back
3,377,293 shares for cancellation, representing 2.5% of its issued
share capital as at the date of the 2019 AGM, at a total cost of £197m.
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. 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”).
In the absence of a Programme Agreement (as defined below), these
Closed Periods inevitably reduce the number of shares the Company
is able to purchase.
In order to achieve maximum flexibility in its share purchase activities,
the Company is 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.
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 23, 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
2021 and 14 August 2021 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.
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 2.3% of its issued share capital at 18 March 2020;
• 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 14 May 2020 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 2021 AGM or
on 14 August 2021, 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).
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A copy of each of the Programme Agreements will be available at the
AGM on 14 May 2020. 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 generally
be satisfied by the transfer of market-purchased shares from the ESOT
(refer to Note 25 to the financial statements).
The Programme Agreements will have a duration of the shorter of the
period to the date of the next AGM to be held in 2021 and 14 August
2021 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.
24 Increasing the Company’s
borrowing powers
Special resolution 24 proposes a change to the Company’s articles
of association in order to provide additional borrowing headroom,
in particular during the coronavirus outbreak. The current Article 67
(borrowing powers) of the articles will be amended by increasing the
numerical limit set at article 67(a) from £2bn to £2.5bn.
This will increase the directors’ powers to incur borrowings of the
Company from the higher of £2bn or an amount equal to two times
adjusted total equity to the higher of £2.5bn or an amount equal
to two times adjusted total equity (as defined in the articles) of the
Company. For the purpose of this limit borrowings do not include
operating leases.
25 Articles of association
Special resolution 25 proposes that the Company adopts new articles
of association, the principal changes of which are set out below.
The new articles showing all the proposed changes to the Company’s
existing articles are available for inspection, as noted on page 215 of
this document.
(ii) Unclaimed dividends
The proposed replacement for article 111 contains changes related to
(i) untraced shareholders in respect of unclaimed dividends or other
money payable on the shares of untraced members which are sold.
(iii) Hybrid meetings
The Company’s articles of association will be amended by deleting the
current articles 26 and 27 and replacing them with the new articles 26
and 27 in order to allow participation in general meetings by electronic
means, whilst retaining the need for a quorum to be present in person.
Consequential amendments are also proposed to current articles 32,
34, 37 and 38.
It is the Board’s belief that meetings offering shareholders a choice to
participate either in person or electronically offer a positive solution
both for those shareholders who are unable to attend in person and
for the Company, allowing meetings to be conducted in times where
physical participation may be prevented or restricted.
Nothing in the proposed articles authorises or allows a general meeting
of the Company to be held exclusively on an electronic basis.
(iv) Postponement of AGM
The Company’s articles of association will be amended by the insertion
of new article 37 in order to allow the Board to postpone or move
a general meeting to another date, time or place, to change the
electronic facility, or do any of these things.
In such an instance, notice of the date, time and place of the
rearranged meeting (or places in the case of a satellite meeting) would,
if practicable, also be placed on the Company’s website and notified by
way of an announcement to a Regulatory Information Service.
26 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
(i) Untraced shareholders
(ii) offers the facility for all shareholders to vote by electronic means.
By deleting the current articles 111, 125 and 126 and replacing them
with the new articles 112, 126 and 127, the Company will have more
flexibility in the methods it uses when tracing members, and in dealing
with the proceeds of share forfeiture.
The proposed replacements for article 125 and 126 will amend the
provisions of the existing articles of association relating to members
who are considered untraced after a period of 12 years. The new
articles replace the requirement to place notices in newspapers with
a requirement for us to take reasonable steps to trace the member
and let them know that we intend to sell their shares. This can include
engaging an asset reunification company or other tracing agent to
search for members who have not kept their details up to date, or
taking any other steps we consider appropriate. Members whose
shares are sold following this process will not be able to claim the
proceeds of sale and the Company can use these funds as the Board
thinks fit.
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 26 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 2020 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 as the directors intend to do in respect
of their own beneficial shareholdings.
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APPENDIX 2
Summary of the principal terms of the
Next Share Matching Plan (the “SMP”)
Operation
The Company’s Remuneration Committee will supervise the operation
of the SMP.
Leaving employment
Awards will vest following cessation of employment due to death
or in other circumstances at the discretion of the Remuneration
Committee. The extent of vesting will depend on: (i) the extent to
which the performance condition has been satisfied; and (ii) pro-
rating to reflect the reduced period from grant to vesting, (although
the Remuneration Committee need not pro-rate if it regards this as
inappropriate). Employees who resign will generally lose their rights
to an award.
Eligibility
Any employee (excluding an executive director) of the Company
and
its subsidiaries may participate at the discretion of the
Remuneration Committee.
Vesting in these circumstances will generally occur at the normal time.
However, the Remuneration Committee can decide that awards will
vest immediately on such cessation (in which case performance will be
measured over the period to cessation).
Grant of awards
Awards to acquire ordinary shares in the Company may be granted
within 6 weeks of: (i) shareholder approval of the SMP; (ii) the
Company’s announcement of its results for any period; or (iii) at any
other time when the Remuneration Committee considers there are
exceptional circumstances.
No awards may be granted under the SMP more than 10 years after the
date that the Company’s shareholders have most recently approved
the SMP.
Awards may be granted as conditional awards to acquire shares, as
nil (or nominal) cost options, normally exercisable between 3 and 10
years following grant, or as forfeitable shares. They may also be cash-
based awards of an equivalent value.
Awards will be made to individuals who invest part, or all, of the cash
element of their discretionary annual bonus in ordinary shares in Next
plc (“Investment Shares”). No other payment is required for an award.
After Investment Shares have been purchased, the Company will grant
awards over shares with a value of up to 200% of the pre-tax amount
used to buy Investment Shares. An award of up to 300% of that
amount may be made if considered appropriate but only following
consultation with major shareholders.
Awards are not transferable (except on death) and are not pensionable.
Performance condition
Vesting of awards will be subject to a performance condition set by the
Remuneration Committee.
The Remuneration Committee may vary an existing award’s
if an event occurs which causes the
performance condition
Remuneration Committee to consider a variation to be appropriate.
The varied condition must be fair and reasonable and not materially
less challenging than the original condition (but for the relevant event).
Vesting of awards
Awards normally vest 3 years after grant to the extent that the
performance condition has been satisfied, provided the Investment
Shares have been retained by the participant and they are still
employed in the Next group. If any Investment Shares are disposed
of by the participant before the vesting date, awards will lapse on a
pro-rata basis. Once vested, awards granted as options will normally
remain exercisable until the day before the 10th anniversary of
their grant.
Where an award granted as an option is exercisable following cessation
of employment, it will normally be exercisable for 12 months from
when it vests.
Corporate events
On a takeover (not being an internal reorganisation), or winding up of
the Company awards will vest early subject to: (i) the extent that the
performance condition has been satisfied; and (ii) pro-rating to reflect
the reduced period from grant to vesting (although the Remuneration
Committee can decide not to pro-rate award if it regards this
as inappropriate).
On an internal reorganisation, awards will be replaced by equivalent
in the new holding company unless the
awards over shares
Remuneration Committee decides that they should vest (on the same
basis as for a takeover).
If a demerger, special dividend or other similar event is proposed which,
in the Remuneration Committee’s opinion, would affect the market
price of shares to a material extent, the Remuneration Committee may
decide that awards will vest (as on a takeover).
Participants’ rights
Holders of awards of forfeitable shares will have shareholder rights
from when they are made except they may be required to waive their
dividend rights.
Other awards will not confer shareholder rights until participants have
received their shares. The Remuneration Committee may, however,
decide that participants will receive a payment (in cash and/or shares)
of an amount equivalent to the dividends that would have been paid
on the shares subject to the awards from when they were granted to
when shares are acquired. Alternatively, the awards may be increased
as if dividends were paid on the shares subject to the awards and then
reinvested in further shares.
Rights attaching to shares
Any shares allotted under the SMP will rank equally with other issued
shares (except where record date is prior to their allotment).
Adjustment of awards
On a variation of the Company’s share capital or on a demerger,
payment of a special dividend or similar event which materially
affects the market price of shares, the Remuneration Committee may
adjust the number of shares subject to an award and/or any exercise
price payable.
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Overall plan limits
The SMP may operate over new issue shares, treasury shares or shares
purchased in the market.
In any ten calendar years, the Company may not issue (or grant rights
to issue) more than:
(a) 10 per cent of its issued ordinary share capital under the SMP and
any other employee share plan; and
(b) 5 per cent of its issued ordinary share capital under the SMP and
any other executive share plan.
Treasury shares will count as new issue shares for these purposes
unless institutional investors decide that they need not count.
Alterations to the SMP
The Remuneration Committee may amend the SMP, although prior
shareholder approval is normally required for amendments to the
advantage of participants to the rules governing eligibility, limits on
participation, the overall limits on the issue of shares or the transfer of
treasury shares, the basis for determining a participant’s entitlement
to, and the terms of, the shares or cash to be acquired and the
adjustment of awards.
Such approval is not, however required for minor alterations to benefit
administration of the SMP, to take account of a change in legislation or
to obtain or maintain favourable tax, exchange control or regulatory
treatment for participants or for any company in the Company’s group
and any performance condition.
Overseas sub-plans
The shareholders’ resolution to approve the SMP will allow the
Board to establish further plans for overseas territories. Such plans
will be similar to the SMP, but modified to take account of local tax,
exchange control or securities laws. Any shares made available under
such sub-plans will count against the limits on individual and overall
participation in the SMP.
APPENDIX 3
Principal terms of the Next Sharesave
Plan (the “Sharesave”)
Under the Sharesave, employees of the Company may be granted
options to acquire shares in the Company (“Shares”). To take part in
the Sharesave employees must save a certain amount each month
which will be used to purchase the Shares subject to the option.
Operation
The operation of the Sharesave will be supervised by the Board and is
designed to qualify for tax-advantaged status under Schedule 3 of the
Income Tax (Earnings and Pensions) Act 2003 (“Schedule 3”).
Eligibility
UK tax resident employees and full-time directors of the Company
and any designated participating subsidiary can participate. The Board
may require completion of a qualifying period of employment of up to
five years and may also allow other employees to participate.
Grant of options
Participating employees enter into HMRC approved savings contracts,
with monthly savings normally made over three or five years. The price
payable for the shares subject to each option will correspond to the
maturity proceeds of the related savings contract.
No options may be granted under the Sharesave more than 10 years
after the date that the Company’s shareholders have most recently
approved the Sharesave.
Options are not transferable, except on death, and are not pensionable.
Individual participation
An employee’s monthly savings under all savings contracts linked to
options granted under any HM Revenue & Customs approved savings
arrangement may not exceed the statutory maximum (currently £500).
Option price
The price per share payable to exercise of an option will not be less
than the higher of:
(i)
80% of the middle-market quotation of a share on the London
Stock Exchange up to 42 days before the grant of the option;
and
(ii)
if the option relates only to new issue shares, the nominal
value of a share.
The dealing day(s) by reference to which this price is determined must
fall within six weeks of the announcement by the Company of its
results for any period (except in exceptional circumstances).
Exercise of options
Options will normally be exercisable for six months from the third
or fifth anniversary of the start of the related savings contracts.
Earlier exercise is permitted:
• after ceasing employment by reason of death, injury, disability,
redundancy, retirement, a TUPE transfer, or the employing business or
company ceasing to be part of the Company’s group, options will lapse
on cessation of employment or directorship with the Next group;
• where employment ceases more than three years from grant for
any reason other than for misconduct; and
•
in the event of a takeover, amalgamation, reconstruction or voluntary
winding-up of the Company, except on an internal corporate re-
organisation when the Board may decide to exchange existing options
for equivalent new options over shares in a new holding company.
Shares will be allotted within or transferred to the participant within
30 days of exercise of an option.
Overall plan limits
The Sharesave may operate over new issue shares, treasury shares or
shares purchased in the market.
In any ten calendar year period, the Company may not issue (or grant
rights to issue) more than 10 per cent of its issued ordinary share
capital under the Sharesave and any other employee share plan
adopted by the Company.
Treasury shares will count as new issue shares for the purposes of this
limit (unless institutional investor advisor bodies decide that they need
not count).
212
Variation of capital
On a variation in the Company’s share capital the number of shares
under option and the option price may be adjusted.
No options may be granted under the MSOP more than 10 years
after the date that the Company’s shareholders have most recently
approved the MSOP.
Rights attaching to shares
Any shares allotted under the Sharesave will rank equally with shares
then in issue (except for rights arising by reference to a record date
prior to their allotment).
Alterations to the Sharesave
The Board may alter the Sharesave, provided the prior approval
of shareholders is obtained for amendments to the advantage of
participants where these relate to eligibility, limits on participation
and the issue of shares or the transfer of treasury shares, the basis
for determining a participant’s entitlement to, and the terms of, the
shares to be acquired and the adjustment of options.
The requirement to obtain the prior approval of shareholders will not,
however, apply to minor alterations to benefit administration of the
Sharesave, to take account of a change in legislation or to obtain or
maintain favourable tax, exchange control or regulatory treatment for
participants or any company in the Company’s group.
Overseas plans
The shareholder resolution to approve the Sharesave will allow the Board,
without further shareholder approval, to establish or extend further plans
for overseas territories (in particular the 2009 Sharesave Plan (Republic
of Ireland) which is in all material respects identical to the main UK plan,
any such plan to be similar to the Sharesave, but modified to take account
of local tax, exchange control or securities laws, provided that any shares
made available under such further plans are treated as counting against
the limits on individual and overall participation in the Sharesave.
APPENDIX 4
Summary of the Next Management
Share Option Plan (“MSOP”)
The MSOP is split into two parts which means that an option may either:
(i)
(ii)
qualify for tax-advantaged status under Schedule 4 of the
Income Tax (Earnings and Pensions) Act 2003 (a “CSOP
option”); or
be unapproved
advantaged treatment).
(which do not benefit
from
tax
Eligibility
Employees (excluding directors of the Company and senior executives
who participate in the Next Long Term Incentive Plan) will be eligible to
participate at the discretion of the Remuneration Committee.
A CSOP option may not be granted to an individual who is a director of
the Company or of any of its subsidiaries and who works for less than
25 hours per week.
Grant of options
Options may normally be granted within the 6 weeks of: (i) shareholder
approval of the MSOP; (ii) the Company’s announcement of its results
for any period; or (iii) at any other time when the Remuneration
Committee considers there are exceptional circumstances.
No payment will be required for the grant of an option.
Acquisition price
The Remuneration Committee shall decide before an option is
granted the price at which shares may be acquired by the exercise
of that option, but the price shall not be less than the middle-market
quotation for an ordinary share of the Company as quoted on the
London Stock Exchange on the dealing day immediately preceding the
grant of the option.
Individual limits
The maximum total market value of shares (i.e. the acquisition price of
shares) over which any options (including CSOP and unapproved) may
be granted to any person during any financial year of the Company is
3 times salary, excluding bonuses and benefits in kind. This limit may
be increased to 5 times salary in circumstances considered by the
Remuneration Committee to be exceptional, for example, on the grant
of options following recruitment.
In addition, no individual may hold CSOP options with an aggregate
exercise price of more than £30,000 (or such amount specified
by HMRC).
Overall plan limits
The MSOP may operate over new issue shares, treasury shares or
shares purchased in the market.
In any ten calendar years, the Company may not issue (or grant rights
to issue) more than:
(a) 10 per cent of its issued ordinary share capital under the MSOP and
any other employee share plan; and
(b) 5 per cent of its issued ordinary share capital under the MSOP and
any other executive share plan.
Treasury shares will count as new issue shares for these purposes
unless institutional investors decide that they need not count.
Exercise of options – performance conditions
The exercise of an option may be conditional upon the satisfaction of a
performance condition set by the Remuneration Committee. An option
will normally be exercisable between 3 and 10 years following its grant
provided the relevant performance condition is satisfied.
An unvested option may normally be exercised to the extent that the
performance condition is satisfied, following cessation of employment
due to redundancy, retirement, death or disability, TUPE transfer, if
the Company sells the business or subsidiary by which he is employed
or at the discretion of the Remuneration Committee. The maximum
period allowed for exercise after cessation of employment is generally
6 months (12 months in the case of death).
However, if an option holder ceases employment less than 12 months
after the grant of an unapproved option, it will immediately lapse,
unless otherwise determined by the Committee at its discretion.
Options may also be exercised, to the extent that any performance
condition is satisfied, on a change of control, takeover, compulsory
acquisition, scheme of arrangement, winding up or demerger.
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NOTICE OF MEETING
Adjustment of options
In the event of any variation of the share capital of the Company or on
the occurrence of any other event similarly affecting the Company’s
share price, the Remuneration Committee may generally adjust
the number of shares subject to options and the price payable on
their exercise.
Alterations
The Remuneration Committee may alter the Plan or the terms of any
option. However, the prior approval of shareholders must be obtained
for alterations made to the advantage of participants in respect of
provisions relating to eligibility, individual and overall limits, the basis
for determining a participant’s entitlement to, and the terms of, shares
provided under the Plan, the adjustment of options for variations in
capital and the alteration of the Plan.
The requirement to obtain prior approval of shareholders will not
apply to a minor alteration to benefit the administration of the Plan,
to take account of a change in legislation or to obtain or maintain
favourable tax, exchange control or regulatory treatment.
An alteration to any performance condition may also be made by the
Remuneration Committee without shareholder approval so long as
an event has occurred which causes the Remuneration Committee to
consider that the condition would not, without alteration, achieve its
original purpose and the altered condition will be not materially less
difficult to satisfy than the unaltered condition would have been.
MEETING FORMALITIES
AND VOTING
Voting at the Annual General Meeting
To be entitled to 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 12 May
2020 or, if the meeting is adjourned, at 6.30 pm on the day which is
two working days before the adjourned meeting. As stated on page
204, in view of the ongoing Coronavirus pandemic, NEXT encourages
shareholders to appoint the Chairman of the AGM as their proxy (either
electronically or by post) to vote in accordance with their instructions
given the current restrictions on attendance.
In line with best practice, voting on all resolutions at the 2020 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 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 23 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 23
attaching to 3 million shares (being the total maximum number of
shares which the Company is permitted to purchase pursuant to the
Programme Agreements) from both the total number of votes cast in
favour of this resolution and the total number of votes cast.
The total number of the Company’s issued share capital on 18 March
2020, which is the latest practicable date before the publication of this
Notice, is 132,949,276 ordinary shares. All of the ordinary shares carry
one vote each and there are no shares held in treasury.
Voting and proxies
Please complete and return the form of proxy to Equiniti, to arrive
not later than 9.30 am on 12 May 2020 (or 48 hours before any
adjourned meeting).
A shareholder who is entitled to vote at the AGM may appoint one or
more proxies to 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 of the Meeting, should ensure that the proxy 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
9.30am on 12 May 2020.
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CREST voting facility
Those shareholders who hold shares through CREST may choose to
appoint a proxy or proxies using CREST for the AGM to be held on
14 May 2020 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.
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
Please see page 204 for details of how to submit questions
electronically. The Company will 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.
Data protection statement
Your personal data includes all data the Company holds which relates
to you as a Shareholder, including your name and contact details, the
votes you cast and your Shareholder Reference Number (attributed
to you by the Company). The Company determines the purposes for
which and the manner in which your personal data is to be processed.
The Company and any third party to which it discloses the data
(including the Company’s registrar) may process your personal data
for the purposes of compiling and updating the Company’s records,
fulfilling its legal obligations and processing the Shareholder rights
you exercise. A copy of the Company’s privacy policy can be found at
www.nextplc.co.uk/site-services/privacy-and-cookies.
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 and each
non-executive director’s letter of appointment
• Copies of the rules of the NEXT Long Term Incentive Plan, the Next
Management Share Option Plan, the Next Share Matching Plan and
the Next Sharesave Plan pursuant to resolutions 15, 16, 17 and 18
• The Programme Agreements pursuant to resolution 23
• Articles that reflect the changes proposed in resolution 25
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. A copy of the proposed articles will
be made available on the Company’s website and copies of the other
documents will be made available on request.
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 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.
215
Strategic ReportGovernanceFinancial StatementsShareholder Information OTHER SHAREHOLDER INFORMATION
Registered office
Desford Road, Enderby, Leicester LE19 4AT
Registered in England and Wales, no. 4412362
Annual General Meeting
The AGM will be held at 9.30 am on Thursday 14 May 2020 at the
registered office of Next plc, Desford Road, Enderby, Leicester
LE19 4AT. The Notice of the Meeting on pages 204 to 215 sets out
business to be transacted. Full access is available to the venue for
those with special requirements.
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 for electronic settlement.
Payments of dividends to
mandated accounts
Shareholders who do not at present have their dividends paid
directly into a bank or building society may wish to do so. A mandate
form is attached to your dividend confirmation or is available to
download from the NEXT website at nextplc.co.uk or from Equiniti,
telephone +44 (0) 371 384 2164.
Forward looking statements
This Report and Accounts contains “forward looking statements”
which are all matters that are not historical facts, including anticipated
financial and operational performance, business prospects and similar
matters. These forward looking statements are identifiable by words
such as “aim”, “anticipate”, “believe”, “budget”, “estimate”, “expect”,
“forecast”, “intend”, “plan”, “project” and similar expressions.
These forward looking statements reflect NEXT’s current expectations
concerning future events and actual results may differ materially
from current expectations or historical results. Any such forward
looking statements are subject to risks and uncertainties, including
but not limited to those risks described in “Risks & Uncertainties”
on pages 59 to 64; 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.
216
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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
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