Nextracker Annual Report 2020

FY2020 Annual Report · Nextracker

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AN N UAL R E P O RT & ACCO U NT S

JAN UARY 202 1

CONTENTS

Chairman’s Statement
Chief Executive’s Review

Strategic
Report
3
4
66 Business Model
68 Key Performance Indicators
70 Risks and Uncertainties
77 Viability Assessment
78 Corporate Responsibility
91 Section 172 Statement

Governance
98 Directors’ Biographies
100 Directors’ Responsibilities

Statement

101 Corporate Governance Report
108 Nomination Committee Report
109 Audit Committee Report
115 Remuneration Report
140 Directors’ Report
142 Independent Auditor’s Report

Financial
Statements
Group Financial Statements
151 Consolidated Income Statement
152 Consolidated Statement of
Comprehensive Income
153 Consolidated Balance Sheet
154 Consolidated Statement of Changes

in Equity

155 Consolidated Cash Flow Statement
156 Group Accounting Policies
168 Notes to the Consolidated
Financial Statements

Parent Company Financial Statements
210 Parent Company Balance Sheet
211 Parent Company Statement of

Changes in Equity

212 Notes to the Parent Company

Financial Statements

Shareholder
Information
215 Half Year and Segment Analysis
216 Five Year History
217 Glossary
220 Notice of Meeting
229 Other Shareholder Information

FINANCIAL
HIGHLIGHTS

TOTAL SALES* APM
Underlying continuing business

Jan 17

Jan 18

Jan 19

Jan 20

-16.9%

Jan 21

n
b
1
4
£

n
b
2
4
£

n
b
4
4
£

n
b
6
.
3
£

PROFIT BEFORE TAX APM
Underlying continuing business – excludes IFRS 16

Jan 17

Jan 18

Jan 19

Jan 20

-53.1%

Jan 21

m
0
9
7
£

m
6
2
7
£

m
3
2
7
£

m
9
2
7
£

m
2
4
3
£

EARNINGS PER SHARE APM
Underlying – excludes IFRS 16

Jan 17

Jan 19

Jan 18

Jan 20

-50.8%

Jan 21

p
3
1
4
4

p
7
6
1
4

P
3
5
3
4

p
8
9
5
4

p
3
.
6
2
2

FINANCIAL HIGHLIGHTS
ON STATUTORY BASIS

Total revenue (£bn)
Profit before tax (£m)
Earnings Per Share (p)

Jan 21
3.5
342
223.3

Jan 20
4.3
749
472.4

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).

APM Alternative Performance Measure

Strategic ReportGovernanceFinancial StatementsShareholder Information
STRATEGIC
REPORT

Chairman’s Statement

Chief Executive’s Review

66 Business Model

68 Key Performance Indicators

70 Risks and Uncertainties

77 Viability Assessment

78 Corporate Responsibility

91 Section 172 Statement

CHAIRMAN’S STATEMENT

In last year’s Full Year Results, published just as the UK went into lockdown, we stated that our sector was
facing a crisis unprecedented in living memory. We also stated that our strong balance sheet and profit
margins would allow us to weather the storm.

Both statements have proved true. A year on, NEXT has delivered profit before tax of £342m
(2019/20: £729m, both pre-IFRS 16) in line with the central guidance issued in our January 2021 Trading
Statement. Despite most of our stores being closed for a significant portion of 2020/21, Total1 Group sales
decreased by less than 17% to £3.6bn (2019/20: £4.4bn).

In April 2020, we stated our intention to suspend all capital returns to shareholders for the duration of
the financial year and until the situation stabilises. Given the continuing uncertainty around when our
stores will reopen, no final dividend is proposed for 2020/21 and our share buyback programme remains
suspended. We remain committed to returning capital to shareholders in the long term and will review
our position later in the year when we have better visibility of our trade once our stores reopen.

Our cash resources have been carefully managed with a number of actions taken to conserve cash during
the year. As a result, net debt reduced to £610m (2019/20: £1.1bn).

We expect the shift in consumer behaviour towards Online sales to continue for some time and one of our
priorities during the year has been to continue the development of our Online platform. We accelerated
part of our planned capital expenditure in the Online business, spending £121m on warehousing
and systems.

During the year, the Board appointed Tom Hall as a non-executive director to replace Francis Salway, who
has served on our Board for over nine years and will step down at the 20 May 2021 AGM. On behalf of the
other directors, I would like to thank Francis for his very significant contribution to the Board and to the
Remuneration Committee during his time with NEXT. I have particularly valued his hard work as Chairman
of our Remuneration Committee. We will miss Francis’ unflappable and persistent good sense. Tom will
take over the role of Chair of the Remuneration Committee and Jonathan Bewes will take over the role of
Senior Independent Director on Francis’ retirement at the 2021 AGM.

I believe that in difficult times there is a clearer separation between the stronger corporate performers and
the weaker ones. This result is due to the formation of a good management team and the establishment
of robust processes during less volatile periods. Our continued investment over many years in our people
and our systems has shown resilient results in the past year.

The strength of the Group is built on the hard work and dedication of all NEXT’s people and this year has
highlighted their resilience and ability to work together in times of crisis. I would like to thank them for
their outstanding work during an extremely demanding year.

Michael Roney

Chairman

1 April 2021

1 Total sales are VAT exclusive sales including the full value of commission based sales and interest income (refer to Note 1 of the financial statements).

Strategic ReportGovernanceFinancial StatementsShareholder InformationCHIEF EXECUTIVE’S REVIEW

HEADLINES

Performance in the Year Ending January 2021

● Full price sales 2 down -15% on last year.

● Profit before tax of £342m3 and in line with guidance given in January.

● Year end net debt4 reduced by £502m to £610m.

Updated Central Guidance for the Full Year Ending January 2022

● Total Brand full price sales guidance remains unchanged and flat against 2019/20 (a two-

year comparison).

● The anticipated end of the third lockdown in April5 is two weeks later than we had allowed
for in our previous guidance. However, the profit lost from those additional two weeks has
been offset by the benefit of the extension of business rates relief announced in March.

●

In the first eight weeks of the year, Online sales have been stronger than expected and are
up more than +60% on two years ago. This overachievement plus the expected transfer of
sales from Retail during the additional two weeks of lockdown, are expected to add £30m of
profit. As a result, we are raising our central profit guidance by £30m from £670m to £700m.

2 Full price sales are Total sales excluding VAT, less items sold in our mid-season and end-of-season Sale events, our
Clearance operations and through Total Platform. These are not statutory sales (refer to Note 1 of the financial
statements).

3 Profit before tax of £342m is pre-IFRS 16, Leases. The financial information presented in pages 3 - 60 is that used by
management to monitor and assess business performance. They are not statutory measures unless stated as such. A
reconciliation to the statutory equivalents is provided in the Appendix on page 61.

4 Net debt excludes leases.
5 This refers to the end of the lockdown in England (which represents around 85% of our retail sales). The end of lockdown

in parts of Scotland, Northern Ireland and Eire will follow later.

PURPOSE AND STRUCTURE OF THIS DOCUMENT
Mark Twain famously apologised for writing a long letter, he did not have the time to write a short
one. The implied self-criticism is not lost on us. This is a long report and, with time, it could be more
succinct. But the main reason for its length is that there is so much to explain. The effect that the
pandemic has had on the business, the way we coped with its challenges and, most importantly, the
shape and economics of the business going forward, all require explanation.

In this report, we have given more detailed guidance for the year ahead across each of our main
divisions: Online, Finance and Retail. We have endeavoured to give shareholders a sense of how
much the business has changed over the last year and an understanding of the Company’s underlying
economics as we emerge from the pandemic.

For ease of reading, this document is divided into the following five sections:

PART 1 THE BIG PICTURE

Pg 7

A reflection on the performance of the past year, the
factors that helped get us through the pandemic and an
overview of how we see the business developing going
forward.

PART 2 GROUP FINANCIAL

PERFORMANCE

Pg 17 This section provides a summary of Group sales and profits
by division, cash flows and financing. It also includes a
summary of Group capital expenditure.

PART 3 DIVISIONAL
FINANCIAL
PERFORMANCE

Pg 28 This section gives a detailed breakdown and analysis of the
performance of our three main business divisions: Online,
Finance and Retail.
In addition to explaining last year’s numbers, we have also
shared our expectations for the future performance of
each division in the year ahead.
This section finishes with a summary of the performance of
other Group companies and non-trading activities.

PART 4 TOTAL PLATFORM

Pg 52 An update on our Total Platform business, new clients we
have contracted with during the last twelve months and
new equity investments.

PART 5 SALES AND PROFIT

Pg 58 This section covers our outlook for the year ahead, with our

OUTLOOK FOR
2021/22

sales and profit guidance.

Strategic ReportGovernanceFinancial StatementsShareholder Information

OUTLOOK FOR CAPITAL EXPENDITURE

ORDINARY DIVIDENDS AND SHARE BUYBACKS
CASH FLOW OUTLOOK FOR THE YEAR ENDING JANUARY 2022
NET DEBT, BOND AND BANK FACILITIES

SALES
PROFIT
RECONCILIATION OF CHANGES IN GROUP SALES, COSTS AND PROFIT

DELIVERING CHANGE IN A CHANGING WORLD
INCREASING CHOICE WITHIN THE NEXT BRAND
NEW CUSTOMERS
THE DEVELOPMENT OF NEW BUSINESS
THE INFRASTRUCTURE CHALLENGE
WHERE DOES THAT LEAVE OUR STORES?
OUTLOOK FOR THE YEAR AHEAD

CONTENTS
PART 1 - THE BIG PICTURE ............................................................................................................. 7
RESILIENCE THROUGH THE PANDEMIC ................................................................................................ 7
RELEVANCE AND EVOLUTION ............................................................................................................... 9
9
11
12
14
15
15
16
PART 2 - GROUP FINANCIAL PERFORMANCE ............................................................................... 17
OVERVIEW OF SALES, PROFIT AND NET DEBT .................................................................................... 17
17
19
22
CASH FLOW, FINANCING AND NET DEBT ........................................................................................... 23
24
24
25
CAPITAL EXPENDITURE ....................................................................................................................... 26
27
PART 3 - DIVISIONAL FINANCIAL PERFORMANCE AND ANALYSIS ................................................ 28
NEXT ONLINE ...................................................................................................................................... 28
28
30
31
33
34
37
38
NEXT FINANCE .................................................................................................................................... 39
39
42
43
NEXT RETAIL ....................................................................................................................................... 44
44
45
46
47
49
OTHER BUSINESS ACTIVITY ................................................................................................................. 50
51
51
PART 4 - TOTAL PLATFORM ......................................................................................................... 52
52
53
54
55
55
57
PART 5 - SALES AND PROFIT OUTLOOK FOR 2021/22 .................................................................. 58
APPENDIX 1 - STATUTORY SALES AND PROFIT ................................................................................... 61

FULL PRICE SALES
ONLINE CUSTOMER BASE AND CUSTOMER PROFITABILITY
ONLINE PROFIT AND NET MARGIN
OUTLOOK FOR ONLINE SALES AND PROFIT IN THE YEAR AHEAD
FOCUS ON LABEL
FOCUS ON ONLINE OVERSEAS
FOCUS ON ONLINE WAREHOUSE CAPACITY

FULL PRICE SALES
RETAIL PROFIT & LOSS
RETAIL SPACE
LEASE RENEWALS AND COMMITMENTS
THE OUTLOOK FOR RETAIL SALES AND PROFIT IN THE YEAR AHEAD

CONCEPT - A REMINDER
NEW CLIENTS
TOTAL PLATFORM LIGHT
MARGIN AND RETURN ON CAPITAL
EQUITY
NEXT STEPS

FINANCE PROFIT AND LOSS ACCOUNT
CREDIT CUSTOMERS
PROFIT OUTLOOK FOR THE YEAR AHEAD

PENSION SCHEME
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

PART 1 - THE BIG PICTURE
This section aims to give an overview of: (1) how the Company has managed through the pandemic;
(2) how the business has dramatically evolved its product offer and customer base; (3) the way in
which we intend to develop the business going forward and (4) a summary of the outlook for the
year ahead.

RESILIENCE THROUGH THE PANDEMIC

Four Underlying Advantages
If we had been told twelve months ago that our shops were going to be shut for 20 weeks, we could
not have imagined the Group delivering the sales or profit we achieved last year. We have been very
fortunate. For a number of different reasons, our business was well placed to cope with the
pandemic. The resilience of the business can be attributed to four main factors; in order of
importance these are:

Online Scale Going into the pandemic, Online sales (including Finance) accounted for more than
half of the Group’s turnover. The scale of our Online business and the breadth of
its customer base, both in the UK and Overseas, meant we were able to pick up a
significant amount of the business lost in our stores by servicing customers online.

Product
Diversity

Balance
Sheet

Retail
Parks

The diversity of our product offer, across the NEXT brand and through LABEL, has
proved an invaluable asset during the pandemic. It meant that, when lockdown
precipitated a dramatic decline in the demand for adult fashion, other products,
more suited to lockdown life, were able to recover much of the loss. So, areas such
as homeware, childrenswear, sportswear and stay-at-home basics (underwear,
sweat tops, joggers, nightwear, etc.) all served to mitigate declines in adult’s formal
and casual clothing, footwear and accessories. The graphic below sets out the
dramatic divergence
in performance between over-performing and under-
performing categories.

The financial resilience of our balance sheet, the extent of our cash resources and
the quality of our customer receivables meant that we have not needed to draw on
emergency Government lending.

Our retail park store portfolio accounted for 62% of our Retail sales going into the
pandemic. In general, retail park stores are local and easier to access, with social
distancing simpler to maintain both within and outside the store. So it is not
surprising that these locations fared much better than city centres and shopping
malls. At the times when stores were open, like-for-like sales in retail parks,
although negative, were between 15% and 20% better than our other stores.

Better Performers
Better Performers

Poor Performers
Poor Performers

Home
Home

Childrenswear
Childrenswear

Sports
Sports

Poor
Poor
Performers
Performers
42%
42%

Better
Better
Performers
Performers
58%
58%

Formal
Formal

Occasion
Occasion

Holiday
Holiday

Lounge & underwear
Lounge & underwear

Shoes & accessories
Shoes & accessories

Total full price sales
Total full price sales
+3% vs last year
+ 3% vs last year

Sales participation
Sales participated
going into lockdown
going into lockdown

Total full price sales
Total full price sales
-41% vs last year
- 41% vs last year

Poor Performers

Better Performers

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Lower Returns Rates Online
We were also fortunate in one other respect. The product areas that did well have much lower
returns rates than those that underperformed. For example, customers traditionally order several
dresses with the intention of only keeping the one they like, so the returns rate is high. Conversely,
the returns rate on babygrows is very low. That, along with customers generally being more selective
at point of order, meant that we experienced a material reduction in returns rates. This allowed us
to achieve sales growth far in excess of the growth in units we despatched from our warehouses. So,
although Online full price sales in the second half increased by +34%, units picked and despatched
grew by just +13%.

We expect the level of returns to revert to more normal levels once the pandemic is over. However,
the end of social distancing rules should allow for more efficient working practices in our warehouses,
which in turn would increase output.

A Thank You
I cannot report on the resilience of the business over the past year without mentioning the
extraordinary effort and dedication of colleagues across the business. From warehouses to stores,
through our head office departments, contact centres to our overseas sourcing offices; people have
worked tirelessly to support the business in the face of unprecedented challenges.

Without exception, every part of the business understood the situation we were in and faced up to
its challenges with hard work, innovation, teamwork, and a (mostly!) cheerful determination to make
sure their part of the business got through. Whilst the Company had many advantages going into
the pandemic, it has been the endeavours and ideas of colleagues that have proven to be our greatest
asset; and it has been their collective commitment that allows us to go into the year ahead with the
prospect of heading back to the levels of sales and profitability we delivered in 2019/20.

RELEVANCE AND EVOLUTION

DELIVERING CHANGE IN A CHANGING WORLD
We were, in many ways, fortunate that the business was so well placed to ride out the swings in
consumer behaviour caused by the pandemic. But the building of a diverse, profitable, and well
financed business, along with the development of new online routes to market, has not been
accidental. It has come as a result of a conscious and consistent effort to adapt and change the
business, and to maximise the opportunities presented by our Online infrastructure, product skills,
supplier base, and partnerships.

It is this process of change and constant business development that has kept the business relevant
and profitable.

The Extent of the Change
In any one year, the changes in NEXT’s business model have been unremarkable, but over time the
change has been dramatic. For example, ten years ago our Online Overseas and LABEL businesses
were mere glints in the corporate eye. They are now forecast to take £1.3bn in the year ahead
accounting for nearly a third of the Group’s sales and 28% of our profit. They remain some of the
fastest growing parts of the Group.

The tables below demonstrate just how radically the Group has changed its business since 2005.
They compare the sales participation of different parts in 2005 to our estimate for sales in the year
ahead along with the percentage growth of those areas. Our Online business (including Finance) has
increased fivefold, moving from 23% of the Company’s revenue to 71%, and our Home business has
more than trebled its sales. The year to January 2022 for Retail is artificially low due to the ten weeks
when the stores will be closed. If we account for the lost sales in those weeks, then the participation
of Retail would be around 34%, instead of 29%.

Online versus Retail sales

Group: Clothing versus Home sales

£ sales

% Participation

£ sales

% Participation

17 year %
change

- 39%

Retail

Online/Finance

+403%

Jan
2005

77%

23%

Jan
2022(e)

29%

71%

Total

+61%

100%

17 year %
change

Jan
2005

Jan
2022(e)

Clothing

Home

Total

+43%

+219%

90%

10%

79%

21%

+61%

100%

Online: UK versus Overseas sales

Online: NEXT versus LABEL sales

£ sales

% Participation

£ sales

% Participation

17 year %
change

Jan
2005

Jan
2022(e)

17 year %
change

Jan
2005

Jan
2022(e)

+307%

100%

Overseas

81%

19%

NEXT Brand

+265%

100%

73%

Third-parties

27%

Total

+403%

100%

Total

+403%

100%

Strategic ReportGovernanceFinancial StatementsShareholder Information

No Grand Strategy - Following the Money
At this point it is worth explaining the thinking behind the way in which we have moved the business
forward. The transformation has not been guided by a grand ‘strategy’; mercifully we have not been
reliant on boardroom ‘vision’. At no point did we set out a “Ten Year Plan” to reach a given point.
Financial controls have been, and remain, hugely important in ensuring that individual business
endeavours make a profit. But this financial ‘control’ is a world apart from the sort of ‘command
and control’ that so often hampers innovation and speed.

Instead, the business has followed the money, developing new ideas bottom up, drawing on
innovations generated throughout the Group - new product ranges, new businesses, new
distribution channels, services, partnerships and markets. It is evolution in the true sense of the
word, where small trials that fail, fail fast and those that succeed are developed as far as possible.

Guiding Principles
But, it would be a mistake to characterise this evolution as simply random. There are very clear
guiding principles that have both encouraged and constrained the direction in which we have taken
the business. New ventures must conform to four criteria:

Create
Value

Whatever businesses we develop, if they are to succeed, they must create real value
- for our customers, partners and suppliers. It is not always easy to resist the
temptation to sell products where we add little value, for example, we know very
little about travel so would not rebadge a third-party travel offer as NEXT travel.

Equally we could be tempted to make too much profit at the expense of our third-
party branded partners. Of course, we have to make our target margin, but more
than that, we will give back to our partners. To that end, we have unilaterally
lowered third-party commission rates twice in the last three years. We will do so
again if we are able to deliver further economies of scale. We want our partners to
view NEXT as an invaluable ally, not a necessary evil.

We are, at heart, a fashion and homeware business with excellent operations and
strong financial disciplines. We have spent years honing those skills and the
supporting infrastructure - building the trust and confidence of both our customers
and partners along the way. It is these qualities that we aim to leverage and develop
as we move forward.

Fashion is risky and volatile; it involves taking on many fixed costs that stick in a
difficult year. If our business is to ride out the slips and misfortunes inherent in our
sector, we need to maintain margins healthy enough to get us through those
difficult periods. Last year was about the most extreme stress test we could have
had, and our resilience is testament to the financial disciplines that run through
everything that we do.

Play to our
Strengths

Healthy
Operating
Margins

A Healthy
Return on
Capital

Deliver a return on capital invested commensurate with the risk of any individual
business. Capital is the lifeblood of the business; it is what our shareholders have
invested in the business and ultimately what they expect to get back from us.
Making a good return on their investment has to be our primary mission.

In addition to sticking to the principles set out above, we have also had to be ruthlessly honest with
ourselves and the outside world about the nature of the change our sector is experiencing. We have
also had to make some uncomfortable decisions.

Uncomfortable Truths and Difficult Decisions
In many ways the last ten years have been about adapting to the simple truth that, initially, we did
not want to believe: Retail stores were, and will remain, at a fundamental and irreversible
disadvantage to online competition. This is not being driven by price or even home delivery, but by
the scale of the choice websites can offer relative to any physical store. The annual decline in Retail
like-for-like sales has become the new normal, and looks set to remain that way for many years.

The moment we reconciled ourselves to that fact was, in some ways, a new beginning. Managing
the transition was harder than fighting it, but much more productive. It allowed us to follow the
new money rather than defend the old.

Following the money can be uncomfortable, because new ideas often pose a threat to existing
businesses. The decision to compete with ourselves through selling third-party brands and, more
recently, the opening up of our sourcing skills to other brands through licensing were not entirely
uncontroversial. We have learned to embrace these and other opportunities nonetheless.

Our view is simple: there is nowhere to hide on the internet, and we are better to collaborate with
other brands to our mutual benefit, than cling on to past advantages in the vain hope our customers
will not find the competition. And of course, the broader our product offer, the more relevant our
website becomes to an increasing number of customers.

INCREASING CHOICE WITHIN THE NEXT BRAND
LABEL brands have served to increase the breadth of our website offer far beyond NEXT’s natural
design, fashion and price boundaries. Just as important, but much less obvious, has been the
numerous ways in which our own NEXT product ranges have been extended and diversified.

Liberation from the Constraints of Space
Unlike physical stores, the internet is unconstrained by limited display space. In addition, items can
be made available online with minimal stock investment, whereas making an item available across
500 stores, in several sizes, requires thousands of units. The release from Retail constraints has given
our product teams the freedom to develop additional designs, product categories and size ranges.
Today, the only real constraints on the size of our offer are the minimum order quantities required
to make production viable, along with the quality promise inherent in our brand.

Greater Choice Across Wider Price Range
On clothing ranges such as lingerie, sportswear and children’s shoes, the size of our offer has grown
dramatically. For example, we stock over 1,000 NEXT children’s shoes ranging across school shoes,
loafers, trainers, wellies, party shoes, sandals, slippers, running shoes, hiking boots and more. In
addition, price architectures have been stretched to serve new customer types. Whether that be
the introduction of £399 price-starter sofas-in-a-box or a top of the range £160 men’s parka, price
extensions have served to increase the potential audience for our brand.

Strategic ReportGovernanceFinancial StatementsShareholder Information

The Extent of the Change
The table below sets out the number of unique items that were on sale on our website during the
second half of the year ended January 2021 compared to the same period five years ago. NEXT items
have grown significantly in both fashion and home product areas. Third-party branded items, sold
through LABEL (including Branded Beauty), have seen enormous growth and now make up more
than 70% of all the items that are for sale on our website.

Number of items

H2 2020/21

H2 2015/16

NEXT Fashion

NEXT Home

NEXT Total

Branded Beauty

LABEL Brands

Total

NEW CUSTOMERS

35,000

17,000

52,000

20,000

130,000

202,000

13,000

9,000

22,000

7,000

29,000

Var %

+169%

+89%

+136%

+1757%

+597%

A Broader Online Customer Base
We believe that the net effect of all this additional choice has been to significantly increase the reach
and relevance of our website. Over the last two years we have grown our customer base by +40%
to 8.4m (see page 30).

The graph below demonstrates how we have grown our UK customer base by age. Each bar shows
the number of customers in the UK represented by each age group as at January 2021. Above each
bar is the percentage that category has grown since January 2020. The fact that the fastest growing
customer segments are the youngest and the oldest cohorts is, we believe, testament to the
broadening appeal of our website and product ranges.

)
s
n
o

i
l
l
i

(

t
n
u
o
c
r
e
m
o
t
s
u
C

Growth in UK Online Active Customers by Age Group

January 2020

Increase in year to January 2021

+27%

+19%

+25%

+49%

+40%

1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

20s and under

30s

40s
Customer age group

50s

60s and over

Post Pandemic Retention?
It is impossible to say with certainty how many customers, who shopped Online as a result of the
pandemic, will remain shopping Online once stores reopen. Our instinct is that retention rates for
customers acquired in 2020 are likely to be similar to those gained in more normal times, though we
recognise that might be optimistic.

One thing appears to be certain, the longer the pandemic encourages online shopping, the more
likely it is that customers will keep shopping that way. What might start as an experiment or
lockdown necessity, over time, becomes increasingly normal and convenient.

The graph below demonstrates this point. It shows the percentage probability of a customer placing
a future order relative to the times they have ordered in the past. The horizontal axis shows the
average number of months between orders. So, for example, on average a customer places their
second order after 2.5 months and has a 53% probability of ordering again. As time goes on,
remaining customers are likely to order more frequently.

% of Customers Placing Subsequent Orders

10th Order
84%

8th Order
81%

6th Order
76%

5th Order
73%

4th Order
67%

3rd Order
60%

2nd Order
53%

1st Order
43%

r
e
d
r
o
t
n
e
u
q
e
s
b
u
s
g
n
i
c
a
P
%

90%

85%

80%

75%

70%

65%

60%

55%

50%

45%

40%

0 m onths

1 m onth

2 m onths

3 m onths

4 m onths

5 m onths

6 m onths

7 m onths

8 m onths

9 m onths

Months Trading

10 m onths

11 m onths

Data source: NEXT Online UK customers recruited between April-June 2019, orders tracked to end of February 2020

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THE DEVELOPMENT OF NEW BUSINESS

We continue to develop new business ideas within the Group, chief amongst these being our
licensing and Total Platform businesses.

Total Platform
Total Platform aims to leverage NEXT’s Online infrastructure and provide partners with a
comprehensive solution to trading online - website, call centres, warehousing, distribution, returns
and retail services all handled by NEXT.

The objective is to provide a better service at a lower cost, while delivering frictionless growth far
faster and more simply than clients could develop their own operations. The service also means
clients do not need to invest capital in growing their systems or operations. The capital costs are
covered in the price of the Total Platform service, which is charged as a simple percentage of sales.
This leaves clients free to focus on the most important aspects of their business: their products, their
brand and their marketing.

We now have Total Platform contracts in place with five clients: Childsplay Clothing and Laura Ashley
which are both now operational, Victoria’s Secret UK which we intend to launch in May this year, a
fashion startup brand (‘NewBrand’6) targeted to open in September and Reiss which is planned to
launch in February 2022.

Each client has slightly differing operating models. Some partners (Laura Ashley and NewBrand) will
be serviced by their own branded webpages embedded as distinct ring-fenced areas within the NEXT
website. For these ‘Total Platform Light‘ clients, customers will checkout through NEXT branded
checkout pages and deliveries will be made in NEXT packaging. Other clients (Childsplay, Victoria’s
Secret and Reiss) will have their own completely independent websites, their own branded checkout
pages and their goods will be delivered in their own branded packaging.

In addition to signing Total Platform service agreements, we have taken an equity interest in three
clients:

● Reiss: 25% with the option of raising our stake to 51% (see page 53)
● Victoria’s Secret UK and Eire business7: 51%
● NewBrand, which is launching in September: 33%

The aim of the equity stakes is twofold: it serves to align our interests more completely with the
client and allows us to benefit from some of the upside that Total Platform can deliver. This approach
is discussed in more detail on page 55.

This year, we have the systems and warehousing capacity to introduce four clients. So we do not
expect to add further clients this year, although we may lay the foundations for future deals. Our
priority now is to smoothly and efficiently execute the transition to Total Platform for these clients.
Over the course of the year we will gain a much better understanding of the costs and operational
challenges associated with the transition, along with the commercial benefits Total Platform can
deliver to our clients. These lessons will determine the shape and speed at which we grow this
business in the future.

6 A new startup brand will be launching in the second half of 2021. Their brand name is currently confidential and will not

be shared in this report and we refer to them as NewBrand.

7 This venture is jointly owned with Victoria’s Secret parent company, LBrands. The JV has a seven-year licence for Victoria’s

Secret and Pink product in the UK and Eire.

Licensing
Our licence business has grown significantly in the year, working with brands such as Baker by Ted
Baker childrenswear, Mint Velvet childrenswear, Joules menswear, Scion, and Laura Ashley
Upholstery and Flowers. In each case, the aim is to combine our partner’s design skills with NEXT’s
sourcing and quality expertise to create ranges better than either of us could create on our own.

In the year ahead we expect to launch licences with six new partners, and we are budgeting to
generate sales of £60m across all our licensed products.

Platform Plus
Last year we began to deliver meaningful returns on the investment we made three years ago in
Platform Plus, a system that enables us to take orders on stock available in our partners’ warehouses.
This service is forecast to generate sales of around £110m in the year ahead and a profit of more
than £15m.

THE INFRASTRUCTURE CHALLENGE
One of next year’s big challenges will be ensuring that our operational infrastructure keeps up with
the speed of our Online growth, the increasing breadth of our offer and the delivery of new business
ideas. To this end, we have accelerated capital investment in both warehousing and systems and we
expect to make good progress on both fronts in the year ahead (see page 26).

In addition to this investment in infrastructure, we are planning to significantly improve the level of
service we give through our contact centres with more people, new systems and improved working
practices.

WHERE DOES THAT LEAVE OUR STORES?
Our Retail business has two main challenges. Firstly, we must work towards getting our retail costs
in line with the new reality of lower sales. Secondly, we must continue to adapt our store operations
to keep them relevant in an online world.

There are three things we will focus on:

● Managing our occupancy costs down to levels that can be supported by Retail sales. Last
year 80 leases expired; we closed 18 branches and renegotiated rents in 62 stores, achieving
an average reduction in rent of -58%.

● Managing our staffing costs down to levels that can be supported by Retail sales and Online
work available in each store. Over the last two years, the headcount in our stores has
reduced from 24,700 to 21,600. The vast majority of that reduction has been achieved
through natural staff turnover, with existing members of staff taking up shifts made available
when others leave.

●

Improving the store based Online services we provide through store collections, returns
(before the pandemic, Online customers collected nearly 50% of their orders and returned
over 80% of returns). More recently, stores have taken on some of the simpler returns
processing and some basic packing work, which has proved particularly valuable at peak
times. We are also experimenting with how we can allocate contact centre work to our store
staff, providing valuable additional hours for staff and harnessing some of their experience
and product knowledge for the benefit of our Online business.

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OUTLOOK FOR THE YEAR AHEAD

Uncertainty on Many Levels
It is hard to think of a year where the outlook has been so uncertain. The health of the consumer
economy, the future course of the pandemic and the prospects for Retail stores remain unknown. It
also remains to be seen how many of the product preferences and shopping trends induced by the
pandemic will persist once life returns to normal. The following paragraphs set out our thinking on
the main uncertainties facing the business and our guidance for the year ahead.

Assumptions About the Consumer Economy and Future Lockdowns
Our best guess is that the consumer economy, at least in the short term, will be healthier than many
presume. It seems likely that a combination of pent-up demand along with a healthy overall increase
in personal savings will serve to keep the consumer economy moving forward.

Whether or not there will be further lockdowns this year is impossible to predict. We have (perhaps
optimistically) assumed that the rollout of COVID vaccines will result in stores remaining open for
the year, once the current lockdown has passed. If this assumption is not correct, it is unlikely we
will meet our central guidance for sales and profit.

Structural Change and the Future of Retail Stores
There remains a big question mark over the level of sales our stores will achieve when they reopen.
The pandemic has served to accelerate a pre-existing social trend - the move to more online
shopping. History has been given a shove and, having moved forward, seems unlikely to reverse.

That said, the steady reduction in Retail occupancy costs, the continued relevance of our stores to
online shopping through collections and returns and (perhaps) the closure of competing shops, mean
that the battle to keep our stores relevant in an online world is far from over.

So our base case for the year ahead is that store sales will decline, on a like-for-like basis, by -20%.
At this level (after reversing out the effects of the current lockdown) our store network would remain
marginally profitable (see page 49).

Sales and Profit Guidance
Our new central guidance is for the Company to deliver sales in line with those of 2019/20 (two years
ago) and profit before tax of £700m, down £29m on two years ago (see page 58). That performance,
on the surface, looks unremarkable, but it involves managing the loss of over half-a-billion of sales
from our Retail stores and building that turnover back across our various Online businesses.

The scale of that change, with all the risks involved, is considerable. But these are changes that we
have spent the last five years addressing. Looking ahead, there is more uncertainty than ever - the
consumer economy, future lockdowns and more. But there is one thing about which we are sure:
our business will emerge from the pandemic better placed to meet the challenges and opportunities
of the online era than it was at this time last year.

PART 2 - GROUP FINANCIAL
PERFORMANCE

OVERVIEW OF SALES, PROFIT AND NET DEBT
Brand full price sales in the year were down -15% on last year and total sales8 (including markdown
sales) were down -17%. This year was a 53-week year and the extra week added +1% to sales.

Profit before tax was £342m (pre-IFRS 16) and we reduced our net debt by £502m to £610m. The
53rd week added £12m to profit.

In the rest of this document, unless otherwise stated, we will compare sales and profit in the 53
weeks to January 2021 with 52 weeks in the prior year. We would usually provide figures and
variances to the prior year on a 52-week basis but, given the level of disruption in the year, we do
not believe this would be helpful.

On a statutory basis, total sales were down -17%. Profit before tax was also £342m and net debt
(including leases) reduced by £567m to £1,796m.

SALES
Total sales reduced by -£736m, with almost all of this reduction being in the first half of the year. In
the second half, the sales lost in Retail (-£368m) were almost entirely offset by sales gained Online
(+£364m).

Sales by Division
TOTAL SALES £m

Jan 2021

Jan 2020

Var £m

Var %

Online

Retail

Finance

Brand

Other

2,368.4

2,146.6

221.8

+10%

954.5

1,851.9

(897.4)

- 48%

250.3

268.7

(18.4)

- 7%

3,573.2

4,267.2

(694.0)

- 16%

52.7

94.6

(41.9)

- 44%

Total Group sales

3,625.9

4,361.8

(735.9)

- 17%

1st half
var £m

2nd half
var £m

- 142

- 530

- 6

- 678

- 24

- 702

+364

- 368

- 12

- 16

- 18

- 34

8 Total sales are VAT exclusive sales including the full value of commission based sales (refer to Note 1 of the financial

statements).

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Sales Phasing Throughout the Year
The chart below shows full price sales by month by sales channel. Retail sales are shown in green,
Online product sales are shown in blue and Finance interest income in grey. The dotted black line
shows the total full price sales for last year. The months that were most impacted by lockdowns,
resulting in the closure of the majority of our stores, are highlighted in pink.

At the beginning of the pandemic in March 2020, we temporarily closed our warehouse operation
for two weeks to make it COVID safe. On reopening in April, picking capacity was gradually increased
and was back to more normal levels during May.

Full Price Sales by Month

Interest income

Online

Retail

Last year

-8%

+6%

-49%

-1%

-85%

-27%

-19%

-7%

+3%

+4%

+1%

-19%

£500m

£450m

£400m

£350m

£300m

£250m

£200m

£150m

£100m

£50m

£0m

Feb

Mar

Apr
Lockdown

May

Jun

Jul

Aug

Sep

Oct

Nov
Lockdown

Dec

Jan

Lockdown

Comment on Brand Markdown Sales
Our stock levels were well controlled during the year. Despite the sudden drop in sales following the
first lockdown, our surplus stock in the year was down -17% on the prior year.

Markdown sales in the year were down -30% (down -41% in the first half and down -20% in the
second half). Markdown sales declined more than full price sales because:

● We were unable to fully service the mid-season Sale event in late March due to the closure

of our stores and the temporary closure of our warehouse.

● We reduced the availability of Clearance stock Online when warehouse picking capacity was

limited and full price orders were prioritised.

Surplus stock and markdown sales £m

Jan 2021

Jan 2020

Surplus stock at original selling value (VAT Inc)

Markdown sales (VAT ex.)

Clearance sales (VAT ex.)

Total markdown sales (VAT ex.)

959

228

314

1,159

324

126

450

Var %

- 17%

- 30%

- 32%

- 30%

PROFIT

Profit Summary (Excluding IFRS16 Leases)
PROFIT £m and Earnings Per Share

Online

Retail

Finance (after charging interest)

Brand

Sourcing and Other9

Property

Group recharge of interest from Finance business

Operating profit

Net external interest

Profit before tax

Taxation

Profit after tax

Earnings Per Share

Jan 2021

Jan 2020

Var £m

Var %

472.1

399.6

72.5

+18%

(205.9)

163.9

(369.8)

- 226%

112.4

378.6

(2.9)

(39.9)

48.4

146.7

(34.3)

- 23%

710.2

(331.6)

- 47%

27.8

(2.2)

36.3

(30.7)

(37.7)

12.1

384.2

772.1

(387.9)

- 50%

(42.2)

(43.6)

1.4

342.0

728.5

(386.5)

- 53%

(51.4)

(134.6)

83.2

- 62%

290.6

593.9

(303.3)

- 51%

226.3p

459.8p

- 51%

Statutory Sales and Profit
Profit before tax of £342m shown in the table above is stated on a pre-IFRS 16 (Leases) basis. The
financial information presented in pages 3 to 60 is also pre-IFRS 16, and aligns with the accounts we
use to monitor and assess the performance of the business. They are not statutory measures unless
stated as such. Last year (unusually) profit before tax, on a post IFRS 16 basis, was the same as on a
pre-IFRS 16 basis at £342m. The statutory numbers are summarised below and a reconciliation to
the pre-IFRS 16 is provided in the Appendix on page 61.

STATUTORY BASIS £m and EPS

Jan 2021

Jan 2020

Var £m

Var %

Sales

Profit before tax

Profit after tax

3,534.4

4,266.2

(731.8)

342.4

286.7

748.5

(406.1)

610.2

(323.5)

- 17%

- 54%

- 53%

Earnings Per Share (Basic)

223.3p

472.4p

9 Other includes Franchise, Lipsy and other Group costs (page 50).

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Non-recurring Costs, Savings and Profits
Within the reported profit before tax of £342m, there are a number of significant, non-recurring
items. These are summarised in the table below and in total, reduced profit by -£16m. The key lines
are briefly explained in the text below the table.

It should be noted that all the non-recurring profit items detailed below are cash generative in the
year, while almost all the non-recurring loss items are provisions that do not impact on cash flow in
the current year.

Full year profit impact (pre-IFRS 16)

Business rates reduction

Property profit from the sale and leaseback of properties

Profit from 53rd week

Subtotal: Benefits to profit

Property provisions for store impairment and onerous leases

Stock and fabric provisions

Bad debt provisions

Subtotal: Costs to profit

Total profit impact from non-recurring items

£m

+82

+44

+12

+138

- 100

- 34

- 20

- 154

- 16

Property Profit
In the first half of the year, we completed the sale and leaseback of a warehouse complex and our
head office. These transactions resulted in a cash inflow on sale of £154m and a net profit of £44m10.

Property Provisions for Store Impairment and Onerous Leases
We anticipate that Retail sales will not fully recover to pre-COVID levels and, as a result, we have
increased our property provisions by £100m. This is the combination of an £18m write down of store
assets and an £82m provision for future cash losses arising from onerous leases. Further details on
our future sales assumptions are given on page 50. Whilst we have estimated future losses to the
best of our abilities, it is possible that Retail sales may not be as good as we anticipate in 2021/22.
If that is the case, we may need to take further provisions in the year ahead.

Stock and Fabric - Provisions and Write-Offs
In the year, we made additional stock provisions and write-offs of £34m, for the following reasons:

● We have taken a provision for Spring/Summer 2020 stock that was hibernated until 2021.
● We made additional provisions against Clearance stock carried over into this year. Note that
this provision is over and above the usual 70% write-down we make on stock after our Sale
events.

● We have written off 30% of the value of the Fabric we purchased from suppliers which had

been bought by them to fulfil orders that we subsequently cancelled.

Total stock and fabric provisions have increased in the year from 9% of cost to 16%.

10 Under IFRS 16 the difference between the cash proceeds and the asset sold (£44m) is not recognised as a gain in the
year. Instead, the gain is £8m with the difference amortised over the remaining lease term. The cash benefit and P&L
impact over the lease term is the same. See page 61.

Bad Debt Provisions
We are maintaining the £20m provision made in the first half of this year for potential future bad
debt write-offs that might arise as a result of any adverse economic impact of the pandemic on
consumer finances. To date, we have not seen any deterioration in overall payment rates, but there
is a risk that this will change when the Government furlough and other schemes come to an end.

Taxation
The Corporation Tax charge of £51m includes the following two adjustments:

1. A significant element of the property profit of £44m from the sale of the warehouse complex
does not incur a tax charge. This is due to HMRC’s indexation allowance and, to a lesser
degree, historical capital losses.

2. The release of historical international tax provisions and prior year true ups with HMRC.

Corporation Tax Effective Rate walk forward

Profit before tax £m

Tax charge £m

Effective tax rate

Benefit from £44m property profit

Historical provision release and true ups with HMRC

UK headline tax rate

342

- 51

15%

19%

In the year ahead we expect our effective tax rate to be around 17.5%. This is lower than the UK
headline rate of 19% due to the following tax benefits, primarily driven by the 3 March 2020 Budget
announcement:

1. The Corporation Tax rate increase to 25% with effect from 2023 will require the revaluation
of our net deferred tax asset. The increase in the asset position provides a one-off
accounting tax rate benefit of 1%.

2. The super deduction for capital expenditure on qualifying plant and machinery results in a

tax rate benefit of 0.5%.

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RECONCILIATION OF CHANGES IN GROUP SALES, COSTS AND PROFIT
The table below explains how the £736m of sales lost during the pandemic translated into a profit
reduction of -£387m. It shows the year-on-year change in sales and major cost categories.

Profit impact January 2021 versus January 2020

Lost Retail sales

Gained Online sales

Lost Finance interest and other Group sales

Total lost sales

Reduction in
cost of stock

Reduced wages

Reduced store
occupancy costs

Reduced
marketing costs

Increased costs of
Online operations

Property provisions and
property profit

The cost of stock reduced due to the reduction in buy
budgets and stock cancellations. This was offset by non-
recurring stock provisions of -£34m.

Wage costs reduced, mainly in our Retail business when
stores were closed.

Includes business rates reduction of £82m plus savings in
rent and other store occupancy costs such as
maintenance and utilities (see page 45).

£15m saved from printing fewer catalogues, £6m saved
on photography and £9m saved from the temporary
suspension of marketing campaigns during the first
lockdown.

Higher logistics costs due to higher Online sales. We also
incurred cost increases relating to overseas freight
surcharges and PPE.

Property provisions of -£100m compared to -£10m in the
previous year, creating a net increase in property
provisions of -£90m. This net increase in provisions was
offset by £44m of property profit.

Year-on-year change in profit

£m

- 897

+222

- 61

- 736

+195

+130

+95

+30

- 55

- 46

- 387

CASH FLOW, FINANCING AND NET DEBT

HEADLINES

In the year to January 2021 we generated £521m of surplus cash before distributions, which
compares with £498m in the previous year. Net debt reduced to £610m.
Cash inflows in the year were significantly enhanced by two items that compensated for the fall in
profits:

● The net reduction of £206m in customer receivables.
● The sale and leaseback of our Head Office and a warehouse complex which generated a cash

inflow of £110m.

£m

Profit before tax

Depreciation and property provisions

Capital expenditure

Proceeds from sale and leaseback (net of profit gain)

Customer receivables

Working capital and other

Tax paid

Cash flow before shareholder distributions

Ordinary dividends

Share buybacks

Movement in net debt

Jan 2021

Jan 2020

342

228

729

131

See page 26

(163)

(139)

See page 39

See page 24

110

206

(89)

(27)

(58)

(113)

(138)

521

(19)

502

498

(214)

(300)

(16)

Tax
HMRC have changed the timing of quarterly Corporation Tax (CT) payments so that UK businesses
pay tax in the same year that the taxable profit is earned. Previously, half of the tax payment (two
quarters) was deferred until the following year. This change has resulted in a one-off catch up with
six tax quarters being paid this year, compared with four payments last year. In the year we paid
£113m of CT, of which £60m related to the prior year and £53m related to the current year.

£m

Tax paid relating to prior years

Tax paid relating to current year's profit

Total tax paid in period

Jan 2021

Jan 2020

113

138

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ORDINARY DIVIDENDS AND SHARE BUYBACKS
In April last year we advised our shareholders that we would suspend all shareholder distributions
until we had a better understanding of how the pandemic would impact the finances of the Group.
Prior to that announcement, in early February 2020, we had bought back 279,639 shares for £19m.

The finances of the business have been very resilient and the Group’s balance sheet is stronger now
than at the start of the pandemic. However, there is still much uncertainty in the Retail sector and
the wider UK economy. Rather than proposing a dividend at this time, the directors consider it
sensible to wait and see how the business performs once the current lockdown comes to an end and
COVID restrictions are lifted. In the long term we remain committed to paying dividends and
returning surplus cash to our shareholders.

CASH FLOW OUTLOOK FOR THE YEAR ENDING JANUARY 2022
Based on our central scenario, we expect to generate £175m of surplus cash after interest, tax,
capital expenditure and investments, but before any distributions to shareholders. This surplus cash
includes two significant items:

● An increase of £160m in customer receivables. This increase is based on the assumption
that payment rates move back to levels closer to those experienced before the pandemic.

● £33m relates to the investment we have made in Reiss (see page 55).

£m

Profit before tax

Tax

Capital expenditure

Acquisition (25% of Reiss)

Customer receivables

Working capital and other

See page 26

See page 55

See page 43

Cash flow before shareholder distributions and bond repayment

Jan 2022 (e)

700

(113)

(185)

(33)

(160)

(34)

175

Tax
Based on our central profit scenario of £700m, we expect to pay Corporation Tax of £113m. This is
made up of two elements: (1) Corporation Tax of £133m, which is 19% of profit before tax and (2) a
£20m reduction for the capital investment related super-deduction announced by the Chancellor in
the March Budget.

Tax Super-Deduction: Estimated Benefit
The tax super-deduction will allow an in-year tax deduction of 130% on qualifying capital expenditure
in the tax years 2021/22 and 2022/23. Based on our forecast for qualifying expenditure, we
anticipate incremental cash tax savings of c.£40m over the next three years as set out in the table
below:

£m

Tax benefit

Jan 22 (e)

Jan 23 (e)

Jan 24 (e)

Total

Tax rate change: Longer term
In the March 2021 Budget, the Chancellor also announced that the UK Corporation Tax Rate would
increase from 19% to 25% from April 2023. This increase will more than offset the short term benefits
of the super-deduction described above. Based on £700m of profit before tax, an increase in the UK
headline rate of 6% equates to an additional £42m in cash tax payments.

NET DEBT, BOND AND BANK FACILITIES
Our year end net debt at January 2021 was £610m, a reduction of £502m in the year. This is
comfortably within our existing bond and bank facilities of £1,575m, with headroom of £965m at the
year end.

Our existing facilities include a £325m bond which matures in October 2021. It is our intention to
repay this bond without issuing a new bond to replace it, effectively reducing the gearing of the
Group. Our total bond and bank facilities as at January 2022 would therefore reduce to £1,250m.

Outlook for Net Debt, Bond and Bank Facilities in the Year to January 2023
Based on our central guidance for the year ahead, we expect to generate £175m of surplus cash
before distribution to shareholders (see page 24). This would further reduce the Group’s net debt
to £435m. Even in the event that the Company decides it is appropriate to restart dividends later
this year (see page 24), we estimate that the Group would still have more than £500m of headroom
the following year, when net debt peaks in September 2022.

The bar chart below sets out our bond and bank facilities, following the repayment of our £325m
bond in October 2021.

Financing, Net Debt and Headroom Forecast
Financing, Net Debt and Headroom Forecast

Bank Facility
Bank Facility
£450m
£450m

Bonds
Bonds
£800m
£800m

£1,400m

£1,200m

£1,000m

£800m

£600m

£400m

£200m

£0m

£1.25bn

2024 RCF
£450m

2025 Bond
£250m

2026 Bond
£250m

2028 Bond
£300m

>£500m(e)
Headroom

2022/23 Peak(e)
September 2022

£100m

H2 2021/22
H2 2021/22
Potential dividends?
Potential dividends?
~£200m
~£200m

Jan 2022 (e)
£435m

Funding

Net debt

The Group manages the financing of its debt and liquidity to ensure it maintains its longstanding
investment grade credit rating.

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CAPITAL EXPENDITURE
SPEND BY CATEGORY
We have invested £163m in capital expenditure in the year to January 2021, an increase of £24m on
the prior year. Capex by category is shown below, along with our forecast for the year ahead.

£m

Warehouse

Systems

Retail space expansion

Retail cosmetic/maintenance capex

Head Office infrastructure

Total capital expenditure

Jan 2022 (e)

Jan 2021

Jan 2020

117

185

100

163

139

Warehousing
Warehousing was our biggest expenditure at £100m. This was part of a long-term investment
programme to increase capacity. In the year ahead we expect warehouse investment to increase to
£117m, as we incur costs relating to the fit-out of our new boxed warehouse (Elmsall 3). Planning
permission for the new warehouse was granted in September 2020 and we anticipate that the
warehouse will be operational in the second half of 2023/24. This first phase will provide a further
+60% increase in boxed unit throughput, compared to current levels. Elmsall 3 will be highly
automated and our aim is that the labour cost of Online boxed picking will be 45% lower in Elmsall 3
than in the year to January 2020.

Systems
We invested £21m of capital in systems this year. This comprised £4m for hardware and
infrastructure and £17m for software, which included the modernisation and development of three
core Online systems: our website platform, warehouse systems and product systems.

As we explained in our Half Year Results, until recently almost all our systems costs were expensed
as revenue costs. This has changed in recent years as the nature of our systems development has
changed to include:

● Long-term software infrastructure projects to update and replace existing legacy systems
● Total Platform third-party websites that will deliver benefits over the life of the Total

Platform contracts

In the year ahead we expect to increase capital expenditure on systems to £38m (£9m hardware and
£29m software development).

Retail Stores
Capital spent on Retail space expansion, at £29m, was £5m higher than last year. This is primarily
the result of delivering four large store re-sites, due to open in Spring 2021 (£18m) and four NEXT
Beauty Halls (£8m). Investment in new space is expected to reduce to £13m in the year ahead, due
to fewer new store openings.

Cosmetic and maintenance spend was £6m lower than last year as non-essential work was
suspended during lockdown. In the year ahead, we expect this to increase to £14m, which would
be a return to more normal levels.

OUTLOOK FOR CAPITAL EXPENDITURE
Forecast capital expenditure to the year ending January 2025 is set out below. The warehouse
expenditure which totals £447m over five years covers an extensive expansion programme to
increase Online capacity. This expenditure will increase our Online warehousing capacity by around
80% from where it was during the year ended January 2020.

Capital Expenditure Outlook by Category
Jan 2021 – Jan 2025(e)

Warehouse

Stores

Systems

Head Oﬃce/Other

£200m

£150m

£100m

£163m

£21m

£37m

£50m

£100m

£185m

£38m

£27m

£117m

£135m

£26m

£16m

£90m

£0m

Jan 2021

Jan 2022 (e)

Jan 2023 (e)

£115m

£26m

£16m

£26m

£16m

£70m

£21m
£21m

£37m
£37m
Jan 2024 (e)

Jan 2025 (e)

Changes in Capex Outlook Since September 2020 Update
During the last six months, our five-year plan for capex spend has increased by around £90m. This
is largely due to the acceleration of warehouse and systems spend (£65m). This spend is where we
have identified opportunities to increase Online productivity and throughput from our existing
estate. In addition, the final costings for our third boxed warehouse, Elmsall 3, is £25m more than
we originally estimated. The table below shows the increase by category of spend.

£100m
£100m

Capex category

Increased productivity and throughput

- Acceleration of investment in Home warehouse capacity

- Automation and storage

Systems - Accelerated modernisation of systems platforms

Elmsall 3 overspend

Total change in capex five-year outlook

+£30m

+£15m

+£20m

Increase

+£65m

+£25m

+£90m

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PART 3 - DIVISIONAL FINANCIAL
PERFORMANCE AND ANALYSIS

This part of the report gives a more detailed view of the financial performance of our three main
trading divisions - Online, Finance and Retail. Each section gives a forward looking view of how we
believe the divisions will perform in the year ahead, if we achieve the central guidance as set out on
page 58. We would not normally give as much forward looking information at this level, but think
it is helpful in a year where the economics of the Group have changed so much.

In addition to our main trading divisions, a brief summary of other Group companies and non-trading
activities is provided at the end of this section.

NEXT ONLINE

FULL PRICE SALES
Full price sales for the year were up +13% on last year. The chart below sets out performance by
month11 and shows how sales improved as the year progressed. The months that were severely
affected by national lockdowns are highlighted in pink.

Full Price Sales Phasing
At the beginning of the pandemic in March 2020, we temporarily closed our warehouse operation to
make it COVID safe. On reopening in April, picking capacity was gradually increased and was back to
more normal levels during May. June benefited from the pent-up demand experienced post-
lockdown. November, December and January were particularly strong as Online benefitted from the
closure of Retail stores during lockdown.

+50%
+50%
+40%
+40%
+30%
+30%
+20%
+20%
+10%
+10%

–

-10%
- 10%

-20%
- 20%

-30%
- 30%

-40%
- 40%

-50%
- 50%

Online Full Price Sales by Month
Online Full Price Sales by Month
2020/21 versus 2019/20
2020/21 versus 2019/20

+36%

+40%

+36%

+27%

+21% +20%

+27%

+30%
+30%

+16%

+6%

-10%
- 10%

-16%
- 16%

- 83%
-83%

Feb

Mar

Apr
Apr
Lockdown
Lockdown

May
May

Jun

Jul

Aug

Sep

Oct

Dec

Nov
Lockdown

+40%

+35%

Jan
Dec
Lockdown

Jan
Lockdown

11 January includes the 53rd week of sales, therefore in the chart we have included an additional comparative week in the

prior year to provide a more like-for-like sales performance for January.

Full Price Sales by Division
The table below sets out the full price sales performance by division for the full year and each half
of the year. Sales in all divisions stepped forward considerably in the second half and we have shown
the sales performance by half in the last two columns of the table. The second half figures are not
quite as good as they look, as the addition of the 53rd week boosted sales in the second half by +4%.

Full price sales £m

Jan 2021

Jan 2020

Var %

NEXT Brand UK

LABEL UK

Total UK Online

Overseas

Total Online full price sales

1,177

464

1,641

506

2,147

1,022

434

1,456

436

1,892

+15%
+7%

+13%

+16%

+13%

1st half
var %

2nd half
var %

- 10%

- 21%

- 13%

- 3%

- 11%

+36%

+30%

+34%

+35%

+34%

+£400m
+£400m

+£300m
+£300m

+£200m
+£200m

+£100m
+£100m

+£0m
+£0m

- £100m
-£100m

Online Full Price Sales Versus Last Year

Online Full Prices Sales Versus Last Year
LABEL UK

NEXT Brand UK

Overseas

NEXT Brand UK

LABEL UK

Overseas

+£78m

+£71m

+£200m

Second half
Second half

- £46m
-£46m
- £41m
-£41m
- £7m
-£7m
First half
First half

Full Price Sales by Account Type
UK credit customers still accounted for the largest proportion of full price sales (53%), but UK cash12
customers and Overseas customers delivered the highest rates of growth. This increase in cash
account sales was driven by a significant increase in customer numbers (page 30).

Full price sales £m

Jan 2021

Jan 2020

Var %

UK credit customers

UK cash customers

Total UK full price sales

Overseas cash customers

Total Online full price sales

1,133

508

1,641

506

2,147

1,131

325

1,456

436

1,892

+0%
+56%

+13%

+16%

+13%

1st half
var %

2nd half
var %

- 21%

+16%

- 13%

- 3%

- 11%

+18%

+88%

+34%

+35%

+34%

12 Cash customers are those who do not use a NEXT credit account when ordering. All Overseas accounts are cash accounts.

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ONLINE CUSTOMER BASE AND CUSTOMER PROFITABILITY

Customer Base Throughout the Year
The temporary closure of our Online operations during the first lockdown meant that we lost
customers at that time. Even once we were open, capacity constraints meant that we suspended
recruitment activity until such time as we had the capacity to service demand.

However, from June onwards we re-activated our Online marketing and, from that point onward,
we experienced a sharp recovery in our credit and cash customer base. Our Online customer base
ended the year at 8.4m up +28% on the prior year and up +40% on two years ago.

+9%
+9%

5m
Jan 2020

Jan 2020

Closing Number of Active Customers
Closing Number of Active Customers
Jan 2020 - Jan 2021
Jan 2020 - Jan 2021

+28%

- 6%
-6%

Apr 2020

Jul 2020
Jul 2020

Oct 2020

Jan 2021

The chart below shows how our customer base has developed over the last two years. Growth is
shown for active13 UK credit and cash customers in blue and Overseas customers in red. The two
year growth of each segment is shown to the right of the last bar.

Online Active Customers
Three Year View

Overseas (Cash)

UK Credit

UK Cash

8.4m

Two year
growth

+40%

6.5m

2.36m

2.64m

1.52m

3.73m

+76%

2.72m

+6%

1.92m

+50%

Jan 2020

Jan 2021

6.0m

2.11m

2.58m

1.28m

Jan 2019

13 Active customers are defined as those who have placed an Online order or received a standard account statement in the

last 20 weeks.

Customer Profitability
Given the very large increase in the participation of cash and Overseas customers. It is worth
outlining profitability of each customer type. The table below shows the profitability, as a
percentage of Online sales, for each customer segment. The first column shows the profitability for
the Online business only, the second column adds the finance profit for credit customers to show
their total profitability including credit.

Profitability by customer
category

UK cash (3.73m)

UK credit (2.72m)

Overseas cash (1.92m)

Total (8.4m)

Online + Finance
profit as a % of

Online margin %

Online sales

Average VAT ex.
sales per customer

26%

19%

16%

20%

26%

27.5%

16%

24%

£227

£490

£313

Before accounting for any finance profit, cash customers are significantly more profitable than credit
customers. This is mainly because they are more selective when ordering and so return stock at a
much lower rate than credit customers. (Cash customers order more selectively because they do
not have the try-before-you-buy facility built into our credit account). In addition, credit customers
tend to buy more lower margin (but higher priced) third-party branded stock.

Once the finance profit is added, credit customers are only marginally (1.5%) more profitable than
cash customers, and the main advantage of recruiting credit customers is that it facilitates higher
sales per customer (as shown in the final column of the table).

ONLINE PROFIT AND NET MARGIN

Profit and Net Margin by Division
The table below sets out the sales, profit and margin for our Online business broken down between
(1) the sale of NEXT branded stock in the UK, (2) The sale of third-party branded stock in the UK
through LABEL and (3) Overseas.

Online division

Total sales £m

Profit £m

Margin %

Change in margin
vs Jan 20

NEXT Brand UK

LABEL UK

Overseas

Total Online

1,319

520

529

2,368

315

472

23.9%

13.9%

16.0%

19.9%

+2.9%

- 1.3%

- 0.4%

+1.3%

The movement in margins in each division are shown in the right hand column and are explained as
follows:

● NEXT Brand UK profitability improved due to savings made in catalogue production and

online marketing.

● LABEL UK profitability declined due to poorer clearance rates of Sale stock in the first half.
Though it is important to note that the margin in the second half improved to 16% and was
in line with the prior year.

● Overseas margin declined due to increased, COVID related, distribution surcharges.

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Overall Online Margin Analysis
Overall Online margin improved from 18.6% to 19.9%. The margin impact of major cost categories
is summarised below.

Net margin on total sales to January 2020

Underlying bought-in margin was flat on last year.

Increased stock and fabric provisions reduced margin (see page 20).

- 0.8%

Bought-in gross
margin

Stock and fabric
provisions

Lower surplus

Customer
compensation

Catalogues &
photography

Marketing

Systems

Warehousing &
distribution

Full price sales grew by +13% but surplus stock was down -10%. So
despite lower clearance rates of surplus stock, margin improved.

Higher customer service and complaint resolution costs caused by
the disruption of lockdown.

Reduced book volumes and savings in catalogue production
improved margin.

The temporary suspension of marketing campaigns in the first half
meant digital marketing fell as a percentage of sales.

Systems revenue costs were lower than last year, boosting margin.
Overall spend on systems was up +£11m (+18%) but £14m of Online
software costs were capitalised this year (see page 26).

Margin was reduced by:
(1) freight surcharges levied during the pandemic to deliver parcels
to customers overseas (-0.5%), (2) overseas administrative, duty and
customs costs (-0.4%) and (3) COVID related operating costs such as
PPE, warehouse fit-out costs and temporary storage (-0.2%).

This margin erosion was offset by efficiencies from lower Online
return rates and better warehouse productivity (+0.9%).

18.6%

0.0%

+0.3%

- 0.3%

+1.2%

+0.7%

+0.4%

- 0.2%

19.9%

Net margin on total sales to January 2021

OUTLOOK FOR ONLINE SALES AND PROFIT IN THE YEAR AHEAD
In our central scenario for the year ahead, we are forecasting for full price sales to be up +31% on
2019/20 (two years ago), this represents an increase of +17% on last year. Total sales, including
markdown and Online Total Platform sales, would be up +30% on two years and +18% on last year.

We anticipate that Online net margin will be 20%, which is broadly in line with the last twelve months
and an improvement on the 18.6% margin achieved in 2019/20. The main reason for this margin
improvement versus 2019/20 is that we are no longer printing and distributing catalogues, which
will save around £30m compared with two years ago.

Forecast sales, profit and margins are set out below for the year ending January 2022 along with
comparisons with the previous two years. The second table shows operating margins by division.

Online sales, profit and margin Jan 2022 (e)

Jan 2021

Jan 2022(e)
vs 1 year

Jan 2020

Jan 2022(e)
vs 2 years

Total sales £m

Profit £m

2,793

2,368

560

472

+18%

+19%

2,147

400

Operating margin %

20.0%

19.9%

+0.1%

18.6%

Online margin by division

Jan 2022 (e)

Jan 2021

vs 1 year

Jan 2020

Jan 2022(e)

+30%

+40%

1.4%

Jan 2022(e)
vs 2 years

NEXT UK

LABEL UK

Overseas

Total

25%

15%

20%

23.9%

13.9%

16.0%

19.9%

+1.1%

- 1.0%

+0.1%

21.0%

15.2%

16.4%

18.6%

+4.0%

- 0.2%

- 1.4%

+1.4%

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FOCUS ON LABEL
LABEL now sells over 1,300 women’s, men’s, children’s, home and beauty brands, with the lion’s
share (98%) of full price sales coming from around 500 brands.

Full Price Sales by Product Category
The table below sets out LABEL’s sales performance by major category. LABEL’s first half was
hampered by a combination of (1) the two week closure of our Online business and subsequent
capacity constraints, (2) stock shortages in key product categories, particularly sportswear, and (3)
the weighting of many of LABEL’s clothing ranges to formalwear, which has underperformed since
the beginning of lockdown.

These issues were largely corrected for the second half, and performance significantly improved,
with Home and Beauty doing particularly well. The table below splits out the first and second half
performance in the final column.

Full price sales £m

Jan 2021

Jan 2020

Var %

Fashion: clothing, footwear
and accessories

Sports

Home

Branded Beauty

Total full price sales

254

124

464

274

106

434

-8%

+18%

+55%

+73%

+7%

First half
var %

Second
half var %

- 34%

- 7%

+27%

+19%

- 21%

+15%

+39%

+78%

+108%

+30%

As a result of changes in the year, LABEL’s product assortment has diversified and become less reliant
on fashion, as demonstrated in the following pie charts.

LABEL Full Price Sales by Category
Year to January 2021

LABEL Full Price Sales by Category
Year to January 2020

Home
12%

Beauty 6%

Home
9%

Beauty 4%

Fashion
55%

Sports
27%

Fashion
63%

Sports
24%

LABEL Drivers of Growth
The following four developments served to accelerate the growth of LABEL as the year progressed:

● Expanding our ranges in Home
● The rapid growth of Branded Beauty
● Developing Platform Plus, which has allowed us to significantly increase the breadth of offer

with over 190 brands

● Developing licensed product ranges in conjunction with partner brands.

Growing our Branded Home Business
Our Branded Home business had a strong year and full price sales increased by +£20m (+55%). We
achieved significant growth through the Platform Plus model, where stock is offered on the NEXT
website but held in our partners’ warehouses.

We have expanded our Branded Home product categories to include kitchen, lighting, wall art,
wallpaper and paint. In existing areas such as textiles (which includes bedding, curtains, rugs and
cushions) we have new brand partners and have been able to offer a wider choice in design and price
points. Branded furniture now includes categories such as garden furniture, divan beds and
mattresses.

In the year ahead we anticipate full price sales in Branded Home to be around £75m, with profit of
c.£13m.

Branded Beauty
The Branded Beauty business continues to deliver strong sales growth. Overall, full price sales
increased by +£12m; with £6m of the additional sales coming from new brands and £6m from brands
that have traded with us for over a year. In the year ahead, we anticipate full price sales of around
£42m. New brands continue to be added in 2021, including many of the market’s top premium
beauty brands.

Platform Plus
Our Platform Plus model allows customers to order items stocked in our partners’ warehouses, which
significantly increases the breadth of offer from participating brands. Platform Plus functions in two
ways:

● Delivered by NEXT: These items are collected from our partners’ warehouses and delivered
through our logistics network, so that they can be consolidated with other items in the same
order.

● Direct Despatch: These are large Home items that are despatched directly to the customer
by third-party brands through their own carrier networks. In the year ahead, some of our
most important Direct Despatch furniture brands will switch to despatching items directly to
customers using NEXT’s two-man delivery fleet. This should reduce costs for our suppliers
and give us greater control over service levels.

The following table sets out this year’s growth in brands and sales for both categories of Platform
Plus. This now accounts for £67m (14%) of LABEL sales, compared with £25m (6%) last year. We
expect this area of our business to continue to see strong growth and, in the year to January 2022
we are budgeting sales to be around £110m, up +64% on this year.

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Platform Plus category

Delivered by NEXT

Delivered by brand

Total

Jan 21
No. of brands

Jan 20

No. of brands

Jan 21
£m sales14

Jan 20
£m sales

193

44 +118%

69 +41%

113 +71%

11 +164%

14 +171%

25 +168%

Wholesale and Commission Sales
Nearly 60% of full price sales were achieved through brands that operate on a commission basis. As
summarised below, commission sales grew faster than wholesale brands and were up +11%.

Full price sales £m

Jan 2021

Jan 202015

Wholesale

Commission

LABEL full price sales

191

273

464

188

246

434

Var %

+1%

+11%

+7%

First half
var %

Second
half var %

-22%

-20%

21%

37%

- 21%

+30%

14 Platform Plus sales and brands for Jan 2020 have been restated. Sales of some NEXT products that are Direct Despatch
are no longer being classified under Platform Plus because their sales are reported within NEXT UK, not LABEL UK.
15 Please note that the table categorises sales according to whether a brand was trading as wholesale or commission in the

year ended January 2021, therefore prior year figures are restated to give a like-for-like brand performance.

FOCUS ON ONLINE OVERSEAS
Full price sales performance in the Overseas business strengthened following disruption to sales in
the first quarter. Sales in the second half were up +35%, with the additional 53rd week16 boosting
this figure by +4%. Full price sales in the year were up +16%.

Online Overseas Full Price Sales by Month
2020/21 versus 2019/20

+62%

+48%

+44%

+45%

+36%

+30%

+10% +11%

+12%

+8%

-16%

-87%

+70%

+50%

+30%

+10%

-10%

-30%

-50%

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Full Price Sales via NextDirect.com and Third-Party Websites
The table below summarises the full price sales performance on our own nextdirect.com website
and through third-party aggregators such as Zalando (including Zalando Fulfilment Solutions), Otto
and others.

The third-party sites are divided into those that were discontinued, those that were new and those
that traded continuously. Growth in continuous third-party sales was particularly strong throughout
the year, finishing up +39%.

Full price sales £m

Jan 2021

Jan 2020

Var %

1st half
% var

2nd half
% var

Third-parties

New

Discontinued

Continuous

Total third-parties

nextdirect.com

Total Overseas full price sales

451

507

398

436

- 100%

+39%

+48%

+13%

+16%

+45%

+34%

+55%

- 9%

- 3%

+43%

+34%

+35%

16 January includes the 53rd week of sales, therefore in the chart we have included an additional comparative week in the

prior year to provide a more like-for-like sales performance for January.

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FOCUS ON ONLINE WAREHOUSE CAPACITY

Coping with Online Sales Growth
The significant growth in Online sales along with social distancing rules created considerable
challenges for our warehouse operations. We benefited from a number of changes to improve
output:

● We have invested around £100m over the last two years delivering various capital projects
to both improve storage capacity and throughput. These projects benefited our Online
operation during 2020, including:

○ A new automated storage and retrieval system for boxed returns
○ Additional Online packing capacity
○ New reserve storage capacity in our boxed warehouses.

● We realigned staff shift patterns to make maximum use of the warehouse during the quieter

times of the day.

● We reallocated as much space and as many staff from Retail facilities to support our Online
operations. We used our store network and staff to support certain simpler warehouse
activities at peak times, particularly during the end-of-season Sale.

● When necessary, we limited the availability of markdown stock for sale on the website. This

allowed us to maximise full price demand.

Through the pandemic, we have discovered that there is one other (reluctant) lever that we can pull
to boost warehouse throughput. Moving our delivery promise from next-day to 48hrs allows us to
maximise output in the early hours of the day that would otherwise be short of work. Whilst this
measure would be a last resort, it gives us some comfort that we have options if we hit capacity at
peak times next year.

Warehouse Pick Capacity Growth in 2021/22
In the year ahead we plan to further increase our picking capacity in our main boxed warehouse.
The graph below shows our forecast weekly pick capacity in 2021 (red line) and 2019 (blue line) along
with our forecast picking requirement for the year ahead (the grey shaded area).

Weekly Picking Volumes – Main Boxed Warehouse
Weekly Picking Volumes - Main Boxed Warehouse

2021/22 Forecast pick requirement

2021/22 Forecast pick capacity

2019/20 Pick capacity

4.50

)
s
n
4.00
o

4.00

i
l
l
i

(

3.50

s
e
3.50
m
u
o
v
k
c
i
3.00
p
y
l
k
e
e
W
2.50

3.00

2.50

)
s
n
o

i
l
l
i

(

s
e
m
u
o
v
k
c
i
p
y
l
k
e
e
W

2.00

2.00
Jan

Jan

Feb

Mar

Apr
Apr May

May

Jun

Jul

Aug

Sep

Oct

Nov

Nov
Dec

Dec
Jan

Jan

NEXT FINANCE

HEADLINES

● Credit sales down -9%.
● Average receivables down -11%.
● NEXT Finance profit before cost of funding was £160m down -12% on last year.

FINANCE PROFIT AND LOSS ACCOUNT
The table below sets out the performance of the Finance business in the 53 weeks to January 2021
compared to the 52 weeks to January 2020. Lower credit sales, which were down -9%, drove down
average customer receivables, which were further reduced by an additional £20m bad debt provision
taken in respect of a possible deterioration in bad debt in the year ahead.

£m

Note of credit sales

Average customer receivables

Interest income

Bad debt charge

Overheads

Profit before cost of funding

Cost of funding

Net profit

Jan 2021

Jan 2020

1,592

1,050

250

(51)

(39)

160

(48)

112

1,748

1,185

269

(43)

183

(36)

147

Var %

- 9%

- 11%

- 7%

+17%

- 8%

- 12%

+33%

- 23%

ROCE (after cost of funding)

10.7%

12.4%

Closing customer receivables

£1,028m

£1,234m

- 17%

Interest Income
Interest income was down -7% on last year. This is 4% ahead of average customer receivables, which
were down -11%. The difference between the growth in interest income and receivables is because:

● The 53rd week added 2% to annual interest income
● 2% of the decrease in the average receivables was not a cash loss and came as the result of

an additional £20m bad debt provision (see over).

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Bad Debt
The bad debt charge of £51m was +£8m higher than last year. The table below shows the key
movements in the bad debt charge from last year.

Bad debt walk forward

Bad debt charge at prior year's rate (3.7% of average receivables balance)

Lower provision from faster payments (reducing balances in arrears)

Sale of debt previously written off

Provision for potential defaults resulting from COVID

January 2021 bad debt charge

£m

(39)

(20)

(51)

Last year we saw no evidence that overall bad debt was increasing as a result of the pandemic,
indeed, on average, customers accelerated the rate at which they paid down their balances.
However, there is a reasonable chance that defaults could increase once Government support
schemes such as furlough and payment deferrals end. So we have retained the additional £20m
provision for future losses that we charged in the first half of the year.

The chart below shows our observed rate of default as a percentage of customer receivables since
2009. The dotted line shows our closing provision for future defaults in those years. The graph
demonstrates the significant step up in our provision last year.

Defaults and Insolvencies (Net of Expected Recoveries)
as a % of Average Customer Receivables
Observed default rate

Closing provision for future defaults

9.8%

8.5%

7.1%

7.0%

4.5%

4.4%

3.7%

3.4%

3.3%

3.7%

3.3%

4.5% 4.3%

3.9%

11%

10%

10.2%

8.5%

7.9%

6.6%

Jan 2009

Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015

Jan 2016 Jan 2017 Jan 2018 Jan 2019 Jan 2020

Jan 2021

Cost of Funding

The Nature of This Charge
The cost of funding increased by +33% to £48m, despite the -11% reduction in average customer
receivables. The increase in the funding rate is an internal recharge, and the increased cost for the
Finance business is matched by an increase in income for the Group. So whilst the recharge serves
to give a more meaningful picture of the underlying profitability of our Finance business, the change
in rate has not affected the overall profit of the Group.

Calculating the Cost of Funding
The charge is based on the assumption that the Finance business funds 85% of its receivables balance
with debt from the Group. The interest charge is calculated using the average interest rate incurred
by the Group. The calculations for the cost of funding and the interest applied are set out in the
tables below.

Cost of funding calculation

Average customer receivables

Debt funding %

Jan 2021

£1,050m

85%

Jan 2020

£1,185m

85%

Var %

- 11%

Customer receivables funded by debt

£892m

£1,008m

- 11%

Group interest rate %

Cost of funding for 12 months

5.3%

£48m

3.6%

£36m

+33%

The Group’s average interest rate rose from 3.6% to 5.3%. This increase is because the Group has
less debt overall, and a greater proportion of debt was financed by higher interest bonds than lower
interest borrowing through the Revolving Credit Facility (RCF). The calculation is shown in the table
below.

Group interest % calculation

Jan 2021

Jan 2020

Var %

Bond

RCF less cash on deposit

Average net debt

Total net interest charge

Group interest rate %

£1,125m

£1,052m

(£333m)

£152m

£792m

£1,204m

£42.2m

£43.6m

5.3%

3.6%

- 34%

- 3%

+47%

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CREDIT CUSTOMERS
The number of active credit customers at the end of the year was up +3.0% on last year.17 At the
beginning of the year, the number of active credit customers was up +2.5% but declined to -3.4%
during the pandemic. The recovery in the second half has been mainly driven by the return of existing
customers who had become inactive during the first lockdown.

+4.0%

+3.0%

+2.5%

+2.0%

+1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%

Active Credit Customers
2020/21 versus 2019/20

+3.0%

-3.4%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Jan

The table below shows the opening, average and closing number of active customers against last
year.

Credit customers (‘000)

Jan 2021

Jan 2020

Opening actives

Average actives

Closing actives

Credit sales per average active (£ VAT Ex)

next3step (included in closing actives)

next3step as % of closing actives

2,643

2,584

2,722

£616

125

4.6%

2,578

2,582

2,643

£677

Var %

+2.5%

+0.1%

+3.0%

- 9.0%

+175.0%

1.7%

next3step
next3step was relaunched to new customers in January 2020. This credit product allows customers
to pay no interest on purchases if they pay off at least a third of the purchase price each month.
next3step is fully regulated by the FCA and customers’ creditworthiness is assessed on recruitment
and monthly thereafter. Around 30% of new credit customers choose next3step, which is around
2,000 customers per week. In the 53 weeks to January 2021, sales on next3step totalled £41m, which
represents 2.6% of credit sales.

17 The number of active credit customers is provided at the close of Week 53 and comparison is given to Week 52 in the

prior year.

PROFIT OUTLOOK FOR THE YEAR AHEAD
Our central guidance assumes a Finance profit of £116m. The table below shows our guidance for
the year ahead compared to last year, and two years ago. We are forecasting credit sales to be up
+17% against last year, with the majority of the growth coming in the first half, as sales come up
against soft comparative numbers. However, we anticipate that this sales increase will take time to
flow through into customer receivables.

The cost of funding, as a percentage of average receivables, is expected to marginally increase on
last year as the effect of last year’s reduction in debt annualises.

£m

Jan 2022 (e)

Jan 2021

vs 1 year

Jan 2020

Jan 2022(e)

Jan 2022(e)
vs 2 years

Note of credit sales

Average customer receivables

1,868

1,072

1,592

1,050

Interest income

Bad debt charge

Overheads

Profit before cost of funding

Cost of funding

Net profit

248

(37)

(43)

168

(52)

116

250

(51)

(39)

160

(48)

112

+17%

+2%

- 1%

- 27%

+9%

+5%

+10%

+3%

1,748

1,185

269

(43)

183

(36)

147

+7%

- 10%

- 8%

- 15%

+0%

- 8%

+46%

- 21%

ROCE (after cost of funding)

10.8%

10.7%

12.4%

Closing customer receivables

£1,188m

£1,028m

+16%

£1,234m

- 4%

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NEXT RETAIL
FULL PRICE SALES
Full price sales in the year were down -48% on last year. On a like-for-like basis, comparing sales to
the prior year only on the days that stores were trading outside of lockdown, full price sales were
down -18%. The chart below shows how like-for-like sales varied between the three periods when
stores were able to trade.

Like-for-Like Sales Versus Last Year
When Stores Were Open

-5

-10

-15

-20

-25

-11%

-12%

-20%

Pre-lockdown
Feb - March

After lockdown 1
June - early Nov

After lockdown 2
December

Store Performance by Location
Sales performance varied significantly according to the location of stores, with stores in out-of-town
retail parks performing much better than those in city centres and regional shopping centres. The
bar chart below shows the like-for-like sales performance by store location. Going into the year, 62%
of Retail’s sales came from stores in retail parks, therefore we were well placed to cope with the
change in shopping habits during the pandemic as customers preferred out-of-town locations, while
city centres suffered from the loss of office workers and general footfall.

Retail Stores Like-for-Like Sales Versus Last Year
by Store Type

Participation of Retail sales
going into lockdown

City centres

Regional shopping centres

Retail parks

-11%

-25%

-31%

-5

-10

-15

-20

-25

-30

-35

Regional
shopping
centres
11%

City
centres
27%

Retail
parks
62%

RETAIL PROFIT & LOSS
Total sales (including markdown sales) were down -48% resulting in a loss of -£206m.

£m

Total sales

Operating profit/(loss)

Jan 2021

Jan 2020

955

(206)

1,852

164

Var %

- 48%

- 226%

Var £m

- 897

- 370

The following table sets out the change in sales and major costs versus last year.

Profit impact January 2021 versus January 2020

Full price sales

Markdown sales

Total lost sales

Reduction in
cost of stock

Stock cancellations at the start of the pandemic and lowering of budgets
for the remainder of the year resulted in £320m less being spent on
stock. This reduction is net of non-recurring stock provisions and write-
offs (-£12m).

Underlying bought-in margins remained flat on last year.

Reduced
wages

During lockdowns almost all Retail store staff and support teams were
furloughed. Costs incurred in Retail stores providing Online services
during lockdowns were recharged to the Online business.

Reduced store
occupancy
costs

The rates holiday generated a saving of £82m. Rents were £14m lower
than last year, due to rent reductions negotiated at lease renewals
(£10m) and stores closures (£4m). Maintenance, service charges and
utilities costs fell by £12m.

Rent savings were offset by a £7m loss of rental income from
concessions and the addition of a 53rd week increased occupancy costs
by £6m.

We impaired store assets by £18m, compared with £4m in the prior
year. (In addition to store impairment, an £82m provision for onerous
leases was made in the Property Management division of the Group,
see page 50.)

These savings include savings made in Retail logistics, store
consumables and central overheads.

Store
impairment

Other
operational
cost savings

Year-on-year change in profit

£m

- 802

- 95

- 897

+320

+114

+95

- 14

+12

- 370

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RETAIL SPACE
In the year to January 2021 net retail space increased by +44,000 square feet but the number of
stores reduced by seven. The year-on-year change in store numbers and square footage is set out
below. The main addition to space this year has been the opening of four NEXT Beauty Halls.

January 2020

New mainline stores

New NEXT Beauty Halls

Mainline closures

Clearance stores

January 2021

Change

Change %

Store
numbers

NEXT
Sq. ft. (k)

Concessions
Sq. ft. (k)

Total
Sq. ft. (k)

498

+ 2

+ 4

- 18

+ 5

491

- 7

8,031

+ 9

+ 166

- 190

+ 43

8,059

+ 28

361

+ 11

+ 3

+ 2

377

+ 16

8,392

+ 20

+ 169

- 190

+ 45

8,436

+ 44

+ 0.3%

+ 4.4%

+ 0.5%

Closures
We closed 18 mainline stores after their leases had expired. The stores fall into three categories:

● Low profitability stores where stores were loss making or were expected to become loss

making in the near future.

● Stores in locations we trade more than one shop and believed we could increase profit by

consolidating sales into one location.

● Forced closures where landlords did not wish to renew the lease.

Reason for store closure

Low profitability

Consolidation

Forced closures

Total

No.

Store turnover
(pre-COVID)

Store profit Store profit %

£21m

£13m

£7m

£41m

£1.5m

£2.3m

£1.4m

£5.2m

18%

19%

13%

Outlook for Retail Space During 2021/22
We anticipate that Retail space will remain broadly flat in the year ahead. This is due to a
combination of seven store re-sites that will increase square footage by around 40,000 and the
closure of six stores that will reduce square footage by broadly the same amount of space.

LEASE RENEWALS AND COMMITMENTS

Lease Renewals in the Year Ended January 2021
We renewed 62 store leases for an average lease term of three years. Annualised rent costs reduced
on average by -58%, saving £9.7m.

As shown in the table below, only 22 leases (35%) were agreed on the basis of a fixed rental charge.
Seven were short term leases agreed on a rent-free basis, where we will only pay business rates and
service charge where applicable. The remaining 33 leases are linked to store turnover, providing the
necessary flexibility to ensure that we can keep them open.

We renewed eleven leases on the basis of a ‘total occupancy’ deal, where we will pay the landlord a
set percentage of turnover to cover rent, business rates and service charge. The figures below
recognise the entire value of this deal as a rent saving.

New lease category

Fixed rent charge

Zero rent

Rent linked to store turnover

Total

Rent saving

Rent-free incentive / capital contributions

Average lease term (to earlier of break or lease end)

No. of leases

Rent before
renewal

Rent after
renewal

£5.2m

£1.5m

£10.0m

£16.7m

£3.0m - 42%

£0.0m - 100%

£4.0m - 60%

£7.0m - 58%

£9.7m

£4.8m

3 years

We continue to invest in stores where we have renewed the lease. We received £4.8m of capital
contributions or rent-free incentives from our landlords and, in total, we will invest £6.1m upgrading
these stores.

Forecast Lease Renewals for the Year Ending January 2022
We expect to renew 56 store leases in the year ahead with an average lease term of three years. We
anticipate rent reductions of -47%, delivering annualised savings of £7m.

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Five Year History of Outstanding Lease Commitments
Our Retail store lease commitments (undiscounted) continue to fall as lease renewals are negotiated
on lower costs and relatively short lease terms (on average, around three years). At the end of
January 2021 our average lease commitment (weighted by value) was 5.5 years, compared with 5.9
years at the same time last year.

The chart below shows a five year history of our total undiscounted lease commitments, for Retail
stores, central warehouses, offices and other leases and demonstrates the dramatic reduction in the
Group’s exposure to Retail rents. Retail store lease commitments have reduced by -£646m since
January 2017, a reduction of 38%.

Total Outstanding Lease Commitments
Jan 2017 - Jan 2021
Warehouses (Retail & Online)

Retail stores

Oﬃces and other

£2.0bn
£64m

£275m

£1,685m

£1.8bn
£50m

£258m

£1,527m

£1.7bn
£47m

£258m

£1,355m

£1.5bn
£46m

£238m

£1,196m

£1.6bn

£125m

£386m

£1,039m
-38%
vs Jan 17

£2,000m

£1,500m

£1,000m

£500m

£0m

Jan 17

Jan 18

Jan 19

Jan 20

Jan 21

In the same period, lease commitments for warehouses and offices have increased by £111m and
£61m respectively. These increases are mainly due to the sale and leaseback transactions completed
earlier this year.

THE OUTLOOK FOR RETAIL SALES AND PROFIT IN THE YEAR AHEAD

Central Scenario Sales and Profit
We are forecasting for Retail full price sales to be down -20% on a like-for-like basis versus 2019/20
(two years ago). In addition to like-for-like declines, stores are expected to be closed for the ten
week lockdown between February and April. This means that total full price retail sales will be down
-34% on two years ago. Total sales, including markdown sales, are forecast to be down -32%.

The anticipated sales, costs and profit for the year ahead are given in the table below versus 2019/20.
As can be seen, all costs are falling, although not in line with the sales reduction of -32%. We
therefore expect Retail to make a loss of -£20m.

£m

Total sales

Achieved margin

Occupancy costs

Rent and service charge

Maintenance, utilities and consumables

Depreciation

Rates

Payroll

Warehouse & distribution

Central costs

Profit/(loss)

Jan 2022(e)

Jan 2020

Var £m

Var %

1,253

712

(350)

(178)

(66)

(58)

(48)

(160)

(105)

(117)

(20)

1,852

1,099

(465)

(201)

(74)

(90)

(100)

(210)

(119)

(141)

164

(599)

(387)

115

- 32%

- 35%

- 25%

- 11%

- 36%

- 52%

- 24%

- 12%

- 17%

(184)

- 112%

Non-Recurring Items in Retail
Within the forecast loss of -£20m, we are accounting for the fact that most of our Retail stores will
be closed for c.10 weeks. We estimate that this will result in lost sales of around c.£250m and margin
of c.£135m. This loss is offset by: (1) business rates relief of c.£48m and (2) a £17m reduction in
central costs, which will be re-allocated to our Online business in line with its sales participation of
the Group. The net impact of these non-recurring items is to reduce profit by -£70m. So excluding
these non-recurring items underlying Retail profit would have been forecast at £50m.

£m

Impact of February - April c.10 week lockdown

Business rates relief

Other costs

Retail profit impact from non-recurring items

Underlying Retail profit excluding non-recurring items

Profit impact

(135)

(70)

However, it is important to stress that although the lockdown might have cost Retail £70m of lost
profit, the cost to the Group was considerably less, as many of the lost Retail sales have been
recovered through our Online business.

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OTHER BUSINESS ACTIVITY

The profits and losses from other business activities, including our other Group trading companies
and non-trading activities, are summarised below along with estimates for the year ahead.

£m

NEXT Sourcing (NS)

Lipsy

Lipsy - Victoria's Secret Joint Venture

Franchise and Retail International

Property management

Central costs and other non-trading activities

Total profit / (loss)

Jan 2022 (e)

Jan 2021

Jan 2020

27.0

14.0

6.0

5.0

8.0

(30.0)

30.0

17.8

5.2

0.5

3.4

(39.9)

(29.8)

(42.8)

32.0

13.0

0.0

6.2

(2.2)

(23.4)

25.6

NEXT Sourcing, Lipsy and our Franchise business all experienced significant reductions in profit due
to the fall in sales this year. We anticipate that these will recover in the year ahead.

Central costs were £7m higher than last year due mainly to changes to actuarial assumptions for the
defined benefit pension scheme and a higher cost of employee share schemes.

Property Management
Property management reported a loss of -£40m in the year. This is mainly due to the net effect of
two significant items:

1. Onerous lease provisions of -£82m. This charge relates to expected future cash losses in 55
Retail stores over the remaining terms of their leases. This provision has been driven by the
significant fall in Retail sales during the COVID pandemic and our projection for sales over
the next ten years.

In our central scenario for 2021/22 we are forecasting Retail full price sales to be down -34%
on 2019/20 (i.e. two years ago, pre-COVID). This decline in sales includes the ten week
closure at the start of the year. (On a like-for-like basis sales would be down -20% on
2019/20). We have assumed that the sales lost from the temporary closures during February
to April 2021 will be recovered in 2022 but like-for-like sales will be down -6% and then
continue to fall by -6% per annum for the following eight years.

2. Property profit gain of +£44m from the sale and leaseback of a warehouse complex.

In the year ahead we expect a profit of £8m, mainly from the warehouse sale and leaseback.

Interest
Net interest was £42.2m compared to £43.6m last year, on average net debt that was down -34%.
In the year ahead we are forecasting an interest charge of £38m, a reduction of -£4.2m against the
previous year, mainly due to the fact that we intend to repay (and not refinance) the £325m bond
that falls due in October 2021 (page 25).

PENSION SCHEME
On the IFRS accounting basis, the valuation of our defined benefit schemes moved from a surplus of
£133m at January 2020 to a surplus of £99m at January 2021. Further detail is provided in Note 20
of the Financial Statements.

A full actuarial valuation of our defined benefit pension scheme was undertaken as at 30 September
2019 and showed a deficit of £19m. The position when rolled forward to 31 December 2020 was a
deficit of £7m. We have paid a £24m contribution into our pension schemes this year.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Shareholder expectations and regulatory changes in relation to ESG matters have increased
significantly over the last couple of years. Throughout 2020, we have built on the extensive work we
already undertake as a responsible business to ensure we respond to these expectations. We have
made some good progress on the ESG goals we had previously set ourselves and during 2020 we
established some new, more demanding targets.

Our ESG priorities are summarised below. These and many other aspects of our work in the ESG
arena are covered in detail on pages 78 to 90.

Carbon Emission Reduction
By 2030 we aim to:

● Reduce our direct and indirect (from NEXT energy consumption) emissions by 55% against a

2016/17 baseline.

● Reduce our other indirect emissions from NEXT’s operations by 40% against a 2019/20

baseline per £1m sales.

These reduction targets for carbon emissions are consistent with the Science Based Target Initiative
to reduce emissions in line with the Paris Agreement.

Climate Change
In 2020 we became a signatory to the British Retail Consortium’s Climate Action Roadmap, a
framework to guide the industry to net zero emissions by 2040.

Responsible Sourcing/Operational Waste
It is our ambition to source 100% of the main raw materials we use through known, responsible or
certified routes. By 2025 we aim to:

● Eliminate avoidable plastics in product packaging.
● Source 100% of cotton only from Better Cotton Initiative, recycled, Certified Organic or

Fairtrade Certified sources.

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PART 4 - TOTAL PLATFORM
In our Half Year Report in September we described our new Total Platform business in detail and we
have included an excerpt from that report in the box below as a reminder of the rationale of the
business. In this section we provide a more detailed update on how Total Platform is developing,
the clients we are working with and the equity investments we have made as a result.

CONCEPT - A REMINDER

The aim of Total Platform is to allow clients to grow their business without the capital costs,
operational risks and management time associated with developing increasingly complex and
expensive infrastructure. No one starts a new brand because they are passionate about warehousing
and data protection! Total Platform allows brands to focus on the things they love doing and where
they can add the most value - building their product ranges and developing their brand.

Total Platform services include: website systems, an online marketing platform, warehousing for
boxed, hanging and palletised products, distribution networks (including to our c.500 stores), returns
handling, call centre services, account management systems, payment systems, credit facilities, data
management and security systems, international websites and other online infrastructure along with
our marketing and operational know-how. We have recently extended the scope of our services to
include retail warehousing and distribution alongside the use of our proprietary point-of-sale
software.

Total Platform is a pay-as-you-go answer to operating an online business. Clients pay through a
simple commission on sales, so there are no uncomfortable step-change increases in fixed costs and
no capital requirements to support growth. No one needs reminding that fashion is a volatile
business and the variable cost base also serves to protect the client should they have a difficult year.
And, of course, the commission model has one other vital function: it aligns our interests with those
of our clients; if they do well, so do we.

In addition, Total Platform can provide clients who operate retail stores with retail warehousing,
distribution, in-store stock systems and till systems.

NEW CLIENTS
We are now working with five Total Platform clients: Childsplay Clothing, Laura Ashley, Victoria’s
Secret, a new brand18 start-up that will launch in September (referred to as ‘NewBrand’) and Reiss.
The table below sets out the timescales for implementation and any equity interest we have acquired
in the client.

Client

Target Launch Date

Equity Interest

Description

Childsplay

Live Oct 2020

Laura Ashley

Live Mar 2021

Online luxury
childrenswear

Iconic home and fashion
brand

Victoria’s Secret
UK and Eire

May 2021

51% share in UK JV
with LBrands

Global lingerie, clothing
and beauty brand

NewBrand

Reiss

Oct 2021

Feb 2022

33%

25% with option to
buy a further 26%

Affordable luxury men’s
and women’s apparel
brand

18 A new start-up brand will be launching in the second half of 2021. Their brand name is confidential and will not be

shared in this report and we refer to them as NewBrand.

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TOTAL PLATFORM LIGHT
In the course of tailoring Total Platform to cater for the differing timescales and requirements of our
new clients, we have developed two slightly different models. The original Total Platform delivers a
customer experience completely independent of NEXT, with every touch point (ordering, checkout,
packaging, call centre services, etc.) branded for the client in such a way that the customer has no
sense that the operations are being managed by NEXT.

Two of our clients (Laura Ashley and NewBrand) have opted for a different approach. The customer
will still experience a unique client-branded home page (see image below) and search results will
only return the client’s products. However, these web pages effectively sit in a ring-fenced area of
the main NEXT website, and when customers go to checkout they check out through NEXT (see
second image below) and the product is fulfilled by NEXT in our packaging.

Total Platform Light does not deliver the full brand experience of Total Platform but it has a number
of big advantages.

●

It is much quicker and simpler to implement, so brands that are in a hurry can go live in three
to six months.

● The cost of implementation is a third to a fifth of full Total Platform, so the commission for

Total Platform Light is considerably cheaper than full Total Platform.

● Any of our 6.5m UK NEXT customers can sign into the Total Platform Light using their NEXT
credentials and, if they are credit customers, pay for goods using their nextpay account.

MARGIN AND RETURN ON CAPITAL
Our target margin for Total Platform is 5%-8% of our client’s online business. The larger the client’s
turnover and the simpler its operations, the lower our margin will be. Retail services are charged on
a cost plus basis.

The estimated annualised online turnover of all five clients, in their first full year of operation, is
£200m (please note that some brands will launch earlier than others, so this turnover will not all fall
in the same financial year). The collective Total Platform profit for these clients anticipated to be
£10m in their first full year of operation.

EQUITY

The Rationale of an Equity Investment
Although Total Platform delivers a reasonable margin and very healthy return on capital invested,
we believe the returns will be much higher for our clients, if we can deliver anything like the growth
and operating efficiencies planned. For that reason, we thought it sensible to have a stake in that
upside and have agreed to invest in a minority stake in most of our new clients.

As stated above, all five new clients are expected to deliver around £10m of profit in their first year
of operation. However, the additional profit from our equity share in just three of these clients
(which includes a share of their retail and wholesale profits) is estimated to be in the region of £20m
in the first year of operation (NB most of this profit will fall in the year ending January 2023).

The maths of equity participation is very compelling, and it is possible that Total Platform benefits
the Group more through its ability to add value to equity investments, than it does through the profit
it delivers on the service contracts.

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The Types of Brand We Would Invest In
We believe that there are two key criteria which need to be satisfied before investing in any business
- they must be great brands and be businesses to which we can add value.

Excellent Brands
Businesses we invest in must be great brands, and that means they must conform to the following
three characteristics:

A Clear Brand
Proposition

Good Online
Economics

Brands where both consumers and employees understand what
the brand means, what it stands for, and where it sits in the
market.

Brands that deliver online margins commensurate with the risks
involved in trading a fashion brand online. Essentially the higher
the average selling price and the lower the returns rate, the
more profitable a brand is likely to be.

Customer Goodwill

Brands whose core customers love what they do and want them
to succeed.

Businesses Where We Can Add Value
We need to be sure that we can add significant value to the brands we invest in. We believe that
the value created will mainly come from the infrastructure, service levels and know how that comes
with Total Platform. But for some partners, our other systems, property expertise and sourcing base
might also add significant value.

The Rationale of Part Acquisitions versus 100% Takeover
Given how compelling these equity investments appear, some might ask: why are we only buying
part of a business, rather than the whole? The disadvantages of a part purchase are lack of day to
day control along with the potential to be “dragged along” into a sale of our stake. We believe that,
on balance, the advantages of part purchase significantly outweigh the disadvantages of owning a
minority stake for the following two reasons:

Diversifying Risk
Through buying smaller parts of many businesses we diversify the impact of any one of them having
a ‘fashion accident’. It is less risky to own 20% of ten brands than 100% of two.

To some extent this approach goes right to the heart of the Total Platform concept. Total Platform
removes operating leverage from individual fashion brands. NEXT takes on that volatility risk but can
mitigate it by spreading across a number of different clients.

Avoiding the Retail Conglomerate
We want the businesses we invest in to continue to think and act like independent companies, with
their own culture, point of view and approach to fashion. It is our belief that independence of
thought and freedom of action go right to the heart of any fashion business. It is important that
those who live and breathe the company feel part of something special and distinct.

The mentality of people who work for mono-brand businesses is very different from those who are
part of a giant conglomerate; they tend to have a much greater affinity and loyalty to the brand. That
mentality is particularly important at the very top of the company.

Looking at the same issue from the opposite perspective, the acquisition of many minority stakes in
independently run businesses, reduces the risk that NEXT’s management will get sucked into the day
to day management of the acquired businesses which would detract from our focus on NEXT.

NEXT STEPS
Many of our shareholders have asked where we see Total Platform in ten years’ time. The answer
is that we do not yet know; in the same way we could never have imagined the contribution LABEL
would make to the business if we had sat down and attempted to model its future ten years ago.
The reality is the future success of Total Platform will depend most on the effectiveness with which
we implement these first five contracts. So in the year ahead we have three objectives for Total
Platform:

● Execute well and ensure that we maximise the success of the five contracts we have in place.

● Ensure that in building these platforms we create software that is reusable for new clients
going forward. In effect taking bespoke models and designing them to enable mass
production.

● Ensure that we really understand the economics of the business. Of course we have built
detailed cost and operating models, but you never quite know how costs will turn out until
operations are live.

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PART 5 - SALES AND PROFIT
OUTLOOK FOR 2021/22

HEADLINES

● Total Brand full price sales guidance remains unchanged and flat against 2019/20 (a two-

year comparison).

● The anticipated end of the third lockdown in April19 is two weeks later than we had allowed
for in our previous guidance. However, the profit lost from those additional two weeks, has
been offset by the benefit of the extension of business rates relief announced in March.
In the first eight weeks of the year, Online sales have been stronger than expected and are
up more than +60% on two years ago. This overachievement plus the expected transfer of
sales from Retail during the additional two weeks of lockdown, are expected to add £30m of
profit. As a result, we are raising our central profit guidance by £30m from £670m to £700m.

●

Our central scenario for full price sales and profit by business division is set out in the tables below.

Full price sales £m

Online

Retail

NEXT Finance interest income

Total full price sales

Total Brand sales

Jan 2022 (e)

Jan 2022 (e)
% vs 2 years

2,477

1,091

248

3,816

4,294

+31%

- 34%

- 8%

+1%

Profit/(loss) before tax £m

Jan 2022 (e)

Jan 2022 (e)
% vs 2 years

Online

Retail

NEXT Finance

Other Group

Total Group profit before tax

560

(20)

116

700

+40%

- 112%

- 21%

+140%

- 4%

19 This refers to the end of the lockdown in England (which represents around 85% of our retail sales). The end of lockdown

in parts of Scotland, Northern Ireland and Eire will follow later.

FULL PRICE SALES AND PROFIT SCENARIOS
To give an idea of the sensitivity around our full price sales assumptions, we have set out below an
upside and downside scenario for full price sales and profit before tax. All scenarios exclude the
effect of any further lockdowns.

Full price sales versus 2019/20

Profit before tax

Profit before tax versus 2019/20

Downside

Central scenario

- 3%

£645m

- 11%

£700m

- 4%

Upside

+3%

£745m

+2%

FULL PRICE SALES AND PROFIT MOVEMENTS (CENTRAL SCENARIO)
The graphic below sets out how the forecast change in full price sales by business is expected to
impact on profit, relative to 2019/20, along with the cost savings and cost increases we are
forecasting in the year ahead.

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Cost Savings and Cost Increases
A summary of the significant cost savings and cost increases is summarised below.

Cost savings

Marketing, catalogues and photography

Fully depreciated assets

Business rates relief and occupancy cost savings

Other Retail savings

Other Group savings

Total cost savings

Cost increases

Inflation (includes wage inflation)

Warehouse and distribution

Lower clearance rates

Other cost increases

Total cost increases

£m

+£30m

+£25m

+£55m

+£10m

+£9m

+£129m

£m

- £30m

- £20m

- £12m

- £15m

- £77m

FIRST QUARTER TRADING UPDATE

Our first quarter Trading Statement will cover the thirteen weeks to 1 May 2021 and is scheduled for
Thursday 6 May 2021.

Lord Wolfson of Aspley Guise
Chief Executive
1 April 2021

APPENDIX 1 - STATUTORY SALES AND PROFIT
Jan 2021
STATUTORY BASIS £m and EPS

Jan 2020

Var £m

Var %

Sales

Profit before tax

Profit after tax

3,534.4

4,266.2

342.4

286.7

748.5

610.2

(731.8)

(406.1)

(323.5)

- 17%

- 54%

- 53%

Earnings Per Share (Basic)

223.3p

472.4p

Adjusted net debt (including leases)

(1,796.1)

(2,363.1)

567.0

- 24%

Overview
The financial information presented in pages 3 to 60 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. Because these performance measures are not prepared on a full IFRS statutory
accounting basis they are commonly referred to as “Alternative Performance Measures” (APMs).

Differences between APMs and Statutory results
The APMs differ to the statutory results in two key ways:

● Firstly, following the introduction of the new lease accounting standard IFRS 16, we decided
to maintain the reporting of our profit on a pre-IFRS 16 basis. This was because the pre-IFRS
16 profit was consistent with the financial information used to inform business decisions and
investment appraisals.

● Secondly, in common with many retailers, we used “Total Sales” as a measure to assess the
performance of the business and not statutory revenue. Having been prepared on a basis
that was consistent with prior years, and our Trading Statements, it was our view that this
provided both a useful and necessary basis for understanding the Group’s results. We have
taken the same approach this year.

Total Sales to Statutory Revenue
During the year, on a statutory basis, sales were down -17%. Sales presented in pages 3 to 60 are
based on “Total Sales”. “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 £159.4m for the period to January 2021
(2020: £137.7m)

● 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
£67.9m for the period to January 2021 (2020: £42.1m)

As a result, Total Sales for the period to January 2021 of £3,625.9m (2020: £4,361.8m) are recognised
for statutory purposes as revenue of £3,534.4m (2020: £4,266.2m). 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.

Strategic ReportGovernanceFinancial StatementsShareholder Information

IFRS 16 Leases and the Impact on the Income Statement
Last year, on adoption of IFRS 16 for the first time, we recognised a significant portion of the lease
costs directly in reserves. Where the lease portfolio is stable, this will result in lower lease costs being
recognised in the Income Statement going forward. This was evident in the January 2020 Income
Statement, which showed a benefit to profit before tax of £20.0m when it was restated for IFRS 16.
However, for the year to January 2021 the impact of IFRS 16 includes both the underlying adjustment
and the impact of non-recurring items (store impairments and gain on the sale and leaseback) as set
out below:

1. Underlying IFRS 16 transactions +£20m: This represents the IFRS 16 adjustment on
underlying/normal trade and can be viewed in four components: (1) IAS 17 rent costs net of
capital contribution and other lease incentives of +£212m; (2) benefit from reassessment of
lease term of +£6m less (3) the IFRS 16 depreciation -£138m; and (4) finance costs on the
lease liability of -£60m.

2. Lease provisions and impairment +£16m: The property and onerous lease provision charge
of £100m recognised under pre-IFRS 16 accounting has been reversed and an impairment
charge for store assets and right-of-use assets recognised of £84m. The net charge in the
Income Statement for these costs was therefore £16m lower than the pre-IFRS 16 charge.

3. Sale and leaseback gain -£36m: In the pre-IFRS 16 accounting the gain on the sale and
leaseback is calculated as proceeds less the net book value of the assets being
sold. However, under IFRS 16 the approach is different. IFRS 16 effectively limits any gain to
the element of the asset which it no longer has access to use. The gain is effectively limited
to the ‘portion’ of the asset not reacquired under the terms of the leaseback. This has
resulted in the recognition of a smaller gain of £8.1m.

The net impact of IFRS 16 on both 2021 and 2020 is summarised in the table below. IFRS 16 changes
profit before tax, profit after tax and Earnings Per Share.

£m

Profit before taxation

Taxation

Profit after taxation

Earnings Per Share (Basic)

£m

Profit before taxation

Taxation

Profit after taxation

Earnings Per Share (Basic)

Jan 2021
excluding IFRS 16

IFRS 16 impact

Jan 2021
including IFRS 16

342.0

(51.4)

290.6

226.3p

0.4

(4.3)

(3.9)

342.4

(55.7)

286.7

223.3p

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

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.

This also applies to the gain on the sale and leaseback which, over the life of the lease, will result in
the same net impact to the Income Statement.
Taxation
The tax charge in the period to January 2021 under IFRS 16 is £4.3m higher than the charge on a pre-
IFRS 16 basis. This is despite the headline profit before tax being just £0.4m higher. The table below
walks forward between the two tax charges.

Corporation Tax Effective Rate walk forward

Pre-IFRS 16

IFRS 16

Profit before tax £m

Tax charge £m

Effective tax rate

Benefit from property profit and other non-taxable income

Historical provision release and true ups with HMRC

UK headline tax rate

342.0

- 51.4

15.0%

2.2%

1.8%

19.0%

342.4

-55.7

16.3%

0.9%

1.8%

19.0%

The difference in the tax rates is largely driven by the different amount of income recognised under
IFRS 16, which reduces the profit on the sale and leaseback from £44m to £8m. This in turn reduces
the tax rate benefit for the non-taxable element of the sale.

Non-Recurring Items
In the Chief Executive’s Review the impact of non-recurring items is presented based on a pre-IFRS
16 basis. The IFRS 16 equivalent is set out in the below table.

£m

Business rates reduction

Profit from 53rd week

Property profit from the sale and leaseback of properties

Store related impairment

Stock and fabric provisions

Bad debt provisions

Total profit impact

Profit impact (IFRS 16)

+82

+12

- 84

- 34

- 20

- 36

The difference between these items and those on a pre-IFRS 16 basis relate to the gain on the sale
and leaseback and the store related impairment (as explained in the Income Statement bridge).

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Adjusted Net Assets and Retained Earnings

£m

Non-current assets

Current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

NET ASSETS

TOTAL EQUITY

Jan 2021
excluding IFRS 16

IFRS 16
adjustment

Jan 2021
including IFRS 16

713.7

2,331.4

3,045.1

(1,077.6)

(1,131.4)

(2,209.0)

836.1

755.7

(42.8)

712.9

(119.2)

(768.9)

(888.1)

(175.2)

1,469.4

2,288.6

3,758.0

(1,196.8)

(1,900.3)

(3,097.1)

660.9

The IFRS 16 adjustments to the balance sheet have four key components:

1) The recognition of a right-of-use asset representing the Group’s right to use and realise value
through the use of assets held under lease terms. These are £720.1m and represent the key
movement in the Non-current assets adjustment of £755.7m.

2) Removal of the balance sheet accounts relating to pre-IFRS 16 lease accounting. This
includes, for example, the removal of lease incentives, rental prepayments and accruals.
These adjustments resulted in the adjustment of £42.8m in current assets.

3) The recognition within current liabilities of the current element of the lease liability of
£170.1m. This is offset by the removal of rent-free provisions and other rent accruals
resulting in a net adjustment of £119.2m.

4) The recognition of the non-current element of the lease liability of £1,015.8m. This is offset
by the removal of long term capital contributions which are subsumed within the IFRS 16
right-of-use asset under IFRS 16.

Adjusted Net Debt
Net debt at January 2021 excluding leases, was £610.2m (2020: £1,112.1m). From a statutory
reporting perspective, IFRS 16 results in the recognition of lease debt on the Balance Sheet of
£1,185.9m (2020: £1,251.0m). The year-on-year reduction in lease debt reflects the payments made
in the period, the reassessment of certain lease terms and the trend towards shorter lease terms on
retail stores, offset by the sale and leaseback transactions entered into during the period.

£m

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

Jan 2021

Jan 2020

Reduction
in net debt

514.8

(1,163.0)

38.0

(610.2)

(1,185.9)

(1,796.1)

52.9

(40.0)
(1,163.7)

38.7

(1,112.1)

(1,251.0)

(2,363.1)

501.9

567.0

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 emphasise 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.

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BUSINESS MODEL

Why we are unique
Our NEXT Platform draws on all our assets – stores, warehouses, delivery networks, systems, marketing, credit facilities – to create a powerful
aggregation business selling hundreds of third-party clothing and home brands alongside our own NEXT merchandise. 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. Its importance was demonstrated this year given the enforced store closures during the
COVID pandemic.

The shift to online shopping also enables NEXT to benefit from sales commission on third-party brands and sales into overseas markets without the
associated retail overheads. In 2020/21, over £500m of third-party brands’ products were sold through LABEL and sales of NEXT branded products
overseas also exceeded £500m.

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.

WHAT WE SELL

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 65 countries

Customer Credit – £1.2 billion NEXT Finance credit business

Overseas Online – 1.5 million overseas customers

NEXT BRANDED PRODUCTS
in-house
• Our

develop
responsibly sourced NEXT branded
products offering great design, quality
and value for money.

team

• NEXT Sourcing, our Hong Kong-
based international sourcing agent,
competes for business with other
suppliers.

LABEL
• LABEL

is our online aggregation
business selling over 1,000 third-
party brands.

LIPSY
• Lipsy is our wholly owned subsidiary
which designs and sells
its own
branded and other branded products.

• Aimed

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 over
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.

Responsibly sourced materials
• We source globally to deliver NEXT
branded products that are responsibly
sourced. We are working closely with our
suppliers to fulfil our ambition to source
100% of our main raw materials through
known, responsible or certified routes
by 2025.

Our objectives

Our purpose is to offer beautifully designed, excellent quality clothing
and homeware which are responsibly sourced and accessibly priced,
and in doing so build shareholder value through long term, sustainable
growth in Earnings Per Share (EPS).

We are, at heart, a fashion and homeware business with excellent
operations and strong financial disciplines. We have spent years honing
those skills and the supporting infrastructure. It is these qualities that
we aim to leverage and develop, supported by our core principles of
doing business responsibly:

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 65 countries.

Well-connected store network
• Around 500 stores in the UK and Eire.
• Our stores play an important role in supporting
our Online customers by facilitating the
collection of orders and processing of returns.

Overseas
• 1.5 million overseas customers.
• 190 mainly franchised stores in 36 countries.
• Online orders are fulfilled from both our UK.
warehouses and our international hubs.
Flexible UK credit financing business
is currently
• £1.2bn of consumer credit

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.

Cost and quality control
• Our sourcing structure provides excellent
quality and accessibly priced products.
It also helps maintain our margin
through efficient product sourcing, stock
management and cost control.

Creating value for shareholders
• We manage financial resources effectively
with a strong focus on cost control and
maximising shareholder value.

Outstanding customer experience
• Customers can order online or in-store and

choose delivery to home or store.

• Next-day delivery as standard for UK

• NEXT is highly cash generative; after
investing in the business, surplus cash is
returned to shareholders.

Online customers.

• We also offer a ‘Collect Today’ service in
the UK on certain items ordered online.

• Strong supplier relationships.

Strategic ReportGovernanceFinancial StatementsShareholder InformationKEY 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 217 for further details. The KPIs include
Alternative Performance Measures (APMs). The KPIs for the period to 30 January 2021 are based on 53 weeks’ trade (2020: 52 weeks).

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

-14.8%

+4.0%

-16.5%

+3.5%

Full price sales are VAT
exclusive sales of stock items
excluding items sold in our
mid-season, end-of-season
and Black Friday Sale events,
our Clearance operations and
Total Platform. It
includes
interest
income on those
sales.

NEXT Retail
operating margin

NEXT Online
operating margin*

Group proﬁt
before tax (£m)

-21.6%

+8.9%

+19.9%

+18.6%

342.0

728.5

Total sales are VAT exclusive
full price and markdown
sales including the full value
of commission based sales
and
(as
described in Note 1 to the
financial statements).

interest

income

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

* 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 (Basic)

APM

Ordinary dividends

Share buybacks

Total

213.6

19.3

300.2

19.3

513.8

226.3p

459.8p

2021

2020

2021

2020

2021

2020

2021

2020

Based on dividends paid in
the Cash Flow Statement.
Refer to Note 7 to the
financial statements.

the

total

financial

A
279,639
of
shares were purchased
in
year
(2020: 5,376,718) at an
average cost per share of
£69.15
£55.83)
(2020:
including stamp duty and
associated costs.

Refer to Note 8 to the financial statements.

The average price before costs
was £68.72 (2020: £55.49).
Buybacks represented 0.2%
(2020: 3.9%) 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 Note 1 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

+13.5%

+11.9%

+9.9%

+11.9%

2,584

2,582

3,984

3,420

6,568

6,002

Average active customers
are defined as those who
have placed an Online
order
a
standard account statement
in the last 20 weeks.

received

Credit customers are those
who order using an Online
credit account, whereas
cash customers are those
who pay when ordering.

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

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

-48.4%

-4.3%

-48.5%

-5.3%

n/a

-5.7%

n/a

-5.5%

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 377k sq. ft. (2020: 361k sq ft) of space occupied
by concessions.

Store numbers

Square feet (000’s)

491

498

8,059

8,031

2021

2020

2021

2020

2021

2020

2021

2020

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.

Due to the impact of COVID and the enforced closure of our
retail stores the like-for-like comparative is not presented in this
year’s KPIs. This is because it is not possible to reliably provide an
insightful like-for-like performance for Retail sales.

2021

2020

2021

2020

NEXT Finance

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)

1,592.3

1,747.6

250.3

268.7

1,050

1,185

112.4

146.7

10.7%

12.4%

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

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

Return on Capital Employed
is defined as the NEXT
Finance net profit (after the
interest
relating
charge
to the cost of funding,
divided by the average
debtor balance).

Strategic ReportGovernanceFinancial StatementsShareholder InformationRISKS 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
and consideration of risk mitigations after taking into account risk appetite and the impact of 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 in more detail 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
• Risk Steering Group
• Audit Committee

Operational risk registers

• Senior managers and operational directors
• Corporate compliance team

Corporate risk register

• Internal Audit
• Risk Steering Group

• Corporate compliance team
• Executive directors

Principal risks and uncertainties

Viability assessment

• Risk Steering Group
• Executive directors

• Audit Committee
• Board

Assess
risk
effectiveness
management and internal control
systems. Challenges are fed back to
the management team to consider.

Risk identification, assessment
and mitigation
• On a day-to-day basis, the risk management process is coordinated
by the corporate compliance team which reports its findings to the
Risk Steering Group and 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 of all significant Group-level
risks identified from the operational risk registers. The operational
and corporate risk registers help to ensure we have a ‘bottom up’
system whose objectives are to ensure a comprehensive
identification and prioritisation of all important risks. They also help
to ensure a robust risk culture company-wide.

• We use the corporate risk register to help us determine the principal
risks and uncertainties disclosed in this report. We do so by
supplementing the information on the corporate risk register with a
‘top down’ review which involves the senior management team and
Board. The objectives of this review are to distill insights and provide
clarity on the most important risks of the business and to provide
effective oversight of enterprise-wide risks. 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 and material risk
events 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 Group has been established
which meets at least six times annually and reports to the Audit
Committee. The work of the Risk 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 to identify
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.

• 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 focused on the risks and controls identified through
this risk management process.

Emerging risk
As part of the ongoing risk management described opposite, the
Group’s subject matter experts in each business area, the Risk Steering
Group and Board are all specifically tasked to undertake horizon
scanning 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 principal
risks in light of the increasing reliance of the business on technology,
stakeholder expectations and regulatory attention relating to climate
risk, the changing shape of the business, the challenging trading
conditions in the retail sector and other external factors.

Climate Risk
During the year we undertook a detailed review to identify the risks and
opportunities posed to NEXT by climate change and how they might
impact our business. We considered the transitional and physical risks
and opportunities presented by rising temperatures, climate-related
policy, and emerging technologies. We documented all opportunities
and risks using the Task Force on Climate-Related Financial Disclosures
(TCFD) framework and quantified financial impacts. We also sought to
gain an understanding of timeframes of impact, cost of management
and monitoring indicators. Even though there is uncertainty around the
time horizon over which climate risks will materialise, stakeholder
expectations and regulatory attention could develop at pace, impacting
the rate at which the business may need to cut carbon emissions.
The output of this work was considered further by the Board when they
assessed the principal risks.

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 67
we detail our core principles of doing business and how those principles
contribute to managing the business objectives within the Board’s risk
appetite. 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.

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 2021 and up to and including the date of this report (see page
107 for further details). The business will continue to review
opportunities to develop, strengthen and improve the effectiveness of
these systems.

A roadmap of risk management improvement deliverables for 2021 has
been developed and includes:

• The implementation of a new Integrated Risk Management

software system.

• Establishing clear management appetite on the treatment of
improved ownership,
intended to drive

operational risks,
consistency on clarity and risk management.

No significant failings of internal control were identified during
these reviews.

COVID
Whilst the Group’s risk management remains unchanged, the
operational, principal and emerging risk landscape has been reassessed
in light of the impact of the pandemic on these risks. During the year,
detailed reviews have been undertaken by the Board and senior
management on the impact of the pandemic. These included
the following:

• Cyber and data security and the impact of home working.

• Health and safety.

• Financial controls, reporting and fraud and the impact of home

working and business disruption.

• Regulatory and compliance controls.

• Business resilience and liquidity levers.

• Lessons

learned from the Company’s response to the first

COVID wave.

• Business impact assessment and business continuity.

In all cases, the outcome of these reviews was reported to the Audit
Committee or Board and, where appropriate, controls have been
strengthened to help mitigate increased risks.

Strategic ReportGovernanceFinancial StatementsShareholder InformationRISKS AND UNCERTAINTIES

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 107 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 broadened to ‘Legal, regulatory and ethical standards
compliance’. This is to recognise the growing and significant risk of
other non-FCA regulatory and statutory obligations, including data
privacy and environmental, social and governance (ESG), the latter
of which also considers changing obligations
in relation to
carbon emissions.

•

‘Information security, data privacy, business continuity and cyber
risk’ is changed to ‘Information security, data protection, business
continuity and cyber risk’ reflecting the movement of the privacy
element to ‘Legal, regulatory and ethical standards’.

Link to strategy

•

‘Customer facing systems’ is changed to ‘Business critical systems’.
This broadens the risk, reflecting our increased reliance on
technology whilst continuing to acknowledge 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 principal risk areas otherwise remain the same as reported last
year. Those principal risks are described over the following 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 the business operates within its risk 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 77).

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 ↓ Decreasing

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.

• 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 diversification.

• 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.

Principal risk and description

How we manage or mitigate the risk

Product design and selection

↓

Our success depends on designing and selecting products that
customers want to buy, at appropriate price points and
stocked in the right quantities.

In the short term, a failure to manage this risk may result in
surplus stocks that cannot be sold and may have to be
disposed of at a loss.

Over the longer term, a failure to meet the design, quality and
value expectations of our customers will adversely affect the
reputation of the NEXT Brand.

Key suppliers and supply chain management

↔

Reliance on our supplier base to deliver products on time and
to quality standards is essential. Failure to do so may result in
an inability to service customer demand or adversely affect
NEXT’s reputation.

Changes in global manufacturing capacity and costs may
impact profit margins.

Non-compliance by suppliers with the NEXT Code of Practice
may increase reputational risk or undermine our reputation as
a responsible retailer.

• Executive directors and senior management continually review the design,
selection and performance of NEXT product ranges and those of other
brands sold by NEXT.

• LABEL brands (along with our new Beauty business) have served to increase
the breadth of our website offer far beyond NEXT’s natural design, fashion
and price boundaries. Just as important, but much less obvious, has been
the numerous ways in which our own NEXT product ranges have been
extended and diversified.

• 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.

• 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 81.

• 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.

Strategic ReportGovernanceFinancial StatementsShareholder Information
RISKS AND UNCERTAINTIES

Principal risk and description

How we manage or mitigate the risk

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, along with an accelerated shift
from Retail to Online sales resulting from COVID lockdowns
has
operation with
our warehouse
significant challenges.

presented

Business critical 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 maintain efficient use of suitable
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
to evolve.
Keeping customers and users up to date and managing the
implementation and changes that come with the evolution of
these platforms, in addition to maintenance of existing
systems, can be challenging.

technology continues

As detailed in the Strategic Report, our business has an
increased reliance on technology and the development of
new business ideas within the Group (such as Total Platform)
increases that reliance further.

• 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 an extensive
warehouse investment programme to accommodate further Online growth
and transfer in customer demand from Retail to Online (see page 26 for
further details).

• 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.

Principal risk and description

How we manage or mitigate the risk

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.

Information security, data protection, 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
quickly.
Continuous enhancement and investment is required to
prevent obsolescence and maintain responsiveness.

accurately

and

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.

• We operate an Information Security and Data Privacy 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
security
change management procedures,
requirements and service level agreements on third-party suppliers, and IT
capacity management.

contractual

imposing

• 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 exposures are reviewed during
the year by both the Audit Committee and the Board; this informs an
executive-sponsored programme of continuous improvement.

•

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 liquidity 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
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 £1bn 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 liquidity 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.

• The events of 2020 led to very significant focus on the Group’s liquidity
position. The Board continues to keep under review the cash generation
levers available to it, including the potential quantum and timescales of
initiatives to reduce debt and realise cash. Net debt has been significantly
reduced in the year and actions taken have further strengthened the
liquidity of the business.

• 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 receive regular updates throughout the

year regarding the customer credit business.

Legal, regulatory and ethical standards compliance

↑

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.

With growing reliance on our digital online and marketing
activities, 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.

With regards to climate risk, stakeholder expectations and
regulatory attention could develop at pace, impacting the rate
at which the business may need to cut carbon emissions.

• 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
• We operate an Information Security and Data Privacy 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.

• With regard to climate risk, the transitional (including regulatory
requirements) and physical risks and opportunities presented by rising
temperatures, climate-related policy, and emerging technologies will be
kept under review using the TCFD framework. Climate risk, regulatory
changes and stakeholder expectations are considered on an ongoing basis
by our ESG Steering Group and Audit Committee.

VIABILITY ASSESSMENT

Statement of viability
The directors have assessed the prospects of the Group by reference to its current financial position, its recent and historical financial performance
and forecasts, its business model (page 66), strategy (page 67) and the principal risks and mitigating factors described on pages 72 to 76. 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 both in the short and long term. In each of the three years preceding the financial year to January 2021, the business generated cash,
before distributions, in excess of £400m. Actions taken during 2020/21 have further strengthened the cash liquidity of the business and reduced its
net debt from £1.1bn to £0.6bn. As a result, the business now has greater financial resilience going forward. The directors review the current
financial headroom and cash flow projections on a regular basis to ensure that the business retains sufficient liquidity to meet its obligations in full
as they fall due.

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.

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.

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

IT systems development

Pensions

Currency hedging

Management succession planning

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 sales and hence 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.

• The financial covenants attached to the Group’s debt were stress tested. This testing indicated that the business could withstand a sustained
decline in sales of more than 25% over a 12 month period and still remain within its existing financing facilities. This assessment did not require
the business to seek any additional or new external financing.

• Considering the likelihood and impact of severe but plausible scenarios in relation to each of the principal risks as described on pages 72 to 76.
These principal risks were assessed, both individually and collectively, taking into consideration a broad range of mitigating actions that might
be undertaken in particular situations. These mitigating actions included a mix of cost saving measures (such as a deferral of capital expenditure
and cancellation of stock purchases) and the ability to realise additional cash inflows from financing or other initiatives (such as the sale of ESOT
shares or assets). 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 has also been given to the potential risks associated with COVID and the lockdown restrictions imposed to control the
pandemic. This included the preparation of stress tests which model the impact of a sustained decline in Retail sales arising from an extended
lockdown and the actions which the business could take to control costs, conserve cash and meet its liabilities as they fall due.

Viability statement
Based on this review, the directors confirm that they have a reasonable expectation that the Group will continue to meet its liabilities as they fall
due over the three year period.

Strategic ReportGovernanceFinancial StatementsShareholder InformationCORPORATE RESPONSIBILITY

During 2020, we increased our efforts towards ESG issues. In this report,
we explain what NEXT is doing to meet our environmental and social
obligations. We have made good progress on setting our near term and
longer term aspirations but we realise there is still more to do.

During the year we established an ESG Steering Group which is
responsible for overseeing the delivery of our improvement roadmap,
ESG targets and emerging ESG risks. Updates on ESG activities were
provided during the year to the Audit Committee which has added ESG
as a standing agenda item at each of its meetings.

In the year ahead, we will focus on building our data and measuring our
indirect (Scope 3) carbon emissions and embedding ESG into our day
to day business decisions. We will continue to make progress towards
full disclosures in line with the Task Force on Climate-related Financial
Disclosure (TCFD) and the standards developed by the Sustainability
Accounting Standards Board (SASB).

Our principles
Our business activities impact a wide range of stakeholders and we
strive to make this impact a positive one. The way in which we manage
our business is underpinned by principles that ensure we conduct our
business responsibly. Our purpose is to provide our customers with
beautifully designed, excellent quality products but these products also
need to be well made, functional, safe and responsibly sourced in a way
which respects the environment and the people and animals within our
supply chain. We seek always 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.

• Provide support through donations to charities and community

organisations.

We continue to implement the United Nations Guiding Principles on
Business and Human Rights and align our work with the United Nations
Sustainable Development Goals (SDGs) that are most relevant to our
business operations and products. We focus on those goals where we
can make the biggest difference to the environment and society. We are
also a member of the FTSE4Good Index Series.

More information can be found in the Group’s Corporate Responsibility
Report which is published on our corporate website at nextplc.co.uk.

The following pages describe how we uphold our principles in relation
to our stakeholders and the work we are doing to reach our SDGs.

O U R P E O P L E

Health, safety and wellbeing
During the year, we worked hard to keep our colleagues and customers
safe against a backdrop of rapidly changing risks and regulations.
2020 has presented significant challenges and we are particularly proud
of the way in which our colleagues have responded.

•

The safety and wellbeing of colleagues is always our top priority and
the pandemic has reinforced how important it is that we look after
each other. Early on in the pandemic and as a result of the feedback
from our warehouse colleagues, we quickly made the decision to
close our warehouses temporarily in order to redesign our processes
and operations to be COVID-safe. Before re-opening, we consulted
with our colleagues and our recognised union, USDAW, to make sure
employees felt safe with our new ways of working. We initially limited
the number of daily online orders to ensure that the new processes
worked safely and prioritised items that our customers needed most,
such as Childrenswear.

Maintaining a regular flow of communication with colleagues and
customers has been more important than ever this year. We provided
frequent updates on health, safety and working arrangements, set
up an employee hub with a range of COVID-related information
and support videos. We also carried out a range of surveys and staff
engagement activities, all aimed at understanding how our colleagues
were being affected by the new working practices, and how we could
support them better.

Good health and wellbeing is one of the SDGs we focus on. We try
to make NEXT an exciting and rewarding place to work and we want
everyone to work in an environment where they are able to maximise
their creativity, productivity and engagement. It is important therefore
to have a culture that enables all our employees to achieve positive
mental wellbeing. In 2018, we launched our Mental Wellbeing Charter,
aimed at encouraging an environment where mental wellbeing is
discussed openly, improving how we can identify and help those
suffering from mental ill-health, ensuring that people are treated fairly
and with care and compassion. In recognition of the fact that retail is
the largest private sector employer in the UK, we collaborated with the
Samaritans and our peers to develop Wellbeing in Retail, an initiative
that supports the mental health and wellbeing of retail workers.

Alongside our wellbeing activities we have also developed our approach
to diversity and inclusion in the business:

•

In 2019, we created Pride@Next, an employee-led LGBT+ network
which works to raise awareness of LGBT+ issues at NEXT and helps
shape our policies. For example, with input from Pride@Next, we
developed a policy to support transgender colleagues.

In 2020, we focused on women returning from maternity leave by
trialling certain roles as part-time to work around school drop-off
and pick-up times and enhancing the support offered to working
parents. We continue to look at ways to increase flexibility around
maternity and during the year we offered virtual coaching.

In early 2021, we launched Unity, an employee-led network focused
on celebrating the diversity of cultural backgrounds represented at
NEXT. This included working with the business on providing more
career opportunities for ethnic minority employees. We continue to
work with our partner, Business in the Community, on the Mentoring
Circles programme which offers young BAME people the chance to
connect with mentors in their chosen industry and to share their
experiences of the workplace and help mentees with their (own)
career progression.

Our face to face diversity and inclusion training will launch by the end of
2021, with an interim digital solution launching in summer 2021.

Equal opportunities and diversity
NEXT is an equal opportunities employer and we offer career
opportunities without discrimination. Job vacancies are filled by
the candidates who have the most relevant skills and competencies
to succeed. Our 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. Further details of our diversity policy are included
in our Nomination Committee Report on page 108.

Full consideration is given to applications for employment from disabled
persons, having regard to their particular aptitudes and abilities.
We continue the employment wherever possible of anyone who
becomes disabled during their employment, providing assistance and
modifications to their environment where possible. Opportunities for
training, career development and promotion do not operate to the
detriment of disabled employees. In 2019, we 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.

We continue to look at ways to improve gender diversity. Women are
well-represented throughout the Group, with half of our executive
directors and 40% of our Board being female. In relation to our senior
management and their direct reports, NEXT was ranked first in the
2020 ‘Hampton-Alexander Review FTSE Women Leaders: Improving
gender balance in FTSE leadership’. In 2020 we created a working party
comprising individuals from the Online and IT teams to champion
recruitment and development of female talent in technology.

Recognising that women can be disproportionately affected by childcare
commitments, our Head Office (which employs over 3,000 people) has
a purpose-built Nursery onsite. This is part of our ongoing commitment
to support our employees with their pre-school childcare arrangements.

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The gender mix of the Group’s employees at the end of the financial year is set out in the table below.

Directors of NEXT plc
Subsidiary directors and other senior managers1

Total employees

2021

2020

Male
6

12,976

Female
4

27,891

Male
5

14,143

Female
4

30,271

At January 2021, senior managers comprised 14 male and 12 female employees and their direct reports consisted of 66 male employees and 84 female employees.

Gender equality is a fundamental human right and is another SDG that
we focus on. This is because gender equality continues to be a challenge
in less developed countries where we are looking at ways to support
improvements. During the year, we continued to support KADAV,
a non-government organisation based in Istanbul, Turkey, which works
with predominantly Syrian women to provide them with access to
childcare, language lessons and vocational training.

Reward, gender pay and employee
share ownership
We aim to reward all employees with fair and competitive salaries
and provide the opportunity to earn additional pay in the form of a
bonus depending on Company (or, in some cases, store or individual)
performance. Our annual Gender Pay Report can be found at
nextplc.co.uk.

During the periods of pandemic-related store and warehouse closures,
we had to furlough many of our workforce. To support our furloughed
employees, we topped up the salaries of all those paid above the
furlough scheme cap to 80% of their normal pay.

We operate a Sharesave scheme to encourage employees to own shares
in the Company. All UK and Irish employees have the opportunity to save
money over three or five years to buy NEXT plc shares at a discounted
price. We also operate a share option scheme which extends to more
than 1,600 participants ranging from senior management to retail staff.

Approximately 9,600 employees (circa 26% of our total UK and
Irish employees) held options or awards at the end of January 2021.
These options or awards were held in respect of 6.4m shares in NEXT,
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 5.0m shares. The Trustee does not vote on any resolution at
General Meetings.

Pension provision
Details of the pension benefits we provide to participating employees
are set out in the Remuneration Report and in Note 20 to the financial
statements. At January 2021, there were 690 (2020: 751) active members
in the defined benefit section of the 2013 NEXT Group Pension Plan
and 4,072 (2020: 4,418) UK active members of the defined contribution
section. In addition, 13,722 employees (2020: 14,390) participate in the
Group’s auto enrolment defined contribution scheme.

Training and development
We have a good track record of promoting from within; all our
executive directors were promoted to the Board having previously
served as employees. We aim to realise our employees’ potential by
supporting their career progression wherever possible. The Group
invests significantly 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.

Our employees can access a range of development tools or appropriate
job-specific training through the integrated training teams within each
area of the business. This includes:

• Job role-specific training covering technical, operational and

skills training.

•

Individually tailored training to address both an employee’s
individual needs and specific business requirements.

• Training in areas such as health and safety, first aid and manual
handling to ensure our employees work in a safe environment.

O U R S U P P L I E R S

Ethical trading
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 through over 600 suppliers.
Our Tier 1 supply chain comprises some 1.5 million workers.

Diversity of supply provides us with a cost-effective supply chain and an
extensive range of products for our customers; it can also increase the
risk of sourcing from unethical suppliers. We consider our primary risks
in this area to be worker safety, human rights, employment and working
conditions, and infringement of workers’ rights. Trading ethically and
acting responsibly is a fundamental cornerstone of our business – we
want our products to be made by workers who are treated fairly and
whose safety, human rights and wellbeing are respected. We induct,
train and support our suppliers to make sure they understand what is
expected of them and to help them raise standards where necessary.
Wherever possible, we work with suppliers to raise their standards
rather than terminating the relationship as it has the potential to
deliver a better outcome for workers and the supply chain as a whole.
Our aim is always to support factories in resolving issues, but we will
not continue to work with them indefinitely if there is no willingness to
improve standards.

Our drive to support ethical trading in our supply chain includes:

• Working with our suppliers to ensure they understand our

requirements and COP Principle Standards.

• Encouraging regular meetings with individual suppliers to share

information and develop relationships.

• Our own in-house global Code of Practice (COP) team which
comprises approximately 50 employees that administer our COP
programme based on the Ethical Trading Initiative Base Code (ETI)
and International Labour Organisation Conventions.

Our COP team works directly with new and existing suppliers and their
factories. They are based in key sourcing locations and this enables
the team to respond quickly if issues occur. It also allows us to develop
trust and build strong relationships with our suppliers by being able to
offer one-to-one meetings, training and support even before orders are
placed by our product teams.

COP Principle Standards are monitored through audits by our Code of
Practice team which generally take place unannounced. Our auditing
standards provide detailed information to help our suppliers fulfil their
obligations. Our audit plan prioritises the human rights of workers in our
supply chain and is risk-based, taking into account geographic location,
ethical reputation, the type of manufacturing process and the factory’s
most recent audit rating. Where we find areas for improvement during
an audit, we create a Corrective Action Plan which is agreed with the
supplier and factory management. Follow up reviews are undertaken to
monitor progress under the Corrective Action Plan.

During 2020/21, the COP team carried out almost 1,500 audits. This was
a reduction on the previous year due to travel prohibition, restrictions
on access and factory closures combined with lockdowns. Despite this,
and with the inclusion of virtual audits, we were able to audit more
than 900 Tier 1 manufacturing sites. Of the audits conducted, 96% related
to Tier 1 suppliers and 4% related to Tier 2 suppliers. We supported
24
found.
to successfully remediate critical
Unfortunately, during the year we had to disengage with 10 factories
that refused to satisfactorily rectify their critical non-compliance
with our Code. A breakdown of audits by rating is provided in the
illustration below.

factories

issues

COP AUDIT
RATINGS

SITES AUDITED IN 2020

E x c e l l e n t .

B en chma r k fa cto rie s.
Fo llow up a ud it 18-24
mo nt hs .

G o o d .

Only mino r iss ue s o u tst an d in g.
Fo llow up a ud it 12 mo nt hs .

F a i r.

H as 14 or fewer ma jor iss ue s.
Fo llow up a ud it 9 mo nt hs .

N e e d s
I m p r o v e m e n t .

15 or mo re ma jo r iss ues.
Fo llow up a ud it in 6 months.

U n a c c e p t a b l e .

S pe ciﬁc majo r iss ue s.
Fo llow up a ud it 6 mo nths.

A b s o l u t e l y
U n a c c e p t a b l e .

Imm ediate ne ed to t ake action.
Fo llow up a ud it de cided on case
by ca se ba s is.

FACTORY

PRINTER

EMBROIDERY

FOOTWEAR

PACKAGING

LAUNDRY

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Traceability
Traceability and transparency of our suppliers’ factories are an important
part of NEXT’s overall approach to corporate responsibility. All suppliers
must meet minimum standards set out in our Code of Practice covering
workers’ safety, human rights, employment and working conditions
(COP Principle Standards). Suppliers are categorised into three tiers:
Tier 1 are suppliers’ factories where bulk production of NEXT branded
products are manufactured; Tier 2 are factory sites declared and
used by a Tier 1 supplier which include subcontractor locations which
manufacture or process materials, components or parts of a finished
product for processing by a Tier 1 supplier; and Tier 3 suppliers are
suppliers which typically produce yarn or fabric.

Tier 1 and Tier 2 suppliers are contractually bound by our COP Principle
Standards and these apply to all their declared sites from which they
operate and source. Our contractual arrangements mean we can visit
a supplier (often unannounced) to undertake an audit and to ensure
they remain compliant. We publish a list of Tier 1 and Tier 2 suppliers’
manufacturing sites producing NEXT branded products at nextplc.co.uk.
We currently have visibility of our supply chain down to Tier 3 and are
working to extend supplier categories to Tier 5. To support our
commitment to transparency, we plan to publish a list of our Tier 3
suppliers’ sites in the first half of 2021.

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 the environmental impact lies in the fibre
and fabric production stage. While we do not source raw materials
directly, we work with our suppliers to ensure we can trace their supply
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. Products must meet the requirements
of our 2025 Responsible Sourcing Manual in order to be promoted
as being responsibly sourced. In the year to January 2021, 30% of all
NEXT-branded textile products met our 2025 Responsible Sourcing
criteria. A total of 39% (2020: 34%) of our cotton was sustainably
sourced as part of the Better Cotton Initiative (BCI). Our target is to
source 100% of cotton from BCI, recycled, Certified Organic or Fairtrade
Certified cotton by 2025. In addition, 36% of timber products within our
Home division were certified by the Forest Stewardship Council (FSC)
with 2% responsibly sourced through other routes.

T I E R 5

T I E R 4

T I E R 3

T IE R 2

T I E R 1

VISCOSE

PRINTER

R a w M a t e ri a l
S ou r c e

F ib r e P r o c e s s o r s
• G i n ne r s

• F i l a m e n t / S t a pl e Fi b r e

F a b r i c & Ya r n
S u p p l ie r s
• S p i n ne r s

S u b c o n t r a c t o r
t o T i e r 1 F a c t o r y
• L a u n dr i e s

G a r m e n t /P r o d u c t
F a c t o r y
• C u t t i n g / S e w in g /

S u p p l i e r s

• We a v e r s / Kn i t t e r s

• P r i n t e r s / E m b r o i d e r e r s

A s s e m b l y

• D y e r s / P r i n t e r s /

• P a c k a g i n g / La b e l s /

• F i n i s h i n g / In s p e c t i o n

F i n i s h e r s

• Ta nn e r i e s

Tr i m S up p l i e r s

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 2020/21 sourced 39% (2019/20: 34%) 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 bans the use of cotton from Uzbekistan, Turkmenistan and the Xinjiang region of China in our textile
products due to concerns over the mistreatment of the Uyghur people, child labour and working conditions
in these territories.

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

The Microfibre Consortium (TMC)

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. We have updated our Manmade Cellulosics Policy to only accept wood based
fabrics sourced from Canopy ‘Green Shirt’ approved suppliers for 2021 onwards.

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 UK Timber Regulations
and our detailed Timber Sourcing Policy.

In 2017, NEXT joined TMC to collaborate on solutions to minimise microfibres being released into the marine
environment. NEXT has provided resources from its in-house laboratory, to develop fibre shedding testing
methods which will help TMC to work towards a robust industry-based solution. The testing methodology
has now been released and is being used to assess fabrics.

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, the embodied carbon of products over their
whole lifecycle (from raw material sourcing to product end of life).

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.

Customers
Understanding what our customers want is essential in the design and manufacture of our products. NEXT Loves to Listen is our online survey and
is available to every customer who collects an order or shops in our stores. We also conduct customer interviews and online surveys, accompanied
store visits and run customer discussion groups. We have processes in place to monitor, evaluate and respond to customer feedback. For example,
our Customer Services teams work closely with central functions and senior management to ensure customer feedback is used to improve products
and the customer experience.

Helping our customers to recycle for reuse their unwanted products
Disposal of products such as mattresses, sofas and furniture can be difficult for our customers when they are no longer needed, with many going
unnecessarily to landfill. In 2016 we began partnering with a number of charitable organisations, such as the British Heart Foundation (BHF), to
provide solutions to reuse products where possible. Since its inception, customers’ donated furniture and home products have helped BHF raise
over £1.4 million and we have collected over 10,000 items from customers’ homes.

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O U R C U S TO M E R S A N D P R O D U C T S

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 required standards.

NEXT also works with our LABEL third-party brands to ensure all products
offered for sale are safe for their intended use. Third-party brands need
to demonstrate compliance with legislation as well as being able to
show the product has been sourced from factories which are compliant
with the ETI Base Code and NEXT’s own COP Principle Standards.

Chemical Management
Many products contain chemicals in one form or another, most of them
harmless. To make sure our products do not contain chemicals which
could be harmful to our customers, the workers who make them or
the environment, we require our suppliers to adhere to our Restricted
Substance Standards (RSS). The RSS bans or states the limits for harmful
chemicals used in the manufacture of our products. We also have a
thorough due diligence programme in place to support compliance
with the RSS. If products fail our requirements, they are removed from
sale and may be recalled from customers.

Continuing our circular economy journey
The circular economy is an economic system aimed at designing out
waste and maximising the reuse and recycling of resources along the
whole supply chain. Examples of where NEXT is promoting the circular
economy are:

• Working to reduce the packaging we use, both in store and online,
and exploring ways we can take back packaging to reuse in our
supply chain.

• Through our Responsible Sourcing Strategy, working to reduce the
impact of and helping drive efficiency of our Tier 3 suppliers as well
as our commitment to source our key raw materials responsibly
by 2025.

• Developing take-back schemes to ensure valuable resources are
kept in circulation, including a mattress recycling programme and
help for customers to donate unwanted furniture for reuse.

We recognise there is much more to do and that collaboration across
the industry is vital. During 2020, we continued to work with the Waste
and Resources Action Programme (WRAP) to develop their Textiles
2030 initiative due to launch in April 2021. The voluntary agreement
is funded by its signatories and the Government and will collaborate on
carbon, water and circularity targets as well as contribute to national
policy discussions with the UK Government. Its partners will use their
knowledge to improve the product life cycle - from the way we design
our products to how they are delivered to our customers and their
reuse and recycle options at the end of their life. As part of the circular
economy initiative, we will also consider how our designs and product
development can have a positive impact on recycling and reuse such as:

• Product durability and longevity.

• Responsibly sourced materials.

• Safe processing to protect workers and the environment.

The framework will provide a practical tool to engage our Product teams
and help to set future product category specific circular economy plans.

E N V I R O N M E N T

We are committed to minimising our environmental impacts by reducing both the carbon intensity of our activities and the natural resources
we use.

When setting our approach to identify climate-related risks and opportunities, we took 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 and Metrics and Targets. The table below summarises our progress this year and focus areas for the year ahead across
these TCFD competency areas:

TCFD focus area

Progress in 2020/21

Focus for 2021/22

Governance

Strategy

Risk management

ESG Steering Group established to help develop our approach to ESG
and drive delivery of all related activities and targets. The ESG Steering
Group is responsible for developing our improvement roadmap,
prioritising actions and helping to monitor emerging ESG risks.

Enhanced Audit Committee and senior leadership governance,
including regular reporting on ESG and climate risks and opportunities,
regulatory changes and stakeholder expectations.

Building ESG factors into our decision-making
and risk management frameworks.

During 2020, we have continued to focus on ESG issues through
increased engagement with our investors and other stakeholders.

Identify, prioritise and communicate key ESG
improvement initiatives and targets.

A review of the physical, transition and reputation risks and
opportunities arising from climate change (see below).

Climate risk was considered by the Board during its review of principal
risks (see page 71).

Consider scenario analysis of business
resilience under a range of different
climate scenarios.

develop

Further
of
opportunities and risks posed to the business
by climate change.

understanding

Metrics and targets

Set stretching targets for reduction in Scope 3 emissions and increased
the target for reduction in Scope 1 and 2 emissions (see below).

Developed reporting in line with SASB metrics (see below).

Move to full disclosure of SASB metrics.

Seek approval for our Scope 1, 2 and 3 carbon
reduction targets from the Science-based
Emission Targets initiative (SBTi).

During 2020 we undertook a climate-related risk and opportunity
assessment using the TCFD framework. The aim of this was to develop
a deeper understanding of the key risks and opportunities posed to
NEXT by climate change and how they may impact our business in the
future. The TCFD recommendations group risks into two categories:
physical (e.g. crop failure in cotton supply chain); and transition (e.g.
increased regulation) risks. We collaborated across functions to examine
the physical and transition risks relevant to our business, including their
financial implications. Climate-related risks were identified and assessed
using a range of sources, evaluating the likelihood of occurrence and the
estimated magnitude of the resulting financial impacts over short term
(current annual reporting cycle), medium term (1-3 year) and long term
(3-10 year) horizons. The risk assessment considered our operations,
supply chain, stakeholder expectations and regulation. Over the coming
months, we will be undertaking analysis to review the resilience of
our business model, taking into consideration various climate-related
scenarios. Any mitigating actions will be undertaken after consideration
of this analysis.

Our initial assessment of these climate risks concluded that whilst
undesirable, no single event would have a material adverse financial
impact on the business. The key climate-related risk is currently around
regulation and the speed with which it is implemented, together with
stakeholder pressure on the rate at which the business may need to cut
carbon emissions.

We expect to report full disclosure against each TCFD recommendation
in the 2021/22 annual report.

The directors confirm that they have considered the relevance of
material climate-related matters, including the risks of climate change
and transition risks associated with the goals of the Paris Agreement,
when preparing and signing off the Company’s accounts. At this
time, they do not consider there to be any material impact on the
financial statements.

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Latest ESG index scores

MSCI

Sustainalytics

CDP

DJSI

14.5

Climate A- Forest/Timber B

Direct operations and carbon reduction targets
NEXT is working to reduce the direct impact of our business operations on the environment. To help us understand our impact, we measure our
global carbon footprint produced from the operational activities over which we have direct control.

Electricity consumption targets

Year

2016/7

2019

2021

Target set

Target achieved

Reduce our electricity consumption by 10% in kg CO2e/m2 by 2020/21

2018/19, achieved 15% reduction

Reduce Scope 1 and Scope 2 absolute carbon emissions by 50% against
our 2016/17 baseline

2020/21, achieved 50%

Reduce Scope 1 and Scope 2 absolute carbon emissions by 55% against
our 2016/17 baseline by 2030*

n/a

this target is consistent with achieving a 1.5 degree reduction in line with the SBT pathway.

During 2020 we measured our total Scope 3 emissions across our entire
value chain and set a new target to reduce Scope 3 carbon emissions by
40% by 2030 per £1m sales against a 2019/20 baseline.

The majority of our emissions is embedded within the products we
purchase and within our supply chain. To help support our work on
reducing the emissions associated with the products we sell, we are
joining the Sustainable Apparel Coalition. This will give us access to a
suite of tools to support the standardised measurement of sustainability
from our supply chain, including the Higg Index. We will report our
progress in future reports.

In 2020, we became a signatory to the British Retail Consortium’s
Climate Action Roadmap, a framework to guide the retail industry to net
zero by 2040. Through the Roadmap we commit to working with other
retailers, suppliers, government and other stakeholders, and to support
customers to collectively deliver to the industry’s net-zero ambition.

Sustainability Accounting Standards Board
During the year, we carried out a full gap analysis against the SASB
metrics for the Apparel, Accessories and Footwear industry (Apparel).
Two things became clear as part of this review. The first is that we
have a number of policies, procedures and controls in place to
support our goal to be a sustainable retailer working to reduce our
environmental and social impact. We also have some improvements
to make. We have identified areas where we think we can improve,
whether from a compliance perspective or from the quality of our
disclosures. The following sets out how we comply with the SASB
metrics together with the gaps we have found and our remediation
plan. More information can be found on our website at nextplc.co.uk/
corporate-responsibility.

We are on a journey towards compliance with the SASB Apparel
reporting requirements. The Apparel metrics cover four broad areas:

• The Management of Chemicals in Products (Chemicals).

• Environmental Impacts in the Supply Chain (Environment).

• Labour Conditions in the Supply Chain (Labour).

• Raw Materials Sourcing (Raw Materials).

Our initial gap analysis has shown that in the areas of Chemicals, Labour
and Raw Materials we are well on our way to full compliance with
around 80% of the compliance metrics met. With regard to Chemicals,
our key actions are to benchmark all of our suppliers against the
standards within the Zero Discharge of Hazardous Chemicals initiative,
update our Chemical policies and share them in the public domain.

For Labour and Raw Materials, our main efforts will be around improving
our existing policies and internal metrics to align more closely to the
SASB requirements. While our compliance in these areas is good, we
have more to do on disclosure. We have a plan in place to improve the
accessibility of our policies and procedures to bridge this gap between
compliance and disclosure, in order that we can improve our level of
disclosure by January 2022.

With regard to Environmental matters, the level of disclosure required by SASB is extremely detailed and specific to waste water discharge where
the main impact is at Tier 3 in our supply chain. We do not yet capture the level of data required. This is primarily driven by the fact that we are not
yet a member of the Sustainable Apparel Coalition although we are in the process of gaining membership. Once we become a member, this will
significantly improve our compliance metrics and enable us to learn the best in class standards for compliance and disclosure. By next year end we
expect our compliance and disclosure in this area to start to match that in other areas.

The table below reflects our progress towards compliance with SASB and sets out details of where to find further information.

Topic

Sub-topic

Reference

Management of Chemicals
in Products

Processes to maintain compliance with restricted substances regulations.

See page 84.

Discussion of processes to assess and manage risks and/or hazards
associated with chemicals in products.

Environmental Impacts in the
Supply Chain

Percentage of (1) Tier 1 supplier facilities and (2) supplier facilities
beyond Tier 1 in compliance with wastewater discharge permits and/or
contractual agreement.

Read our SASB Board
disclosure summary at
nextplc.co.uk/corporate-
responsibility.

Percentage of (1) Tier 1 supplier facilities and (2) supplier facilities beyond
Tier 1 that have completed the Sustainable Apparel Coalition’s Higg
Facility Environmental Module (Higg FEM) assessment or an equivalent
environmental data assessment.

Labour Conditions in the
Supply Chain

Percentage of (1) Tier 1 supplier facilities (2) supplier facilities beyond
Tier 1 that have been audited to a labour code of conduct, (3) percentage
of total audits conducted by a third-party auditor.

(1) 96%

(2) 4%

(3) 100%

Priority non-conformance rate and associated corrective action rate for
suppliers’ labour code of conduct audits.

See page 81.

Description of the greatest risks in the supply chain concerning:

(1) labour and

(2) environmental, health, and safety

See page 90.

See page 71 and 85.

Raw Materials Sourcing

Description of environmental and social risks associated with sourcing
priority raw materials.

See page 82.

Percentage of raw materials third-party certified to an environmental
and/or social sustainability standard, by standard.

Cotton: 39% Better Cotton.

Timber: 36% certified by
Forest Stewardship Council.

Strategic ReportGovernanceFinancial StatementsShareholder InformationCORPORATE RESPONSIBILITY

Greenhouse gas emissions – Streamlined Energy and Carbon Reporting (SECR)
In accordance with the disclosure requirements for listed companies under the Companies Act 2006, the table below shows the Group’s SECR
disclosure across Scope 1 and 2 together with an appropriate intensity metric and our total energy use of gas, electricity and other fuels during the
financial year.

Green House Gas (GHG) Emissions1
Scope 12

Scope 2 – Location Based3

Scope 2 – Market Based4

Total Scope 1 & 2 Location Based

Total Scope 1 & 2 Market Based

Energy consumption5

Electricity

Natural Gas

Gas Oil

Diesel

Petrol (including plug in hybrid)

Total Energy Consumption

Intensity metric

Location Based

Market Based

Unit

tonnes CO2e

2021
UK

36,424

39,872

1,052

76,296

37,476

Global

36,914

43,656

4,836

80,570

41,750

2020
UK

44,974

54,909

1,461

99,883

46,435

Global

45,739

60,440

6,909

106,179

52,648

kWh

172,493,823

179,492,824 216,506,531

225,364,038

kWh

48,663,573

49,207,109

45,551,005

46,048,483

1,743,295

2,049,074

kWh

108,135,792

108,420,497 140,972,090

141,476,535

kWh

2,107,852

2,301,766

2,284,105

2,550,639

kWh

333,144,335

341,165,491

407,362,805

417,488,769

tonnes CO2e/£1m sales

1 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 2020. For International electricity, Scope 2 factors published by IEA in 2020 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.

2 Scope 1 being emissions from combustion of fuel and refrigerant gas loses.

3 Scope 2 being electricity (from location-based calculations), heat, steam and cooling purchased for the Group’s own use.

4 Scope 2 being electricity (from market-based calculations), heat, steam and cooling purchased for the Group’s own use.

5 Energy from electricity, natural gas, gas oil and transport fuel have been included. We have used the conversion factors published in 2020 Defra GHG conversion factors for company
report to convert from passenger miles in company-owned vehicles to kWh.

Energy consumption data is captured through monthly bills showing actual or estimated consumption. We continue to work to improve operational
efficiency across our property portfolio. We actively track and review energy performance via a central data collection facility to ensure our
properties are operating efficiently. During the year we have continued to roll out LED lighting installations in retail stores saving 3,910 MWh
(3,910,048 kWh). In addition, due to COVID, our stores have been closed for part of the year which has allowed increased monitoring of electricity
consumption leading to identification and resolution of any usage anomalies.

Renewable energy
NEXT is a signatory to the RE100 initiative and has committed 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 target in our direct operations overseas.

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 2020/21.

We continue to identify ways to reduce the amount of packaging and eliminate avoidable plastics in product packaging such as PVC, polystyrene
and acetate. 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.

CO M M U N I T Y

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

2021
£000
543

2021
£000
0
1,476
111
47

2020
£000
1,069

2020
£000
7
1,963
208
97

The proceeds from the 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 waste from landfill, products which would have been destined to landfill are now offered to registered charities and
social enterprise organisations for reuse.

Strategic ReportGovernanceFinancial StatementsShareholder InformationCORPORATE RESPONSIBILITY

H U M A N R I G H T S A N D M O D E R N S L AV E RY

Our 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 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.

In 2020, we undertook an analysis of our top ten sourcing countries
to assess the human rights and modern slavery risks present in our
supply chain. Taking each of our salient risks in turn, and using the
in-depth knowledge of our regional COP teams, we gathered a variety
of data, capturing factors such as geographical location, vulnerability of
impacted groups, frequency of issues and level of mitigation already
in place. Using this output, we agreed an overall risk rating for each
sourcing location to identify where we should focus our resource to
best effect.

More information on our salient risks is available at nextplc.co.uk/
corporate-responsibility.

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.

Respect for human rights is a fundamental part of how NEXT operates
as a responsible business. We seek to avoid infringing the human rights
of others, including addressing firmly any infringements we identify in
our supply chain. We uphold internationally recognised human rights
principles, including those 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.

Despite the difficulties caused by the pandemic over the last 12 months
we have continued to work with our partners to develop programmes in
support of human rights and to understand the complex issues around
modern slavery to ensure that all those working within our Group and
our supply chain are treated with dignity and respect. We are committed
to building knowledge and awareness and have developed a range of
training initiatives for our employees, suppliers, business partners and
service providers to help promote human rights.

Our approach is to implement the ‘Protect, Respect and Remedy’
framework of 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 UN Reporting Framework, we combine the knowledge and
experience we gain from working with our global supply chain and
business partners, together with learnings from other 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.

SECTION 172 STATEMENT

This section describes how we have engaged with and had regard to the interests of our key stakeholders when exercising our duty to promote the
success of the Company under section 172(1) of the Companies Act 2006. The principles underpinning section 172 are not something that are only
considered at Board level, they are embedded throughout our Company. Sometimes decisions must be made based on competing priorities of
stakeholders. We describe below how the Board seeks to understand what matters to stakeholders and carefully considers all the relevant factors
when selecting the appropriate course of action.

Our stakeholders
Our key stakeholder groups are set out below. Our many and varied engagement processes help lead us to a better understanding of what matters
to our stakeholders. Their views and needs, as well as the consequences of any decision in the long term are then considered in the business
decisions made by the Board and across the entire Company, at all levels. 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 plans.

Our workforce – see pages 91 and 92
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 93
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 94
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 93
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 93
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 build our
brand value and loyalty.

Suppliers – see page 93
We rely on our suppliers to make and
distribute our products, provide the real
estate through which we store, sell and
display our products, and provide essential
services we need to operate our business.

Our suppliers rely on us to generate revenue
and employment for them.

Employees
How the Board engages:

• Annual Recruitment, Retention and Reward forums

• Discussing the output of employee engagement surveys and agreeing follow-up actions

• Presentations on performance and strategy from the Chief Executive and the Group Finance Director following results announcements

• Attendance at Product Training Days and visits to stores and warehouses

• Online performance, development and feedback tools

Each of our executive directors joined the Company as employees before being promoted to the Board. All of them joined the Company over 25
years ago and this gives them extensive knowledge of the business as well as an acute insight into the mood, culture and views of their colleagues.
All are based at NEXT Head Office and have a high degree of personal oversight and engagement in the business.

Engagement with our employees has never been more vital to the success of our business. In a year of profound uncertainty, we had ongoing
engagement with our workforce about their health and safety in the face of COVID. Many of our stores were subject to changing restrictions in their
operations, often at short notice, and we closed our warehouses temporarily in April 2020 to reconfigure them for COVID-safe operations following
feedback from our employees. We would like to thank those colleagues for the feedback we received which helped us to provide and maintain a
safe working environment as well as develop better ways of working.

Strategic ReportGovernanceFinancial StatementsShareholder InformationSECTION 172 STATEMENT

Recruitment, Retention and Reward forums

During the year we held our annual Recruit, Retain and Reward (RRR) workforce forums, albeit virtually, given the impact of the pandemic.
Dame Dianne Thompson, one of our non-executive directors, attended the meetings along with Lord Wolfson (Chief Executive), the Group HR
Director and workforce representatives for each division. Following discussion on the key issues in different parts of the business, actions were
agreed and feedback was reviewed by the Board. Agreed actions from matters raised in 2020 included:

• Producing a set of principles for remote and home working

• Reviewing ways to help people feel connected to the office while working from home

• Producing simple documents to help educate teams on key facts relating to COVID

• Considering how to improve video interviews

• Looking into offering additional incentives for high performing team members

These meetings form the workforce advisory panels as referred to in the UK Corporate Governance Code.

Our RRR forums are supplemented by Communication In Action meetings which take place regularly throughout the year. The purpose of
Communication In Action meetings is to agree initiatives coming out of the RRR forums.

Employee engagement surveys
The normal format of our employee engagement survey was replaced by surveys pertinent to the COVID pandemic. Head Office, Retail and
Online employees completed COVID-19 Safety & Communications surveys to gauge how well the Company responded to the pandemic. 94%
of all responses rated the safety measures implemented at a NEXT site or store as either Good or Excellent and 88% of all responses regarding
communication were rated Good or Excellent.

In Warehousing & Distribution, regular pulse surveys were sent via text to warehouse colleagues to gauge feelings about safety in the transformed
working environment. Results of the pulse surveys for employees returning to work showed that 95% felt their safety had been put before
productivity and safety changes made in the workplace scored a 96% approval rating.

In late 2020, NEXT Sourcing conducted its biannual employee survey. Communication In Action meetings were launched in Bangladesh, Sri Lanka,
Vietnam, Shanghai and Hong Kong.

The Board considered the results of the surveys and the HR initiatives underway to address the matters raised.

Continuous performance management and feedback
During the year, our online performance and development tool continued to be rolled out. The tool provides a forum for positive and constructive
feedback by individuals, peers and managers.

The Group HR Director attended 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
on safety performance, safety risk management and mental health wellbeing initiatives.

Case study
During the year, and perhaps more than ever before, the Board had to consider significant matters where it was important to be mindful of
the interests of employees.

One such example came early in the pandemic and at a time when all our stores had been forced to close due to Government restrictions.
We listened very carefully to our colleagues working in Warehousing and Distribution Operations to fulfil Online orders and it was clear that
many increasingly felt they should be at home given the circumstances. We therefore took the very difficult decision to temporarily close our
Online, Warehousing and Distribution Operations in order to redesign our processes and operations to be COVID-safe. The day that our entire
business operation fell silent will live long in our memories.

The scale of the task of making our Online operations COVID-safe was huge – 6.8m square feet of warehousing had to be repurposed to
achieve rigorous social distancing. Before re-opening, we consulted again with our colleagues and also our recognised union, USDAW, to make
sure employees felt safe with the new safe ways of working, and developed a number of induction and training programmes for the new
processes. We re-inducted and retrained over 4,000 colleagues. We limited the number of daily online orders for a time to ensure that the
processes worked, and we prioritised the items that our customers needed most, such as Childrenswear.

Our relationships with suppliers, customers and others
Suppliers
Throughout the year the Board approved 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. We balanced the benefits of maintaining strong
partnerships with key suppliers alongside the need to obtain value for money for our investors and excellent quality and service for our customers.
Further details on how we engage with our suppliers can be found on pages 81 to 83.

We endeavoured to be fair to our suppliers throughout the pandemic. We wrote to our product suppliers at the end of March 2020 committing to
honour and pay our suppliers in full, on normal payment terms, for orders that were due to leave supplier factories up to 10 April 2020. Orders due
to leave after this date, where no longer required, were cancelled and compensation payments made towards the raw materials that suppliers had
acquired. Where possible, we carried over stock to future seasons.

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 and the market view of consumer sentiment. 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 phased plans to reopen stores following
enforced closure, compliance with Government guidance on health and safety measures in-store, store staffing levels, capital expenditure on
warehouses and major freight forwarding and parcel delivery contracts.

Regulators
Our Finance business is regulated by the Financial Conduct Authority (FCA) in respect of the provision of consumer credit. As a responsible
authorised company, we seek always to co-operate 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 Finance Director 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 banks, bond investors and
credit rating agencies, and the management of the Group’s cash/debt and financing activities. The Group Finance Director provides regular reports
to the Board on these activities including the Company’s access to liquidity, monitoring the headroom and maturity schedules of our primary credit
facilities and future financing plans. The Board approves the Company’s Treasury Policy annually.

Our impact on the community and the environment
We have a number of targets and initiatives aimed at reducing the adverse impact of our business on the environment and the communities in
which we operate. The ways in which we engage with the communities in which we operate are set out in more detail on page 89 of our Corporate
Responsibility Report. During the year we considered our approach to climate change and agreed further measures we can take to reduce our
impact on the environment. Further details can be found on pages 85 to 88 of the Corporate Responsibility Report.

Doing the right thing – maintaining high standards of business conduct
Corporate governance
We have a robust corporate governance framework in place, details of which are set out in our Corporate Governance Report on pages 102 to 107.

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
receiving regular updates on environmental, social and governance issues. It reports to the Board on these topics as appropriate. For further details
on our approach to ethical trading and responsible sourcing, please see pages 81 and 82 of the Corporate Responsibility Report.

Political donations
No donations were made for political purposes (2020: £nil).

Strategic ReportGovernanceFinancial StatementsShareholder InformationSECTION 172 STATEMENT

Shareholders
The Company has just one class of share in issue and so all shareholders benefit from the same rights. The Board 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.

How the Board engages:

• Regular calls and meetings between shareholders and the Chief Executive and Group Finance Director.

• Roadshows and conferences with institutional investors.

• Major shareholders are invited to the annual and half year results presentations.

• Meetings and calls between major shareholders with the Chairman and Remuneration Committee Chairman on governance and

remuneration matters.

• Regular communication with institutional investors by the Company Secretary and senior management, particularly on environmental, social

and governance matters.

Shareholder engagement
During 2020, we engaged with investors on a range of topics, including:

• Governance including Board composition.

• Executive remuneration and our proposed new Directors’ Remuneration Policy.

• 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 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 suspension of our share buyback programme.

Long term decisions
Within the fast-moving fashion retailing sector, the operational cycle is short and has become even shorter within recent years. Despite this,
we are mindful that our 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. The Board balanced:

• the expectations of long term investors on dividends and the return of capital to shareholders via the share buyback programme; with

• the increased need for capital expenditure on warehouses and systems to support the growth in Online sales. Despite the reopening of retail
stores later this year, we felt that the pandemic has simply accelerated the shift to online shopping and we needed to ensure that we have
sufficient capacity to meet future demand.

We recognised the importance of providing our shareholders with consistent and reliable dividend returns. However, with so much uncertainty
around the course of the pandemic and its economic effects, we believed it was sensible and appropriate to suspend all capital returns to
shareholders for the duration of 2020/21 to protect the Group’s balance sheet.

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 78
• Environment – pages 85 to 88
• Section 172 Statement – Having regard to the impact
of the Company’s operations on the community and
the environment – page 93

• Our principles – page 78
• Our People – pages 79 and 80
• Section 172 Statement – Having regard to the interests

of the Company’s employees – pages 91 and 92

• Environment Policy
• Timber Sourcing Policy*
• Protecting Forests Through Fabric

Choices Policy*

• 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 78
• Our People, Our Suppliers, Our Customers and Products,
Environment, Community, Human Rights and Modern
Slavery – pages 79 to 90

• Section 172 Statement – Having regard to the

desirability of the Company maintaining a reputation for
high standards of business conduct – page 93

4. Respect for human rights

• Our principles – page 78
• Human Rights and Modern Slavery – page 90
• Section 172 Statement – Having regard to the

desirability of the Company maintaining a reputation
for high standards of business conduct – page 93

• Human Rights and Modern

Slavery Policy*

• Data Retention Policy
• Customer Privacy Policy*
• Employee Data Privacy Policy

5. Anti-corruption and
anti-bribery matters

• Our principles – page 78
• Section 172 Statement – Having regard to the

desirability of the Company maintaining a reputation
for high standards of business conduct – page 93
• Whistleblowing – Audit Committee Report – page 114

• 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

• Business model – page 66

• Our principles – page 78

• Risks and Uncertainties – pages 72 to 76
• Viability assessment – page 77

• Section 172 Statement – Having regard to the impact of
the Company’s operations on the community and the
environment – page 93

• Our People, Environment, Community – pages 80, 86 to

88 and 89

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

1 April 2021

Strategic ReportGovernanceFinancial StatementsShareholder Information96

GOVERNANCE

Directors’ Biographies

100 Directors’ Responsibilities Statement

101 Corporate Governance Report

108 Nomination Committee Report

109 Audit Committee Report

115 Remuneration Report

140 Directors’ Report

142 Independent Auditor’s Report

Strategic ReportGovernanceFinancial StatementsShareholder InformationDIRECTORS’ 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 has 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 to the
Board in 1997 with additional responsibilities
for Systems. Simon was appointed Managing
Director of the NEXT Brand in 1999 before his
appointment as Chief Executive.

PRINCIPAL EXTERNAL APPOINTMENTS:
Non-Executive Director of Deliveroo

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

Seonna Anderson
COMPANY SECRETARY

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. She assumed responsibility for
Human Resources and the Customer Service
Contact Centre in August 2020.

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

Francis Salway

Jonathan Bewes

Tom Hall

listed

Senior Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
Francis brings
company
strong
experience and property expertise to 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.

Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
Tom is a partner at Apax Partners, the global
private equity firm. He joined Apax in 1998
and leads its Internet/Consumer investing
activities in Europe. In that role, he serves
on the board of a number of retailers and
digital marketplaces. He has considerable
experience of working with businesses dealing
with the strategic, operational and managerial
challenges and opportunities created by
rapidly changing consumer behaviour.
Prior to joining Apax, Tom worked at S.G.
Warburg and Deutsche Bank.

PRINCIPAL EXTERNAL APPOINTMENTS:
Vice Chairman, Corporate and Institutional
Banking, Standard Chartered Bank
Non-Executive Director of The Sage Group plc

PRINCIPAL EXTERNAL APPOINTMENTS:
Advisory Board Director of Takko Fashion,
Supervisory Board Director of Wehkamp,
Non-Executive Director of MATCHESFASHION

APPOINTED TO THE BOARD
June 2010

APPOINTED TO THE BOARD
October 2016

APPOINTED TO THE BOARD
July 2020

COMMITTEE MEMBERSHIP
Audit, Remuneration (Chairman)
and Nomination

COMMITTEE MEMBERSHIP
Audit (Chairman), Remuneration and
Nomination

COMMITTEE MEMBERSHIP
Audit, 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 Ltd and as such has experience
of running a
large-scale consumer-facing
company and knowledge of digital and
cyber security. Tristia was Managing Director
it
of TalkTalk’s consumer business when
demerged from Carphone Warehouse, which
she joined in 2000 and held a number of
senior management and executive positions.

PRINCIPAL EXTERNAL APPOINTMENTS:
Trustee at Crisis
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
Sanderson Design Group plc
Non-Executive Director of Pagefield
Communications Ltd

APPOINTED TO THE BOARD
September 2018

APPOINTED TO THE BOARD
January 2015

COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination

Audit Committee
Jonathan Bewes (Chairman)
Tom Hall
Tristia Harrison
Francis Salway
Dame Dianne Thompson

Remuneration Committee
Francis Salway (Chairman)
Jonathan Bewes
Tom Hall
Tristia Harrison
Michael Roney
Dame Dianne Thompson

Nomination Committee
Michael Roney (Chairman)
Jonathan Bewes
Tom Hall
Tristia Harrison
Francis Salway
Dame Dianne Thompson

Strategic ReportGovernanceFinancial StatementsShareholder InformationDIRECTORS’ RESPONSIBILITIES STATEMENT
Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared the
Group financial statements in accordance with international accounting
standards in conformity with the requirements of the Companies
Act 2006. Additionally, the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules require the directors to prepare the
group financial statements in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in 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, for the Group and Parent Company, international
accounting standards in conformity with the requirements of the
Companies Act 2006 and, for the Group, international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union have been followed
for the Group financial statements and United Kingdom Accounting
Standards, comprising FRS 101 have been followed for the Parent
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

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 98
and 99, confirm that, to the best of their knowledge:

• the Group financial statements, which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and, additionally
for the Group, international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;

• the Parent Company financial statements, which have been
prepared in accordance with United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair view of the assets, liabilities,
financial position and profit of the Parent Company; 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

• 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

1 April 2021

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.

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 responsible for the maintenance and integrity of the
Parent Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.

100

CORPORATE GOVERNANCE REPORT
Chairman’s Introduction

In last year’s report, I spoke of a fast-moving year in corporate governance
and the retail environment in which we operate. Shortly afterwards,
we were poised to go into lockdown for the first time and working
hard to understand the potential impact the pandemic could have on
our business operations, our employees, our customers and on the
retail sector as a whole. Suffice to say that 2020/21 has surpassed the
previous year in terms of fast-moving events.

COVID impact on stakeholders
In good times, corporate governance is crucial; in times of crisis, it is
paramount. First and foremost, our executive team has worked hard
to preserve the health and safety of our employees and customers.
Having listened to employee feedback, they took the difficult decision
to close our warehouses temporarily for two weeks in April 2020 in
order to re-design the operations to be COVID-safe. Colleagues and
our recognised union, USDAW, were consulted before re-opening.
The number of daily online orders was limited for a time to ensure that
the processes could be carried out safely, and we prioritised the items
that our customers needed most, such as Childrenswear.

Some or all of our UK stores have faced enforced closure on multiple
occasions. Changing regulations around the operation of retail stores
have also required a significant amount of management time to make
sure we are doing the right thing for our employees and customers.

During the periods of closure, we had to furlough many of our workforce.
To support our furloughed employees, we topped up the salaries of all
those paid above the furlough scheme cap to 80% of their normal pay.

In order to preserve cash, we took a number of decisive actions early
in the pandemic, including the cancellation of the final and interim
dividends to shareholders in 2020. However, we are pleased that the
quality and resilience of the business has been recognised through
the strong performance of the share price towards the end of the
financial year.

In common with many people, as a Board we had to change how
we worked and communicated to make sure we were responding
appropriately during the pandemic. Very regular Board meetings
continued to be held, albeit virtually, and we received weekly written
reports from the executives on the latest business position and
safety initiatives and employee communications. Our collaboration,
communication and effective decision-making during the pandemic
was highlighted as a strength during our Board effectiveness review.

I would like to take this opportunity to thank the executive directors
and our employees for their dedication, commitment and hard work in
making sure the business not only survived but thrived during the year.

Board diversity and appointment
At NEXT we benefit from well-balanced gender representation on our
Board, and indeed across the organisation, as illustrated by the table on
page 80. This diversity mix allows for rounded discussions from various
perspectives that strengthen our decision-making.

We know we have work to do on ethnic diversity at Board and senior
management level. We continue to appoint on merit, seeking to
appoint the candidate with the most appropriate skills and experience.
However we can take steps to ensure that Black, Asian and minority ethnic
(BAME) candidates are fairly represented where possible on candidate
shortlists. In our recent Board appointment process, we requested that
the recruiter produce a longlist which included candidates from BAME
groups. As I note in my Nomination Committee Report on page 108,
going forward we expect that our next non-executive appointment
will be someone from an ethnic minority background. Internally, we
are looking into how we can best support and mentor colleagues from
ethnically diverse backgrounds in order to improve representation
throughout the business. Our initiatives to improve diversity are set out
in more detail in the Corporate Responsibility Report.

During the year, the Board appointed Tom Hall as non-executive director
to replace Francis Salway, who has served on our Board for over nine
years and will step down at the 2021 AGM. Tom joined us in July 2020
and has already made a strong contribution to the Board. As part of his
role at Apax Partners, Tom serves on the board of a number of retailers
and digital marketplaces. You can read more on the appointment
process in the Nomination Committee report on page 108. On behalf of
the other directors, I would like to thank Francis for his very significant
contribution to the Board and to the Remuneration Committee during
his tenure.

Directors’ remuneration
As noted above, the impact of the pandemic on the business has had
a corresponding effect on our stakeholders. In recognition of this, the
Board waived 20% of its salaries and fees for part of the year and the
bonus for executive directors was cancelled for 2020/21.

More detail on the decisions taken by the Remuneration Committee
during the year can be found in the Directors’ Remuneration Report on
pages 115 to 118.

Continuing governance commitment
We have once again enhanced our Environmental, Social and Governance
(ESG) disclosure in this year’s Annual Report. Understandably, ESG is
a key area of focus for stakeholders who want to work for, shop with
or invest in companies who do business responsibly. We apply robust
governance to safeguard the long term interests of the Company and
its stakeholders. You can read our Corporate Responsibility Report
on pages 78 to 90 and our compliance statement and supporting
disclosures on pages 102 to 107.

Michael Roney
Chairman

1 April 2021

101

Strategic ReportGovernanceFinancial StatementsShareholder InformationCORPORATE GOVERNANCE REPORT

Corporate Governance Statement
The statement below, together with the rest of the Corporate
Governance Report, provides information on 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 2020/21
financial year.

For the year ended 30 January 2021, the Board considers that it
has complied in full with the provisions of the Code (available at
www.frc.org.uk). Given the external interest in pension alignment as
recommended by provision 38 of the Code, the Board notes that the
executive directors at NEXT have very long service at the Company.
Whilst, consistent with wider market practice, the pension provision
offered to new joiners has changed significantly over time, the Board
considers it more relevant to consider the alignment of the pension
contribution rates of the executives in the context of the workforce
recruited at the same time. Each executive director is provided with
pension contributions no more generous than those provided to
colleagues recruited at the same time. Full details of the pension
arrangements of the executive directors are given on pages 123 and
124 of the Directors’ Remuneration Report.

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 140. Disclosures required by DTR 7.2.8
relating to diversity policy are presented in the Nomination Committee
Report on page 108.

Directors’ biographies and membership of Board Committees are set
out on pages 98 and 99.

Board leadership and
company purpose
The Board’s role is to promote the long term sustainable success of the
Company. 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 70 to 72.

• 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 77.

In particular, during 2020/21:

• The Board assessed a number of potential acquisitions and
investments with a view to enhancing the Company’s offering to
customers. In assessing these opportunities, the Board had regard
to strict financial criteria. We approved a number of opportunities
which are discussed in more detail in the Chief Executive’s Review.

• The Board reviewed and discussed the financial stability of the
Company against a number of potential stress test scenarios that
could be brought about by the COVID pandemic. In the interests

of transparency the scenarios, and their potential impact on the
Company, were published in our regular and detailed financial
updates to the market.

• The Audit Committee received several briefings on the Company’s
ESG activities with a particular focus on the environment. It requested
that ESG be added as a standing item to its agenda.

• The Board reassessed its principal risks in light of the unforeseen yet
impactful nature of the pandemic - see pages 72 to 76 for details of
the Company’s principal risks.

At its heart, the purpose of the Company is to source and trade
excellent quality clothing and homeware in order to make a profit for its
shareholders. We aim to do this in a responsible way and to do the right
thing by our employees, our customers, our suppliers and our wider
stakeholders. Our Corporate Responsibility Report sets out the way in
which we fulfilled our responsibilities this year.

Culture
The directors are responsible for ensuring a healthy and supportive
culture within the Group. We monitor this through direct employee
engagement activities (see page 91) 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 receives 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.

During the year:

• We continued with our employee engagement activities, in
particular the workforce focus forum meetings. These were held
virtually which, as well as being safer, had the benefit of enabling
our NEXT Sourcing colleagues in Hong Kong to join.

• We received updates on the actions taken by the executive team to
ensure that COVID-safe processes were implemented and followed
at our offices, warehouses and stores. The executive directors
maintained an open dialogue with employees and, following
feedback, our warehouse operations were temporarily closed and
re-designed to ensure that employees felt safe. A number of safety
videos were made and induction and training programmes put in
place to support the new ways of working.

Our values are set out in the Corporate Responsibility Report on
page 78 and the Non-Financial Information Statement summarises
the Company’s supporting policies on page 95. Our Whistleblowing
Policy encourages workers to report concerns or suspicions about
any wrongdoing or malpractice, and provides a number of ways to
do this, including via the confidential NEXT Integrity line (managed

102

by Crimestoppers). The Audit Committee report contains more
details of the Company’s whistleblowing procedures and the Audit
Committee’s oversight.

• The Group has appropriate objectives and an effective strategy.

• There is a high calibre Chief Executive with a team of executive

directors able to implement the strategy.

As Board members we also strive, through our own behaviours, to set
the tone from the top in conducting ourselves appropriately and in line
with the Group’s values. The actions taken by the executive team in
response to the pandemic demonstrated the strength of the culture of
doing the right thing that permeates the Group.

Information on the Company’s approach to investing in and rewarding
its workforce is set out in the Strategic Report on page 80.

Resourcing
As a Board, we ensure that the necessary resources are in place for
the Company to meet its objectives and measure performance against
them. We have an integral role in setting and approving the Company’s
budget and capital allocation processes, and in monitoring availability of
credit/debt capital facilities and the Company’s credit ratings. In regard
to people resourcing, we receive 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 107.

Engagement with shareholders
Significant time and effort is invested in providing detailed and
transparent information to shareholders and in maintaining regular
and effective dialogue with them. Rather than delegation to an
investor relations team, Lord Wolfson and Amanda James, as
Chief Executive and Group Finance Director respectively, engage
directly with investors on a regular basis throughout the year.
Full year and other public announcements are presented in a
consistent format and are made as meaningful, understandable,
transparent and comparable as possible. This information is also
made publicly available on the Company’s corporate website
nextplc.co.uk.

Our Section 172 Companies Act statement on page 94 details how the
views of shareholders have been taken into account during the year.

Engagement with other stakeholders
The views of other providers of capital and key stakeholders are also
considered. Please see the Section 172 Companies Act Statement on
page 93 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 92. 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
Chairman and Chief Executive
There is a clear division of responsibilities between the Chairman and
Chief Executive which is set out in writing and agreed by the Board.
The Chairman manages the Board to ensure that:

• There are procedures in place to inform the Board of performance

against objectives.

• The Group is operating in accordance with a high standard of

corporate governance.

The Board sets objectives and annual targets for the Chief Executive.
It is responsible for general policy on how the objectives are achieved
and delegates the implementation of the policy to the Chief Executive.
The Chief Executive reports at each Board meeting all material matters
affecting the Group and its performance.

The Chairman 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.

Independence of non-executive directors
More than 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 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.

The independence of the Board was strengthened by the appointment
of Tom Hall in July 2020. Tom brings a wealth of relevant experience
having worked with value, luxury and online fashion retail businesses.
He is therefore attuned to the strategic, operational and managerial
challenges and opportunities that are being created by rapidly changing
consumer behaviour. Tom’s listed company experience includes serving
on the board of Ascential plc in 2016 and Auto Trader Group plc until
2016, following its successful IPO in 2015.

Francis Salway, who will step down from the Board at the 2021 AGM, is
supporting an orderly handover of his role as Remuneration Committee
Chairman to Tom.

Directors’ conflicts of interest
In accordance with the Company’s Articles of Association, the Board has
a formal process in place for situational conflicts to be authorised by
non-conflicted directors. In deciding whether to authorise a situational
conflict, the non-conflicted directors take into account their general
duties under the Companies Act 2006. Limits or conditions can be
imposed 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.

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.
Jonathan Bewes, Chairman of the Audit Committee, will take over the
role on Francis’ retirement at the 2021 AGM and an orderly handover
of this role is being undertaken.

103

Strategic ReportGovernanceFinancial StatementsShareholder InformationCORPORATE GOVERNANCE REPORT

Noting of directors’ concerns
The Chairman encourages openness and debate at Board meetings to
enable better decision making. Any director who has concerns about
the operation of the Board or the management of the Company that
cannot be resolved 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.

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.
Appropriate feedback
is provided where necessary. For more
information on the Board effectiveness evaluation process, please see
page 106.

At each Board meeting the Board receives reports from the Chief
Executive on the performance of the business. This includes scrutiny of
performance against clear financial objectives.

Review of directors’ performance
As Senior Independent Director, Francis Salway led the appraisal
of Michael Roney’s performance as Chairman in the year through
individual discussions with the other directors. Michael Roney appraised
the performance of Lord Wolfson as Chief Executive.

Due to COVID restrictions, no informal face to face meetings took place
Overview of governance structure
between the Chairman and the non-executive directors without the
executive directors present. However, the Nomination Committee held
several virtual meetings which included discussions on the performance
of and succession for executive directors.

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
• responsible 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 108

Committee Report
on pages 109 to 114

Committee Report
on pages 115 to 132

Each of the below steering groups held various meetings during the
year to review and monitor specific risks, activities and incidents:

Risk Steering Group – Risk identification and risk
management activities

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

ESG - ESG risk monitoring and setting of ESG priorities

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.

104

Governance framework
The structure of the Board and its governance framework is set out
opposite. The Board believes that it facilitates the operation of an open
and straightforward culture without complex hierarchies and over-
delegation of responsibilities.

Matters reserved for the Board
There is a formal schedule of matters reserved for the Board.
These include investments, significant items of capital expenditure,
share buybacks, dividend and treasury policies. The Board is also
responsible for:

• The long term success of the Company, setting and executing the

business strategy and overseeing its delivery.

• Providing effective leadership.

• Setting and monitoring the Group’s risk appetite and the system of

risk management and internal control.

• Monitoring implementation of its policies by the Chief Executive.

• Approving semi-annual Group budgets and regular review of
performance against budget. Forecasts for each half year are revised
and reviewed monthly.

Certain other matters are reported weekly or monthly including sales,
treasury operations and capital expenditure programmes.

Board attendance
The table below shows the attendance at Board and Committee
meetings during the year to 30 January 2021. All independent non-
executive directors are members of the Nomination, Audit and
Remuneration Committees. This allows the non-executive directors
to deepen their understanding of the NEXT business, control and
risk environment and enhance their contribution to 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. 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.

Current Directors

Role

Number of meetings held in the year
Lord Wolfson
Amanda James1
Richard Papp
Jane Shields
Michael Roney1
Francis Salway
Jonathan Bewes
Tom Hall²
Tristia Harrison
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
Non-executive director

Board

10
10/10
10/10
10/10
10/10
10/10
10/10
10/10
5/5
10/10
10/10

Nomination

Audit

Remuneration

3
–
–
–
–
3/3
3/3
3/3
1/1
3/3
3/3

5
–
–
–
–
–
5/5
5/5
3/3
5/5
5/5

7
–
–
–
–
7/7
7/7
7/7
4/4
7/7
7/7

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. Tom Hall was appointed to the Board in July 2020.

Board Committees
As detailed in the 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. Each Committee
Chairman reports regularly to the Board on how that Committee has
discharged its responsibilities.

External appointments during the year
As announced in January 2021, Lord Wolfson joined the board of
Deliveroo as a non-executive director. He retains the fees from
this appointment.

In June 2020, Dame Dianne Thompson was appointed as a non-
executive director of Pagefield Communications Ltd.

After confirming that there were no conflicts of interest and considering
the likely time commitment required to fulfil these roles, the Board was
satisfied that these appointments would not inhibit Lord Wolfson’s and
Dame Dianne’s ability to continue to effectively discharge their duties
and responsibilities as directors of NEXT.

Information and support
information between all directors.
is a regular flow of
There
The Company Secretary attends all Board meetings; she advises the
Board on corporate governance matters and facilitates the flow of
information within the Board. Any decision to appoint or remove the
Company Secretary is a matter reserved for the Board.

The Company has an open culture; 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.

If directors decide it is 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 131.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationCORPORATE GOVERNANCE REPORT

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 completed a questionnaire designed to elicit
their views 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 how effectively the Board
reacted during the pandemic.

The review concluded 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.

• Objective and collaborative decision-making.

• The calm, detailed and sensible response to and communication

during the pandemic.

The key areas identified as possible opportunities to develop the Board’s
effectiveness further include:

• Enhanced assessment of culture.

• 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 2021/22. An external evaluation will be
undertaken during the year in line with the Code.

Composition, succession
and evaluation
Director appointments
The Nomination Committee Report on page 108 contains information
on the procedure for appointment of new directors to the Board,
succession planning for Board and senior management positions and
information on the Company’s diversity approach.

Board composition
The Board comprises five
independent non-executive directors
(including the Senior Independent Director), the Chairman and four
executive directors who all bring considerable knowledge, skills and
experience to the Group. As is best practice, the Board is continually
it maintains an
assessed and periodically refreshed to ensure
appropriate balance of skills and experience. In July 2020, Tom Hall
was appointed as a non-executive director.

Re-election of directors
Under the Company’s Articles of Association, directors are required
to stand for re-election at least once every three years. However, in
accordance with the Code, all directors stand for re-election or election
at each AGM.

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 98 and 99.

Board induction and development
On joining the Board, new members receive a personalised induction,
tailored to their experience, background and understanding of the
Group’s operations. Tom Hall’s induction plan included:

• A visit to one of the warehouses.

• Attendance at a key operational meeting.

• Virtual meetings with operational directors, senior managers and

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.

• A briefing from the Remuneration Committee’s adviser.

• Access to past Board and Committee papers.

Inductions would also usually contain a store visit and attendance at
the Group’s biannual Retail stores conference; these events have been
deferred until a later date given the current COVID restrictions.

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 help
directors’ understanding of the operational aspects of the business.

106

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 72 to 76) 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 are able 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.
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 Remuneration Policy and the work of the
Remuneration Committee in the Remuneration Report on pages 115
to 139.

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 113 and 114. The independent
auditor’s responsibilities are set out on page 149 and the Board’s
statement as to the Annual Report and Accounts being fair, balanced
and understandable can be found on page 100.

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.

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 77.

Risk management and internal control
The Board is responsible for the Group’s risk management process and
delegates 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 70 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 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 – see page 71 in the Strategic Report for further information.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationNOMINATION COMMITTEE REPORT

Membership and meetings

Members
Michael Roney (Committee Chairman)
Jonathan Bewes
Tom Hall (from July 2020)
Tristia Harrison
Francis Salway
Dame Dianne Thompson

The Committee member attendance table is shown on page 105.
Lord Wolfson also attends the Nomination Committee meetings by
invitation. In addition to formal meetings during the year, there were
regular informal discussions on succession plans and new appointments
to the Board.

The Committee’s roles and responsibilities are covered in its terms of
reference which are available on our corporate website nextplc.co.uk.

Annual evaluation of the Nomination Committee’s performance is
undertaken as part of the Board evaluation process. Having been
externally facilitated in 2018/19, an internal process was undertaken in
2020/21. Further details are set out on page 106. The review concluded
that the Committee continues to operate effectively.

Committee activities in 2020/21
Non-executive director appointment
As I stated in last year’s annual report, Francis Salway intends to step down
from the Board immediately after the 2021 AGM. Having identified the
need for a non-executive director to replace Francis as non-executive
director and Chair of the Remuneration Committee, we appointed
Heidrick & Struggles/JCA Group (JCA) to identify suitable external
candidates for the role. JCA has no other connection with the Company.

We agreed a comprehensive candidate specification and aligned
the role brief to the desired Board and Committee composition
with reference to diversity, the Board skills matrix, and governance
principles for candidates to have at least 12 months’ experience on a
remuneration committee. We then asked JCA to produce a longlist of
potential candidates that would include applicants from Black, Asian
and minority ethnic groups. Three candidates were shortlisted and
interviewed by Francis Salway and myself. Two of these candidates
were subsequently interviewed by each Board member.

Taking into account feedback from the Board members, the role
specification and the key skills, knowledge and experience of the
candidates in the context of the other directors, the Committee
recommended the appointment of Tom Hall to the Board. The Board
approved this recommendation, noting in particular that Tom would
bring considerable financial acumen and broad experience of working
with retail businesses and digital marketplaces on the challenges and
opportunities being created by rapidly changing consumer behaviour.

Board responsibilities
In light of Francis’ retirement, we recommended to the Board that
Jonathan Bewes be appointed as Senior Independent Director with
effect from the conclusion of the 2021 AGM. The Board approved
this recommendation.

the Committee considered

Succession planning
the succession
the year,
During
arrangements for the Board and for the operational directors below
Board level. We reviewed a skills matrix which captured the core
skills, knowledge, experience and diversity represented by the Board
members. This provides a framework for considering the skills we wish
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

Crisis situation succession
During the year, we 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 a strong track record of successful internal promotions to both
operational director and executive director positions, and we were 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. As a company, we acknowledge
the benefits of diversity in terms of business experience and individual
appointments are made irrespective of personal characteristics such as
race, religion or gender. We are mindful of the recommendations of the
Parker Review and, in particular, the recommendation to have at least
one director of colour on the Board by the end of 2021. Going forward,
we expect that our next non-executive director appointment will be
someone from an ethnic minority background. 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. We have 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 40% of our
Board. In terms of the combined executive committee and their direct
reports, NEXT was ranked first in the 2021 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 80.

Mike Roney
Chairman of the Nomination Committee

1 April 2021

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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 2021. This report explains the Committee’s
role and its work during the year.

For many businesses 2020/21 has been a year of unprecedented challenge and change. NEXT is no exception to this. As reflected in the Group’s
performance for the year, the COVID pandemic has accelerated the shift from Retail towards the NEXT Online platform. The risk profile of the Group
continues to evolve and the Committee has re-evaluated and challenged the principal risks of the business accordingly. Updated principal risks,
which reflect the evolution of the business, are set out on pages 72 to 76 of the Annual Report.

Throughout the year the Audit Committee has regularly reviewed and applied the guidance issued by the Financial Reporting Council and other
regulatory bodies. In doing so the Committee has focused its review across a broad range of areas. These include:

• Regular updates on the NEXT Finance credit business including compliance with FCA regulations, updates on customer payment levels, and

emergency support plans offered to our customers from March 2020.

• A review of warehouse operations including the operational and health and safety changes as a result of the COVID pandemic.

• An update on the measures taken by the business to safeguard colleague and customer welfare.

• The wider IT considerations presented by home working arrangements including GDPR and cyber security risk.

• Review of all key judgements and estimates applied by management in preparing the financial statements. The Committee has challenged these
judgements in light of the principal risks, the wider economic conditions in which the business operates and the need to ensure the financial
statements are fair, balanced and understandable.

Given the enforced closure of parts of the Group’s business during the year, particular focus was also given to management’s assessment on
viability and going concern. A number of scenarios were explored to test the financial strength of the Group. These scenarios considered a range
of severe, but plausible, events such as an extended close of warehouse operations which could impact both the Retail and Online businesses.
These scenarios demonstrated that the business has the capacity to withstand a fall in sales of more than 25% without calling upon the cash levers
available to it and still remain within its existing debt and bank facilities. Further detail on this is provided in the Viability Statement on page 77.

The Committee also agreed to add ESG updates as a standing agenda item at its meetings, given its increased importance.

I would like to thank the management team at NEXT and all Committee members for their valuable contribution and support during what has been
an extraordinary year.

Jonathan Bewes
Chairman of the Audit Committee

1 April 2021

Membership and meetings
During the year the Committee comprised the following independent non-executive directors:

Member
Jonathan Bewes (Committee Chairman)
Tom Hall (from July 2020)
Tristia Harrison
Francis Salway
Dame Dianne Thompson

The Committee member meeting attendance table is shown on page 105.

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 98 and 99.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationAUDIT COMMITTEE REPORT

The Committee’s roles and responsibilities are covered in its terms of reference which are available on our corporate website at nextplc.co.uk.
The terms of reference were most recently reviewed in December 2020 and were considered by the Board to remain appropriate.

During the year, the Committee held five 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 2020/21 this process was
facilitated internally, and further details are included on page 106. The review concluded that the Committee operates effectively.

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 2020/21
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. In order to assist with this review the Committee requested that management
present detailed papers explaining and substantiating the basis for the Group’s accounting policies and key areas of judgement and estimation.

The Audit Committee also recognise the importance of the views of the external auditor and consequently made enquires to ensure that suitably
robust challenges and audit procedures had been performed on these judgements during the course of the audit. There were no significant
differences between management and the external auditor.

Having reviewed management’s papers and considered the procedures and findings of the external auditor, the Committee is satisfied that the
judgements are reasonable, and that suitable accounting policies have been adopted and disclosed in the accounts.

The following areas of significance were all subject to this process and were discussed and addressed with our external auditor throughout the
external audit process. The key matters of focus were:

Area of focus

Background and details

1. Online customer receivables and
related allowance for expected
credit losses

2. Hedge accounting

Represents the largest asset class on the Group’s Balance Sheet (2021: Gross value
£1.3bn and allowance for expected credit losses of £195.5m).

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. Consideration was given to the impact of COVID and
forward-looking views on the economy, consumer indebtedness and observed
defaults. The Committee 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.

Reference to
financial statements

Note 13

Notes 27 and 28

110

Area of focus

Background and details

3. Pension scheme funding

and accounting

The Group Balance Sheet
surplus of £99.2m
shows a
(2020: £133.4m), comprising £1,058.5m assets and £959.3m defined benefit
pension schemes obligation.

funding

Reference to
financial statements

Note 20

4. Inventory valuation

5. Impairment of store assets

6. Lease terms

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 £536.9m (2020: £527.6m).
The Committee reviewed a paper from management setting out the judgements
made in respect of inventory provisions, in particular considering the impact of
COVID on trading and the risk of obsolescence.

The Committee also took into account the results of the external auditor’s work
on inventory, which included a review of the provisions held. The Committee
concluded that the methodology for calculating the net realisable values of
inventories, including management’s judgements on provisions, was balanced
and appropriate.

During the year the Group has recognised an impairment charge in relation to
its Retail store assets. In determining the charge, management is required to
exercise judgement in forecasting the future cash flow projections of the Retail
business at a store level. These judgements were applied consistently to both the
pre-IFRS 16 results (used by management as one of its Alternative Performance
Measures) and the statutory results which include the impact of IFRS 16.

Having reviewed papers from management, and the results for the external audit,
the Committee concluded that these judgements were balanced and appropriate.

Due to the acceleration of the transfer of trade from Retail stores to its Online
business, management revisited its assessment of store lease terms for those
stores where forecast performance is significantly lower than previously expected.
This has resulted in the reduction of lease terms from the full lease term to the
next break clause.

As a result, there has been a reduction in the right-of-use asset of £50.8m, a
reduction in the associated lease liability of £55.2m and a gain of £4.4m (recognised
within cost of sales) .

The Audit Committee reviewed management’s judgements and considered this
in the wider context of market conditions and recent experience on such stores.
Management papers were reviewed and challenged with the views of the external
auditor obtained to help ensure the judgements were appropriate.

Page 166

Page 167

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Strategic ReportGovernanceFinancial StatementsShareholder InformationAUDIT COMMITTEE REPORT

Viability statement and going concern
financial position and
The Committee reviewed the Group’s
performance, budgets for 2021/22, three year cash projections
which were stress tested under different scenarios having regard to
the principal risks faced by the business, and the Group’s available
borrowing facilities and covenants. The Committee also reviewed
management’s conclusion that there were no material uncertainties
that would cast significant doubt on the Company’s ability to operate
as a going concern.

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.

As part of this review, specific consideration was given to the potential
risks associated with COVID. This included a review of the stress tests
prepared by management and in particular the possible cash impact
of further restrictions on store openings. The stress test scenarios then
set out the measures which the business could take to control costs,
conserve cash and meet its liabilities as they fall due.

In reviewing the viability and resilience of the Group to future risks, it
was noted that actions taken in the preceding 12 months had already
significantly strengthened the liquidity of the Group with net debt
reduced from £1,112m to £610m at January 2021. In addition, the
Group has significant cash levers which it could utilise should further
funding be required. These levers include, but are not limited to, the
temporary cessation of capital expenditure, the cancellation and/or
reduction in stock commitments and the sale of shares in the Employee
Share Option Trust. Evidence of the Group’s ability to realise cash
through these was present in the first half of the year when both the
stores and warehouses were temporarily closed.

Further details of the scenario testing are provided in the Viability
Statement. 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 and a review 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.

Further details regarding the risk framework and approach to risk
management, together with details of NEXT’s principal risks and risk
assessment can be found on pages 70 to 76.

During the year the Committee:

• Received regular updates from the IT and operations teams including

updates on key projects.

• Reviewed the results of an independent cyber security review,
including the plan to incorporate the recommendations arising from
that review.

• Considered updates from the warehousing & distribution and
product merchandising businesses covering current and anticipated
risks together with corresponding mitigating actions.

• Reviewed the anti-money laundering risk assessment and new

internal standards.

• Considered additional risks arising as a result of the pandemic,
including the risks created by increased numbers of staff working
from home, and the increase in health data being processed.

• Received an update from management on lessons learnt from the
COVID pandemic and steps taken to further improve the resilience
and ability of the business to respond effectively to such events.

• Reviewed the risk appetite for data protection and agreed a
revised method of capturing residual data protection risk exposure
and controls.

• 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.

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 an external cyber security review,
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, and this was more crucial than
ever during 2020, with the widespread closure of Retail stores for
multiple periods.

112

During the year the Committee received updates from our warehousing
and logistics directors covering the safety systems and new ways
of working implemented following the temporary closure of the
warehouses in March 2020, the operational output of the warehouses,
and key lessons learned that will benefit the warehouse operations in
the future. The Committee also reviewed progress on a significant four
year warehouse expansion and reorganisation project commenced
in 2018.

During the year the Committee received regular updates on the
Consumer credit
Finance business, including regular reporting on the financial outlook,
FCA conduct risks and actions taken to mitigate the impact of the
pandemic on the Finance business. The Committee reviewed changes
in the Finance business approach to addressing risks arising from the
pandemic including Emergency Support Plans, changes to collection
procedures and changes to the lending policy.

The Committee also received regular updates on regulatory compliance
and other developments in the Finance business.

During the year the Committee received reports and presentations
Other risk management activities
from relevant senior management on other significant activities and key
control functions of the Group including:

• Anti-Money Laundering

• Business continuity

• Code of Practice supplier audits (including ethical compliance)

• ESG matters

• Health and safety

• Legal matters

• Pensions

• Taxation

• Treasury

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, including
changes to the plan during the year.

• 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 2020 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 Risk 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. The Audit Committee has set in place procedures
to ensure only permitted non-audit services are provided by the auditor
and these are in line with the above policy. These procedures 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.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationAUDIT COMMITTEE REPORT

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 30 January 2021.

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 £1.0m 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 turnover certificates
on retail stores and the audit of corporate responsibility reporting.
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.

• 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.

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 2021/22 financial year.

114

REMUNERATION REPORT

Contents

Part 1: Annual Statement from the Remuneration Committee Chairman

Part 2: Annual Remuneration Report

Part 3: Directors’ Remuneration Policy Extract

page 115

page 118

page 132

Remuneration compliance
This report complies with Schedule 8 of the Large and Medium-sized Companies and Group (Accounts and Reports) Regulations, 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
2020/21 which is in line with the Company’s approved Remuneration Policy. The Directors’ Remuneration Policy was supported by 91.8% of our
shareholders at our AGM in 2020.

Pay and performance outcome for 2020/21
Total remuneration
The correlation between the fortunes of executives and stakeholders has become increasingly important in recent times but the unprecedented
events of 2020 have brought it into even sharper focus. This statement details the decisions the Committee has taken this year in respect of
executive remuneration, taking into account the wider stakeholder environment.

Retailers selling non-essential goods have been hit particularly hard by COVID-19. For NEXT, some or all of our UK stores have faced enforced
closure on multiple occasions and our warehouses were closed temporarily to re-design them for COVID-safe operations. This resulted in many
staff being furloughed and one of our main concerns was to ensure their financial welfare. We have therefore topped up the pay of all those paid
above the furlough scheme cap to 80% of normal pay. Rapid action was also taken to preserve liquidity, with asset disposals and cancellation of
dividend payments. In recognition of these factors, all directors agreed to waive 20% of their salaries and fees for part of the year (see below for
further details) and the Committee took the decision that it would not be appropriate to pay bonuses for 2020/21.

However, the COVID-related lockdowns have also highlighted how much the business has done over recent years to reposition itself as a successful
online platform with new income streams. As outlined in our Strategic Report, NEXT performed well during the year as a whole notwithstanding
these exceptionally difficult circumstances, delivering a positive profit before tax of £342.0m (2020: £728.5m). While the share price has been
volatile as markets reacted to COVID, it has ended the year at a level which reflects the Company’s achievements, whether considered in absolute
terms or in comparison to retail peers, increasing by 7.5% from £71.94 to £77.30 in the financial year.

This performance was founded on long term planning to build the scale of NEXT’s Online business, which accounted for around half of the
Company’s turnover going into the pandemic. In engineering the Group’s structural shift to Online over the past few years, NEXT’s executives have
successfully managed the costs and complexities associated with developing the appropriate Online systems and fulfilment platforms, as well as
generating new retail revenue streams. It has been encouraging to see the output of their efforts reflected in the resilience of the business in such
challenging times, and the success of this long term planning is reflected in LTIP outcomes.

Salary
All Board directors voluntarily waived 20% of their salaries and fees during the particularly challenging initial period of the pandemic from
April 2020 to June 2020. For executive directors, the salary reductions were also mirrored in lower pension contributions/cash supplements.

In taking the decision to restore full salaries from 1 July 2020, the Committee took into account the following factors:

• The reopening of Online operations in April 2020

• The reopening of Retail Home stores in May 2020 and a phased re-opening of clothing stores starting in May 2020, with the expectation that all

Retail stores in England would be trading by the end of June

• Significant improvements in the forecasts for full year profit, net debt and cash resources

Annual bonus
In April 2020, the decision was taken by the Remuneration Committee to cancel the annual bonus for 2020/21, meaning no bonus will be paid
in respect of this financial year. This was considered equitable in the context of the wider stakeholder environment, given that distributions to
shareholders were suspended and a significant number of colleagues were furloughed.

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Long Term Incentive Plan
LTIP awards are currently granted twice a year. Prior to the approval of the Remuneration Policy at the 2020 AGM, each grant was made at 100%
of base salary for executives. An increase in the LTIP opportunity to 225% was approved at the AGM in May 2020; accordingly, the Committee
approved grants in March 2020 at 100% and in September 2020 at 125% of base salary. Typically, 112.5% of base salary will be granted every
six months.

Two LTIP awards reached the end of their three year performance period. Of these, the first vested at 90% as NEXT’s total shareholder return
(TSR) ranked fifth out of 21 companies in the comparator group and the second vested at 100% as NEXT’s TSR ranked fourth in the comparator
group. Of the estimated total value of the two LTIP awards, 31% is due to the increase in share price and a further 7% to the dividends accrued on
such awards.

The Committee considered whether it would be appropriate to scale back the LTIP vestings, taking into account the external environment. It decided
to allow the awards to vest without adjustment for the following reasons:

• During much of the performance period, the Retail sector has been challenging and the NEXT senior management team has performed very
well in managing the costs, systems requirements and evolution of the NEXT warehousing and logistics platform. Many of the actions taken by
management during this period means the Company is very well placed to take advantage of the opportunities of the ongoing structural shift in
spending from retail stores to online as well as investment and acquisition opportunities arising from the pandemic.

• Financial data shows NEXT is performing well in exceptionally challenging circumstances.
• NEXT has delivered share price growth over the performance periods in contrast to decreases in both the FTSE 100 and the FTSE 350 General

Retailers indices.

• The performance period of the LTIPs measured longer term performance over three years (i.e. going beyond the period affected by COVID).
• The performance targets themselves were more demanding than market norms (with only 20% vesting at threshold compared with a norm of

25% and full vesting requiring upper quintile rather than upper quartile performance).

• The Committee had already cancelled the opportunity to earn bonuses for the year to January 2021.

The Committee therefore concluded that the indicative levels of vesting according to the metrics of the scheme were appropriate. Details of the
comparator group are set out on page 126.

The Committee also actively considered whether it was necessary to scale back the quantum of LTIP grants. It considered that scaling back was
not appropriate for the following reasons:

• NEXT’s approach to grants already includes a higher level of smoothing than most other companies through both a) making grants every
6 months, rather than the more typical larger single annual grant and b) using as the relevant share price the average price over the three
month period immediately prior to the start of the performance period, rather than the more typical period of 1-5 days thereby ensuring that
a temporarily low spot price is not adopted.

• The time horizon of the three year LTIP performance period and two year holding period which would extend beyond the impact of COVID.
• The share price at the time of the awards was well within the trading range of the previous three years.
• The Committee retains the power to apply negative discretion to LTIP vesting percentages if it considered that there had been a windfall gain.

Key remuneration decisions
The Committee addressed a number of matters during the year. The matters relating directly to director remuneration in the context of the
pandemic are summarised below.

Salary

Annual bonus

LTIP

All Board directors waived 20% of their salaries and fees from April 2020 to June 2020. The Committee
determined that a return to full salaries and fees was justified from July 2020 once the initial impact of the
pandemic had become clearer.
The annual bonus for executive directors was cancelled for the 2020/21 financial year.

The grant and vesting of LTIP awards were allowed without adjustment taking into account a number of
factors as set out above.

Annual base salary review for 2021/22
The Committee reviewed and set the remuneration for the Chairman, executive directors and senior management. The executives received base
salary increases in February 2021 of 0.6%, 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 (on a pre-IFRS 16 basis).

The principal reasons for using EPS are:
•
• The primary financial objective of the Group is to deliver long term, sustainable returns to shareholders through a combination of growth in EPS

It is consistent and transparent to participants and shareholders.

and payment of cash dividends.

• The use of EPS is complemented by the application of relative TSR for the LTIP.

116

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 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 last year, 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 introduced a general overriding discretion to reduce
variable pay at the point of determination and included this in the executive directors’ service agreements.
Other activity during 2020/21
Further information about the work of the Committee is on page 131.
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. 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 (including in 2020) to approximately 1,600 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 our UK and Eire employees. Around 9,600 employees (circa 26% 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.

Our range of workforce engagement activities continued during 2020 despite the pandemic, albeit in a different format and focusing on different
issues. We communicated extensively with our colleagues on safety measures throughout the pandemic. As a result of employee feedback,
we temporarily closed our warehousing and distribution operations in late March 2020 to rework our operations to make them COVID safe.
We implemented extensive additional safety measures in consultation with our employees and our recognised union, USDAW, before recommencing
Online operations with a daily limit of orders that could be picked safely.

Our annual employee forum meetings for our Head Office, Warehousing & Distribution, Retail and Online areas were held virtually. 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 2021.

Along with the employee forum 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 framework 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. Following the dashboard review, I
circulated a letter to all our employees setting out our approach.
Shareholder engagement
The Committee maintains an ongoing dialogue with the Company’s shareholders and proxy agencies to understand their views. Any major changes
to the Remuneration Policy or its operation would be subject to prior consultation as necessary. No such changes were contemplated this year but
the Committee was very mindful of COVID-related guidance issued by shareholders and proxy agencies when considering the key remuneration
decisions set out on pages 116 and 117.

For further details regarding the feedback to the Board on shareholder views, please see page 94.
2021 AGM
The Committee has been very mindful of the requirements of the UK 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, even in the most challenging of years. The Remuneration
Policy structure continues to provide a strong and transparent link between pay and performance and has operated as intended. We hope that this
report provides clear insight into the Committee’s decisions and look forward to receiving your support at the 2021 AGM for our 2020/21 Directors’
Annual Remuneration Report.

Francis Salway
Chairman of the Remuneration Committee

1 April 2021

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Part 2: Annual Remuneration Report

This Annual Remuneration Report comprises a number of sections:

Implementation of Remuneration Policy

page 118

Performance and CEO remuneration comparison

Single total figure of remuneration

page 120

Analysis of Chief Executive’s pay over 10 years

Total remuneration opportunity

Executive directors’ external appointments

Pension entitlements

Directors’ shareholding and share interests

page 122

page 123

page 124

Scheme interests awarded during the financial year

page 126

Annual change in remuneration of each director
compared to employees

Pay ratios

Relative importance of spend on pay

Dilution of share capital by employee share plans

page 127

page 128

page 129

page 130

Deferred bonus

Performance targets for outstanding LTIP awards

Payments to past directors

Payments for loss of office

page 127

Consideration of matters relating to remuneration

page 130

Voting outcomes at General Meetings

Service contracts

page 131

page 132

Annual Remuneration Report
The Remuneration Committee presents the Annual Remuneration Report, which, together with the Chairman’s Introduction on pages 115 to 117,
will be put to shareholders for an advisory (non-binding) vote at the AGM to be held on 20 May 2021. 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 2020.
The table overleaf sets out the way that the policy was implemented in 2020/21 and any significant changes in the way it will be implemented
in 2021/22.

118

Element of remuneration
Base salary

Policy implemented during 2020/21 and changes in 2021/22
Base salaries for the executives increased by 0.6% in February 2021, in line with the wider Company award. The base
salaries for the executive directors from February 2021 are:

Annual bonus

£000
Lord Wolfson
Amanda James
Richard Papp
Jane Shields

2021/22
824
502
486
486

2020/21
819
499
483
483

The COVID pandemic has resulted in an economic shock on an unprecedented scale and had a significant adverse
impact on 2020/21 performance. In addition, in light of the furloughing of staff and the decision by the Board to
suspend dividend payments in the year, the Committee did not feel that it would be appropriate to pay an annual
bonus to the executives. Accordingly, the Committee cancelled the Annual Bonus in April 2020 and therefore no
bonus is payable in respect of the 2020/21 financial year.

Prior to cancellation, for the year to January 2021 performance targets were set requiring pre-tax EPS growth of
at least 3.5% on the prior year, adjusted for special dividends and excluding exceptional gains, before any bonus
became payable. At this threshold, 12% bonus was payable. A maximum bonus of 100% and 150% of salary for the
executive directors and Chief Executive respectively was payable if pre-tax EPS growth was 12.4% or higher.

For the year to January 2022 no changes to the bonus structure will be made. 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.

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.

LTIP

See Note 6 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 2020 AGM, the level of LTIP
grants has been increased from 200% to 225% with two grants of 112.5% of salary each anticipated. The September
2020 LTIP grant reflected this new increased level of grant (see page 126). Aside from this, LTIP grants in 2021/22
will be made on the same basis to the 2020/21 grants, with any changes to the TSR comparator group considered
immediately prior to each grant.

For grants made from the adoption of the 2017 policy (i.e. the grant vesting from September 2020), consistent
with market practice, the LTIP awards increase to reflect dividends paid over the period to vesting (assuming
reinvestment at the prevailing share price).

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 for the retention of any net of tax shares that vest) under the LTIP for executive directors.
See page 139 for details of 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 0.6% in February 2021, in line with the
wider Company award. The Chairman, Michael Roney, will be paid an annual fee of £346,112 (2020/21: £344,047).
The basic non-executive director fee for 2021/22 is £59,339 (2020/21: £58,985), with a further £11,868
(2020/21: £11,797) paid to the Chairman of each of the Audit and Remuneration Committees respectively, and to
the Senior Independent Director.

The value of overall pension provision is consistent with the wider workforce for each director when compared
with colleagues with an equivalent length of service. Consistent with the Policy approved by shareholders last
year, additional caps on Lord Wolfson’s potential benefits were added even though these do not apply to other
colleagues with his length of service.

Recovery and
withholding
provisions

Chairman and
non-executive
director fees

Pension

Shareholding requirement This was increased from 200% of salary for all executive directors to 225% following the AGM in May 2020.

Post cessation
shareholding requirement

Other benefits

Save As You Earn scheme
(Sharesave)

Introduction of post cessation shareholding requirements following the AGM in May 2020.

No change.

119

Strategic ReportGovernanceFinancial StatementsShareholder Informationn
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Strategic ReportGovernanceFinancial StatementsShareholder Information

REMUNERATION REPORT

Total remuneration opportunity
The Committee’s objective is to ensure that the remuneration paid to senior executives is appropriate in both amount and structure, is directly
linked to the Company’s annual and longer term performance and is aligned with the interests of shareholders. Careful consideration is given to
ensuring there is an appropriate balance in the remuneration structure between annual and long term rewards, as well as between cash and share-
based payments.

The charts below indicate the level of remuneration that could be received by each executive director in accordance with the Directors’
Remuneration Policy 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.

Lord Wolfson (Chief Executive)

Fixed

100%

Total £1,063k

Fixed pay

Annual bonus

LTIP (multiple period)

Additional 50% increase
in LTIP share price

Mid-point/
median

Maximum

Maximum
(inc. 50% increase
in share price)

52%

25%

22%

30%

18%

Total £2,052k

30%

24%

45%

36%

Total £4,153k

18%

Total £5,080k

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 £1,024k

23%

18%

500

1,000

52%

41%

1,500
AMOUNT £000

Total £2,176k

21%

Total £2,740k

2,000

2,500

3,000

Jane Shields (Group Sales and Marketing Director)

Fixed

100%

Total £601k

Mid-point/
median

Maximum

Maximum
(inc. 50% increase
in share price)

56%

28%

22%

23%

21%

Total £1,063k

22%

18%

50%

40%

Total £2,181k

20%

Total £2,727k

500

1,000

1,500
AMOUNT £000

2,000

2,500

3,000

Richard Papp (Group Merchandise and Operations Director)

Fixed

100%

Total £533k

Mid-point/
median

Maximum

Maximum
(inc. 50% increase
in share price)

54%

25%

20%

24%

22%

Total £994k

23%

18%

500

1,000

52%

41%

1,500
AMOUNT £000

Total £2,113k

21%

Total £2,660k

2,000

2,500

3,000

122

In the charts on the previous page, the following assumptions have been made:

Fixed/minimum

Base salaries and salary supplement values as at 2021/22, and benefits values as shown in 2020/21 single figure of
remuneration. The pension value for Lord Wolfson has been capped at 24% of his salary (see below).

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

Executive directors’ external appointments
Executive directors are allowed external appointments with the permission of the Board. In January 2021, Lord Wolfson joined the Board of
Deliveroo as a non-executive director. He retains his remuneration for this appointment.

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.

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.

With effect from February 2020, 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).

After introduction of the cap on the service accrual under Lord Wolfson’s DB pension, all of the executive directors are 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.

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.

The DB 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.

123

Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION REPORT

Active members of the DB scheme contribute 3% or 5% of pensionable earnings as at October 2012, while the Company makes contributions at the
rate of 38%. 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 DB 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 DB 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
Tom Hall
Tristia Harrison
Amanda James
Richard Papp
Michael Roney
Francis Salway
Jane Shields
Dame Dianne Thompson

Ordinary shares

Deferred Bonus
Shares1

LTIP2

2021
1,249,504
1,750
nil
1,000
28,168
17,867
40,821
4,520
37,609
nil

2020
1,380,890
1,750
n/a
1,000
22,253
20,452
38,275
9,040
62,594
nil

2021
–
–
–
–
–
–
–
–
–
–

2020
–
–
–
–
–
–
–
–
–
–

2021
94,470
–
–
–
55,348
54,159
–
–
54,159
–

2020
97,207
–
–
–
54,505
53,926
–
–
53,926
–

Sharesave3
2021
344
–
–
–
357
392
–
–
352
–

2020
344
–
–
–
357
392
–
–
352
–

1. Full details of the basis of allocation and terms of the deferred bonus are set out on page 134.

2. The LTIP amounts above are the maximum potential conditional share awards that may vest subject to performance conditions described on page 135.

3. Executive directors can participate in the Company’s Sharesave scheme (see details on page 137) 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 1 April 2021.

Share ownership guidelines
The minimum shareholding is 225% of salary for all executive directors. 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.

As at the 2020/21 financial year end, the value of shareholdings of the executives, based on the average share price over the preceding three
months, 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 2021
10,667%
395%
258%
544%

Shareholding
guidelines achieved
Yes
Yes
Yes
Yes

Post-cessation shareholding guidelines also 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.

124

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

Dividend
accrual
shares
awarded
in the year

Shares
vested/
exercised
in the year

Awarded
during the
year

Date of
award

Maximum
receivable
at end of
financial
year

Calculated
price at
award
date
£

Option
price
£

Lord Wolfson
LTIP

Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Mar 2020
Sept 2020

Sharesave
Amanda James
LTIP

Oct 2018

Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Mar 2020
Sept 2020

Sharesave

Oct 2016
Oct 2018

Richard Papp
LTIP

Sharesave
Jane Shields
LTIP

Sharesave

Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Mar 2020
Sept 2020

Oct 2016

Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Mar 2020
Sept 2020

Oct 2016
Oct 2018

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

8,907
10,169
9,279
7,249
9,873
8,449
–
–
53,296
70
282
352

–
–
–
–
–
–
11,955
20,757

–

16,552
1,5623 18,5703
–
–
–
–
–
–

–
–
–
–
–
–

Options
lapsed

–
1,8893
–
–
–
–
–
–

–

–
–
–
–
–
–
7,280
12,639

–
–

–
–
–
–
–
–
7,057
12,252

–
8393
–
–
–
–
–
–

–
–

–
8393
–
–
–
–
–
–

8,907
9,9923
–
–
–
–
–
–

–
1,0163
–
–
–
–
–
–

–
–

8,907
9,9923
–
–
–
–
–
–

–
1,0163
–
–
–
–
–
–

–

–
–
–
–
–
–
7,057
12,252

–
–

–
8393
–
–
–
–
–
–

–
–

8,907
9,9923
–
–
–
–
–
–

–
1,0163
–
–
–
–
–
–

–
–

–
–
17,245
13,472
16,727
14,314
11,955
20,757
94,470
344

–
–
9,279
7,249
10,185
8,716
7,280
12,639
55,348
108
249
357

–
–
9,279
7,249
9,873
8,449
7,057
12,252
54,159
392

–
–
9,279
7,249
9,873
8,449
7,057
12,252
54,159
70
282
352

Market
price on
date of
vesting/
exercise
£

35.542
59.34
–
–
–
–
–
–

Vesting date/
exercisable dates1

Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
Jan 2023
Jul 2023

46.73
40.93
45.75
58.56
48.11
56.22
68.494
49.314

nil
nil
nil
nil
nil
nil
nil
nil

–

43.48

– Dec 2023 – Jun 2024

46.73
40.93
45.75
58.56
48.11
56.22
68.494
49.314

nil
nil
nil
nil
nil
nil
nil
nil

35.542
59.34
–
–
–
–
–
–

Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
Jan 2023
Jul 2023

–
–

38.25
43.48

– Dec 2021 – Jun 2022
– Dec 2023 – Jun 2024

46.73
40.93
45.75
58.56
48.11
56.22
68.494
49.314

nil
nil
nil
nil
nil
nil
nil
nil

35.542
59.34
–
–
–
–
–
–

Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
Jan 2023
Jul 2023

–

38.25

– Dec 2021 – Jun 2022

46.73
40.93
45.75
58.56
48.11
56.22
68.494
49.314

nil
nil
nil
nil
nil
nil
nil
nil

35.542
59.34
–
–
–
–
–
–

Jan 2020
Jul 2020
Jan 2021
Jul 2021
Jan 2022
Jul 2022
Jan 2023
Jul 2023

–
–

38.25
43.48

– Dec 2021 – Jun 2022
– Dec 2023 – Jun 2024

125

Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION REPORT

1. For LTIP awards, the date in this column is the end of the three year performance period. Actual vesting will be the date on which the Committee determines whether any performance

conditions have been satisfied, or shortly thereafter.

2. As reported last year, the relative TSR performance condition was assessed at the end of the performance period in January 2020 using NEXT’s average share price over the three months

prior to that date which was £68.49.

3. See page 121 for details of the performance conditions and vesting levels applicable to the LTIP schemes with performance periods ending in the financial year 2020/21. For grants vesting
from September 2020, the award may be increased to reflect dividends paid over the period to vesting (assuming reinvestment at the prevailing share price) with such shares added
on vesting.

4. The calculated LTIP price at award date is NEXT’s average share price over the three months prior to the start of the performance period.

5. Within the 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 2020/21 year totalled £4,417,000 (2019/20: £1,490,000).

Scheme interests awarded during the financial year ended January 2021
(audited information)

LTIP

Face value

In respect of the LTIP conditional share awards granted during the year 2020/21, 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. The new Remuneration Policy approved by shareholders in May 2020 increased the
level of LTIP grants from 200% to 225% of salary. The September 2020 grant reflected this new increased level of grant, however in
future financial years typically 112.5% will be awarded every 6 months.

Lord Wolfson
Amanda James
Richard Papp
Jane Shields

Mar 2020
(100% of salary)
£000
819
499
483
483

Sep 2020
(125% of salary)
£000
1,024
623
604
604

Total
£000
1,843
1,122
1,087
1,087

Vesting if minimum
performance achieved

20% of the entitlement will be earned for relative TSR at median. Full vesting requires relative TSR in the upper quintile.

Performance period

March 2020 grant: three years to January 2023.

September 2020 grant: three years to July 2023.

Performance measures

The LTIP performance measures are detailed on page 135. The companies in the TSR comparator group for awards granted during
the financial year are:

AO World

ASOS

B&M European Value Retail

Burberry

Boohoo

Dixons Carphone

Dunelm

DFS

Halfords

J Sainsbury

JD Sports

Kingfisher

Marks & Spencer

Morrisons

N Brown

Pets at Home

Superdry (March 2020
award only)

Studio Retail Group
(September 2020 award only)

Ted Baker

Tesco

W H Smith

Dividend roll-up

For grants from September 2017, the award may be increased to reflect dividends paid over the period to vesting
(assuming reinvestment at the prevailing share price).

126

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 2020/21 annual
bonus for Lord Wolfson was cancelled.

Performance targets for outstanding LTIP awards
Details of the comparator group for the LTIP three year performance periods commencing February 2020 and August 2020 are shown opposite.
Carpetright and Mothercare were replaced by AO World and DFS for both awards and Studio Retail Group replaced Superdry for the August
2020 award.

The comparator group for the performance periods commencing in August 2017, February 2018, August 2018, February 2019 and August 2019
is the same as February 2020 with the exception of Carpetright and Mothercare which were included and AO World and DFS which were not
included. In addition, Boohoo replaced Debenhams in the comparator group from August 2019 onwards following Debenhams’ delisting.

Payments to past directors (audited information)
There were no payments made to past directors during the 2020/21 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 2020/21 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 2021.

NEXT plc performance chart 2011 to 2021 Total Shareholder Return

580

500

420

340

260

180

100

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

FTSE All Share

FTSE General Retailers

Re-based to 29 January 2011 = 100

127

Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION 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

Single figure of total
remuneration £000

Annual bonus pay-out
against maximum
opportunity1

LTIP pay-out against
maximum opportunity2

SMP pay-out against
maximum opportunity

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

4,106

4,630

4,646

4,660

4,295

1,831

1,153

1,327

2,639

3,393

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%

13%3

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%

0% Two semi-annual awards vested at 90% and 100%

n/a

Entitlement waived2

Did not participate in
2012–15 SMP
100%

n/a

1. The maximum bonus for the Chief Executive is 150% of salary.

2. 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.

3.. 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.

Annual change in remuneration of each director compared to employees
The table below shows the percentage changes in the directors’ remuneration (i.e. salary, taxable benefits and annual bonus) between 2019/20
and 2020/21 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 84% of the Group’s workforce.
The Company has chosen to voluntarily disclose this information, given that NEXT plc employs only the directors not others in our group
of companies.

Executive directors1
Lord Wolfson
Amanda James
Richard Papp
Jane Shields
Non executive directors
Michael Roney
Jonathan Bewes
Tom Hall2
Tristia Harrison
Francis Salway
Dame Dianne Thompson
UK/Eire Employees (average per FTE)

Base salary

Taxable benefits

-3%
-3%
-3%
-3%

-3%
-3%
n/a
-3%
-3%
-3%
2%

-13%
-8%
–
–

–
–
–
–
–
–
4%

Bonus3

-100%
-100%
-100%
-100%

–
–
–
–
–
–
-73%

1. The directors took a 20 per cent voluntary reduction in salary/fees during the lockdown period between April and June 2020.

2. Tom Hall was appointed to the Board as a non-executive director on 13 July 2020.

3. In light of the decision not to pay dividends in the financial year, the Committee did not feel that it would be appropriate to pay an annual bonus to the executives. Accordingly, the

Committee cancelled the Annual Bonus and therefore no bonus is payable in respect of the 2020/21 financial year.

128

Pay ratios
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
120) 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 ten
year period. We expect the pay ratio to vary from year to year, driven largely by the variable pay outcome for Lord Wolfson, which will significantly
outweigh any other changes in pay.

Year

2020/21
2019/20

Method

Option B
Option B

25th percentile
pay ratio
192:1
151:1

50th percentile
(median) pay ratio
178:1
148:1

75th percentile
pay ratio
159:1
106:1

We have used Option B in the legislation to calculate the full-time equivalent remuneration 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 2020. 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 base contract salaries and grossed these up to the full-time equivalents to which
we have added actual benefits, bonus, long term incentives and pension (if applicable) of the UK employees falling at these three percentiles.
There has been significant disruption to normal working patterns caused by COVID and the closure of our operations during some of the financial
year and this method provides a fair representation of employee pay and benefits at the relevant percentiles. 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
£17,514
£17,643

50th percentile (median)
£18,802
£19,063

75th percentile
£21,093
£21,306

The ratios disclosed above are affected by the following factors:

• Of our UK workforce of 32,000, around 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 increase in the pay ratios in 2020/21 as compared to 2019/20 is attributable to the increase in the amount of variable remuneration
received by Lord Wolfson, who 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

129

Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION REPORT

Relative importance of spend on pay
The table below shows the total remuneration paid to or receivable by all employees in the Group together with other significant distributions and
payments (i.e. for share buybacks/special dividends and ordinary dividends).

2020/21
2019/20
% change

Total wages and salaries
£593.6m
£617.2m
-3.8%

Buybacks
£19.3m
£300.2m
-93.6%

Ordinary dividends
nil
£213.7m
-100%

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).

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

Tom Hall (from July 2020)

Tristia Harrison

Michael Roney
Dame Dianne Thompson

Attendance at Committee meetings is shown on page 105.

130

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 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. 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 £23k and Deloitte was paid circa £3k for the services described above, charged at their standard hourly rates.
Both are members of the Remuneration Consultants Group, the body that oversees the Code of Conduct in relation to executive remuneration
consulting in the UK and have confirmed to us that they adhere to its Code. Based on the nature of the advice, and the relatively small fees, the
Committee was satisfied that the advice received was objective and independent.

Voting outcomes at General Meetings

AGM

Votes for

To approve the Remuneration Policy

To approve the 2019/20
Remuneration Report
To amend the rules of the NEXT LTIP
to reflect a change in the maximum
opportunity for participants
Extension of the NEXT Share
Matching Plan for a further 10 years
Extension of the NEXT Sharesave Plan
for a further 10 years
Extension of the NEXT Management
Share Option Plan for a further
10 years

%
for
91.8

Votes
against
8,252,433

%
against
8.2

Total
votes cast
100,942,511

% of shares
on register
75.9

Votes
withheld
393,732

92,690,078

2020

96,952,432

97.0

2,964,177

3.0

99,916,609

75.1 1,419,634

2020

98,389,678

97.3

2,781,351

2.8

101,171,029

76.1

165,215

2020

96,776,834

95.7

4,394,235

4.3

101,171,069

76.1

165,175

2020

100,560,711

99.4

611,772

0.6

101,172,483

76.1

163,761

2020

100,573,749

99.4

597,084

0.6

101,170,833

76.1

165,411

131

Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION REPORT

Service contracts
Executive directors
The Company’s policy on notice periods and in relation to termination payments is set out in the policy table on page 138. Apart from their service
contracts, no director has had any material interest in any contract with the Company or its subsidiaries.

The executive directors’ service contracts do not contain fixed term periods.

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
Tom Hall
Tristia Harrison
Francis Salway
Dame Dianne Thompson

* Appointed Chairman 2 August 2017

14 February 2017*

3 February 1997
1 April 2015
14 May 2018
1 July 2013

3 October 2016
13 July 2020
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
1 month

6 months

6 months
6 months
6 months
6 months

1 month
1 month
1 month
1 month
1 month

Part 3: Remuneration Policy Table

The table following summarises the Company’s policies with regard to each of the elements of remuneration for existing directors, as approved by
shareholders on 14 May 2020 and is provided for ease of reference only. This is an extract of the policy report and has not been amended in any
way. The full Remuneration Policy is set out in the January 2020 Annual Report, pages 100 to 110, and is available on our corporate website nextplc.
co.uk. The Company considered the factors outlined in provision 40 of the UK Corporate Governance Code as part of that review as explained on
page 97 of that report.

A shareholder vote on Remuneration Policy is not required in 2021.

On behalf of the Board

Francis Salway
Chairman of the Remuneration Committee

1 April 2021

132

Remuneration Policy table, as approved in 2020. For clarity, where the policy table includes page cross references, these references have been
updated to this year’s Remuneration Report.

Base salary

Purpose and link to strategy
To attract, motivate and retain high calibre individuals,
while not overpaying. To provide a satisfactory base salary
within a total package comprising salary and performance-
related pay.

Performance-related components and certain benefits are
calculated by reference to base salary. The level of salary
broadly reflects the value of the individual, their role, skills
and experience.

Operation
Normally reviewed annually, generally effective 1 February.
The Committee focuses particularly on ensuring that an
appropriate base salary is paid to directors and senior
managers. The Committee considers salaries in the context
of overall packages with reference to individual experience
and performance, the level and structure of remuneration
for other employees, the external environment and market
data. External benchmarking analysis is only occasionally
undertaken and the Committee has not adopted a prescribed
objective of setting salaries by reference to a particular
percentile or benchmark.

Maximum opportunity
There is no guaranteed annual increase. The Committee considers it important
that base salary increases are kept under tight control given the multiplier effect
of such increases on future costs. In the normal course of events, increases in
executive directors’ salaries would be in line with the wider Company cost of
living awards.

The Committee reserves flexibility to grant larger increases where considered
appropriate. 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.

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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
122, 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 benefiting 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.

134

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.

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.

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.

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%.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION REPORT

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.

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 123. 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.

136

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.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationREMUNERATION REPORT

Termination payments

Purpose and link to strategy
Consistent with market practice, to ensure NEXT can recruit
and retain key executives, whilst protecting the Company
from making payments for failure.

Operation
The Committee will consider the need for and quantum of
any termination payments having regard to all the relevant
facts and circumstances at that time.

Future service contracts will take into account relevant
published guidance.

Maximum opportunity
Each of the executive directors has a rolling service contract. Dates of
appointment and notice periods are disclosed on page 132. 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.

138

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.

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).

The policies as set out above would apply to the promotion of an existing Group employee to the Board.

139

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 2021 Annual General Meeting (AGM) of NEXT plc will be held at
and broadcast from the registered office of NEXT plc, Desford Road,
Enderby, Leicester LE19 4AT on Thursday 20 May 2021 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 220.

Dividends
Information regarding dividends during 2020/21 is provided in the
Strategic Report on page 24.

The Trustee of the NEXT ESOT typically waives dividends paid in
the year on the shares held by it. No dividends were paid during
2020/21. 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 2020 AGM to purchase its own shares. During the financial year the Company purchased
and cancelled 279,639 ordinary shares with a nominal value of 10p each (none of which were purchased off-market), at a cost of £19.3m and
representing 0.2% of its issued share capital at the start of the year.

At the financial year end 30 January 2021, the Company had 132,949,276 shares in issue.

As at 30 January 2021, the Company had been notified under the Disclosure and Transparency Rules (DTR 5) of the following notifiable interests
in the Company’s issued share capital. The information provided below was correct at the date of notification. These holdings are likely to have
changed since the Company was notified; however, notification of any change is not required until the next notifiable threshold is crossed:

FMR LLC (Fidelity)
BlackRock, Inc.
Invesco Limited
NEXT plc Employee Share Option Trust

Notifications received as at 30 January 2021

No. of voting
rights at date of
notification

14,555,000
15,449,829
13,738,106
5,147,054

% of voting rights at
date of notification

Nature of
holding

Date of
notification

10.92
9.97
9.76
3.87

Indirect interest
Indirect interest
Indirect interest
Direct interest

3 January 2020
8 January 2014
8 June 2018
11 January 2021

The following notification was received after 30 January 2021 up to 31 March 2021:

Invesco Limited

No. of voting
rights at date of
notification
6,560,984

% of voting rights at
date of notification
4.93

Nature of
holding
Indirect interest

Date of
notification
23 March 2021

140

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 2021 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

Director emoluments

Shareholder waivers of dividends

In January 2021, NEXT published a Profit Before Tax (PBT) central guidance forecast for the
year to January 2021 of £342m. Actual PBT for the period was £342m. These PBT amounts are
on a pre-IFRS 16 basis.
All board directors voluntarily waived 20% of their salaries and fees during the particularly
challenging initial period of the pandemic from April 2020 to June 2020.
The NEXT Employee Share Ownership Trust typically waives its rights to receive dividends during
the year. No dividends were paid during the financial 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 98 to 141, has been approved by the Board and is signed on its behalf by

Amanda James
Group Finance Director

1 April 2021

141

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 30 January 2021 and of the Group’s profit and the Group’s cash flows for the 53
week period then ended;

• the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the

requirements of the Companies Act 2006;

• 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.

We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: Consolidated
and Parent Company Balance Sheets as at 30 January 2021; 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 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.

Separate opinion in relation to international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union
As explained in the Group Accounting Policies, the Group, in addition to applying international accounting standards in conformity with the
requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.

In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

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.

Other than those disclosed in the Audit Committee Report, we have provided no non-audit services to the Group in the period under audit.

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Our audit approach
Overview

• We conducted an audit of the complete financial information of one financially significant reporting unit as well as two other reporting units
Audit scope
• Two of these components were audited by the UK Group Engagement Team with the remaining component audited by a local component team

(components).

located in Hong Kong.

• Further specific audit procedures over central functions, the Group consolidation and areas of significant judgement (including goodwill,

intangible assets, leases, taxation, treasury and post-retirement benefits) were directly led by the Group Engagement Team.

• Our scoping resulted in coverage of 94% of revenue, 92% of profit before tax and 94% of total assets.

• Recoverability of customer receivables (Group).
Key audit matters
• Valuation of store related assets (Group).

•

Inventory being in excess of net realisable value (Group).

• Valuation of financial instruments (Group).

• Accounting for defined benefit pension arrangements (Group).

• COVID-19 pandemic impact (Group and Parent Company).

• Overall Group materiality: £30,700,000 (2020: £36,000,000) based on 5% of average profit before tax of the previous three years (2020: 5%
Materiality
• Overall Parent Company materiality: £26,500,000 (2020: £26,000,000) based on 1% of total assets.

profit before tax).

• Performance materiality: £23,000,000 (Group) and £19,875,000 (Parent Company).

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.

Capability of the audit in detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.

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 employment, environmental and consumer credit regulations, 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. 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 posting inappropriate
journal entries to increase revenue or profits and management bias in significant accounting estimates and judgements. 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, internal audit, internal legal counsel, compliance managers and the Audit Committee, including consideration

of known or suspected instances of non-compliance with laws and regulation or fraud;

• Assessment of matters reported on the Group’s whistleblowing log and the results of management’s investigation of such matters;

• Review of correspondence with the Financial Conduct Authority;

•

Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by
senior management;

• Challenging assumptions and judgements made by management in their significant accounting estimates 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. We are less likely to become aware of instances of non-compliance with
laws and regulations that are not closely related to events and transactions reflected in the financial statements. 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.

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TO THE MEMBERS OF NEXT PLC
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.

Valuation of store related assets is a new key audit matter this year. IFRS 16 transition, which was a key audit matter last year, is no longer included
because of the key audit matter being specific to the year of transition. Otherwise, the key audit matters below are consistent with last year.

Key audit matter

How our audit addressed the key audit matter

Group
Recoverability of customer receivables
Refer to the Audit Committee Report, the Major Sources of Estimation Uncertainty
and Judgement within the Group Accounting Policies and note 13 for Customer and
Other Receivables.

An allowance of £195.5m (2020: £171.5m) is held against customer receivables of
£1,223.6m (2020: £1,405.6m).

NEXT’s provisioning methodology uses historical experience to quantify, on a
discounted and probability weighted basis, the losses expected to be incurred,
under different macro-economic scenarios, as a result of projected future default
scenarios. This includes consideration of how third party forecast unemployment
assumptions might impact the future performance of the customer and
other receivables.

Manual overlays are applied to address identified risks which are not captured fully
by the historical information, as well as anomalies in the modelling where the recent
past is not considered to be indicative of expected future trends (for example the
impact of furlough and other government support schemes). In arriving at these
overlays, management has considered the impact of COVID-19, levels of increasing
consumer debt levels and affordability, along with the other key drivers to the
performance of the customer receivables. The key manual overlays applied relate
to future projections regarding probability of default for those customers who are,
or have previously been, on a payment plan or a payment holiday and future cash
collection forecasts.

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 and benchmark management’s approach, based on the key drivers of
performance for the customer receivables, against the requirements of IFRS 9
and current best practice.

We tested the key inputs to the provision calculated by management, which
are the historical default experience and expected future recoveries (including
considering the expected impact of COVID on forecast collection rates), 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 including forecast unemployment rates. As part of this analysis, we
considered whether all drivers impacting the performance of the customer
receivables had been appropriately captured by management and that
appropriate allowance had been made for the impact of the COVID pandemic.

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.

Based on the evidence assessed we found the methodologies, assumptions
and data used within the allowance for ECL assessment to be materially
appropriate and in line with the requirements of IFRS 9.

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Key audit matter

How our audit addressed the key audit matter

Group
Valuation of store related assets
Refer to the Audit Committee Report, the Major Sources of Estimation Uncertainty
and Judgement within the Group Accounting Policies and Note 3 for Operating Profit.

In accordance with IAS 36 (Impairment of assets), the Group is required to assess
the recoverability of right-of-use assets and PPE where there are indicators of
impairment. Evidence of a significant downturn in the retail sector, specifically in
relation to physical stores, has been identified as a result of the COVID pandemic
and therefore an impairment review of all store related assets has been performed.
Impairments of £64.2m and £23.3m with respect to right-of-use assets and PPE
respectively have been recognised in the financial statements.

The impairment review involves management making several estimates to
determine the value in use of the stores (being the net present value of the forecast
cash flows). This is then compared to the book value of stores’ assets to identify
whether any impairment is required. In making this assessment, management
determines each store to be a cash generating unit (CGU).

We obtained an understanding of how management has prepared the
impairment analysis and how the significant assumptions were derived.

We evaluated the methodology applied by management with reference to
the requirements of IAS 36. We tested the integrity of the impairment model
prepared by management to ensure the value in use and impairment by CGU
was accurate.

We have challenged the significant assumptions management has applied in
the model:

• We have evaluated management’s ability to budget based on historical
budgets or forecasts and the resultant performance. We have assessed the
budget with reference to the Group’s historical trading performance, trading
results from the past 12 months and external data points;

• We have tested the reconciliation between the Group’s approved budget
and the cash flows used in the individual CGU impairment review and tested
the allocation of cash flows by individual CGU by analysing historical store
trading performance;

The significant assumptions in calculating the value in use were cash flows for the
period ending January 2022 by CGU, the long-term growth in like-for-like sales and
the discount rate.

• In relation to the discount rate, we have compared the rate used to
our independently estimated discount rate determined by our internal
valuations team; and

Group
Inventory being in excess of net realisable value
Refer to the Audit Committee Report and the Major Sources of Estimation
Uncertainty and Judgement within the Group Accounting Policies.

The valuation of inventory involves judgement in recording provisions for slow
moving, obsolete and inventory that may not be saleable in future seasons. As a
result of COVID-19 management has introduced additional categories of inventory
provisioning to take account of fabric and garments which remained unsold from
the prior year but are forecast to be sold in 2021. 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;

• the forecasted cash recovery rates on inventory sold via clearance channels; and

• the forecasted utilisation of fabrics in future seasons.

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, the Major Sources of Estimation Uncertainty
and Judgement 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.

• We have assessed the long term like-for-like growth rates with reference to

the Group’s historical trading performance.

We found that the key assumptions and the impairment recorded were
consistent with the evidence obtained.

We evaluated the forecasted sell through, cash recovery rates and fabric
utilisation 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 challenged management on the higher percentage provisions against the
additional COVID-19 categories of inventory and found these to be reasonable
given the increased uncertainty over the achievability of forecasted sell
through rates and margins.

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 our own 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.

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Key audit matter

How our audit addressed the key audit matter

Group
Accounting for defined benefit pension arrangements
Refer to the Audit Committee Report, the Major Sources of Estimation
Uncertainty and Judgement 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 and parent
COVID pandemic impact
Refer to the Audit Committee Report, the Basis of Preparation statement within
the Group Accounting Policies, Note 3 for Operating Profit and Note 11 for leases.

The impact of COVID on the Group has been significant with revenue (excluding
credit account interest) reducing to £3,284.1m and profit before tax reducing to
£342.4m. In addition to the above key audit matters documented in respect of the
recoverability of customer receivables, valuation of store related assets and PPE
and inventory being in excess of net realisable value. The other implications as a
result of COVID-19 are as follows:

• Assessment of appropriateness of the going concern basis of the Group’s financial
statements in light of the pandemic. Budgets and models supporting the going
concern and impairment assessments were updated to reflect management’s
best estimates of future cash flows;

• Furlough income of £95.1m was received during the year and recognised as a

reduction to payroll costs in the income statement; and

• Significant properties owned by the Group were sold for £154.9m and leased

back during the year.

There was no significant impact on the systems or controls of the Group.

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 in aggregate
were reasonable.

We reviewed the trust deeds and addendum 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.

In respect of the other key audit matters impacted, see procedures
outlined above.

We tested the key assumptions in both the base model and the severe but
plausible model in management’s going concern assessment by agreeing total
debt to our audit work performed and expected expenditures and income
from sales for the period ending January 2022 to the board approved budget
and back to historical figures. We have evaluated management’s ability to
budget based on historical budgets / forecasts and the resultant performance.
We challenged management on their severe but plausible model for going
concern and encouraged them to make this more severe by including the
impact of additional warehouse closures. We considered the ‘levers’ available
which NEXT would be able to utilise to raise additional funds with the key
ones being reductions in stock purchases, share purchases and cessation of
dividends determining these were all under management’s control.

NEXT has received income of £95.1m from the UK Government’s Coronavirus
Job Retention Scheme (CJRS) for the staff they have furloughed in the year.
To obtain an understanding of how management has calculated their claims,
we have performed walkthroughs of the preparation and review processes.
The cash for all claims made during the year has been agreed to a bank
statement. A sample of monthly claims by employee has been selected and
we have confirmed that the claim has been correctly calculated, vouching
inputs to supporting documentation (i.e. payslips) and performing an
independent recalculation. We obtained confirmation letters sent to the
employees confirming that they will be furloughed and inspected timesheets
to confirm that the employee was not working during the period that they
were furloughed.

We assessed the contracts entered into as part of the sale and leaseback to
identify the terms of the agreement. We agreed cash receipts from the sale
back to bank statements and tested a sample of the assets on the balance
sheet pre-sale in order to agree the gain on sale and leaseback under IFRS
16, including challenging management on the exclusion of the contingent
consideration in relation to this sale. We recalculated the resulting right of use
asset and lease liability using the inputs from the contracts, for each of the
three warehouses and head office recognised on the balance sheet.

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.

Our scoping is based on the Group’s consolidation structure. We define a component as a single reporting unit which feeds into the Group
consolidation. Of the Group’s 40 reporting components, we identified one reporting unit 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 two 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.

Further specific audit procedures over central functions, the Group consolidation and areas of significant judgement (including goodwill, intangible
assets, leases, taxation, treasury and post-retirement benefits) were directly led by the Group Engagement Team.

This scoping as described above results in the following coverage at the key metrics: 94% of revenue; 92% of profit before tax; and 94% of total assets.

Two of the three in-scope components (including the financially significant component) were audited by the UK Group Engagement Team with
the remaining component audited by a team in Hong Kong on instruction from the Group Engagement Team. 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.

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The Parent Company is comprised of one reporting unit which was subject to a full scope audit for the purposes of the Parent Company
financial statements.

Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality

How we determined it

Rationale for benchmark applied

Financial statements – Group

Financial statements – Parent Company

£30,700,000 (2020: £36,000,000).

£26,500,000 (2020: £26,000,000).

5% of average profit before tax of the previous
three years (2020: 5% profit before tax).

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. We have used a three-year average
given our view that the business is not significantly
different in size or complexity despite the decreased
profit in the year ending 30 January 2021.

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 between £9,000,000 and £29,000,000.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance
materiality was 75% of overall materiality, amounting to £23,000,000 for the Group financial statements and £19,875,000 for the Parent Company
financial statements.

In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk
and the effectiveness of controls - and concluded that an amount in the middle of our normal range was appropriate.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1,500,000 (Group audit)
(2020: £1,800,000) and £1,325,000 (Parent Company audit) (2020: £1,500,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.

Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Parent Company’s ability to continue to adopt the going concern basis of
accounting included the procedures as described in our COVID-19 pandemic impact key audit matter.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Parent Company’s
ability to continue as a going concern.

In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this 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.

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In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.

With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.

Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.

Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the
period ended 30 January 2021 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

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.

Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.

Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the Parent Company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on
other information section of this report.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement
is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw
attention to in relation to:

• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;

• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an

explanation of how these are being managed or mitigated;

• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to the Group’s and Parent Company’s ability to continue to do so over
a period of at least twelve months from the date of approval of the financial statements;

• The directors’ explanation as to their assessment of the Group’s and Parent Company’s prospects, the period this assessment covers and why

the period is appropriate; and

• The directors’ statement as to whether they have a reasonable expectation that the Parent Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.

Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only
consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with
the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements
and our knowledge and understanding of the Group and Parent Company and their environment obtained in the course of the audit.

In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit:

• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Parent Company’s position, performance, business model and strategy;

• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and

• The section of the Annual Report describing the work of the Audit Committee.

We have nothing to report in respect of our responsibility to report when 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.

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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, the directors are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.

Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target
particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.

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 obtained 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 4 years, covering the years
ended 27 January 2018 to 30 January 2021.

Andrew Lyon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
East Midlands

1 April 2021

149

Strategic ReportGovernanceFinancial StatementsShareholder InformationGROUP
FINANCIAL
STATEMENTS

151 Consolidated Income Statement

152 Consolidated Statement of Comprehensive Income

153 Consolidated Balance Sheet

154 Consolidated Statement of Changes in Equity

155 Consolidated Cash Flow Statement

156 Group Accounting Policies

168 Notes to the Consolidated Financial Statements

150

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
Trading profit
Share of results of associates and joint ventures
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the period attributable to equity holders of the Parent Company

Earnings Per Share
Basic
Diluted

The Notes 1 to 32 are an integral part of these consolidated financial statements.

53 weeks to
30 January
2021
£m

52 weeks to
25 January
2020
£m

3,284.1
250.3
3,534.4
(2,231.7)
(54.8)
1,247.9
(555.8)
(246.8)
(1.3)
444.0
0.5
444.5
0.6
(102.7)
342.4
(55.7)
286.7

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

223.3p
221.9p

472.4p
468.8p

Notes

1, 2

3
5
5

8
8

151

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyCONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME

Profit for the period

Other comprehensive income and expenses:

Items that will not be reclassified to profit or loss
Actuarial (losses)/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 (expense)/income
Total comprehensive income for the period

53 weeks to
30 January
2021
£m
286.7

52 weeks to
25 January
2020
£m
610.2

Notes

20
6

(57.1)
10.8
(46.3)

(2.5)

(14.2)

(0.5)
2.8
(14.4)

(60.7)
226.0

2.8
(0.5)
2.3

2.0

10.5

0.1
(2.8)
9.8

12.1
622.3

152

CONSOLIDATED BALANCE SHEET

ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use assets
Associates, joint ventures and other investments
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
Corporate bonds
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

30 January
2021
£m

25 January
2020
£m

Notes

9
10
11
12
20
14
6

14
15

16
19
17
11
18
6

19
21
18
11
17

474.8
60.5
720.1
5.0
99.2
39.4
70.4
1,469.4

536.9
1,108.1
24.3
11.1
608.2
2,288.6
3,758.0

(93.4)
(326.0)
(555.3)
(170.1)
(37.2)
(14.8)
(1,196.8)

(837.0)
(18.6)
–
(1,015.8)
(28.9)
(1,900.3)
(3,097.1)
660.9
660.9

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

The financial statements were approved by the Board of directors and authorised for issue on 1 April 2021. They were signed on its behalf by:

Lord Wolfson of Aspley Guise
Chief Executive

Amanda James
Group Finance Director

153

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyCONSOLIDATED STATEMENT OF CHANGES
IN EQUITY

Share
premium
account
£m
0.9
–

Capital
redemption
reserve
£m
16.0
–

Share
capital
£m
13.9
–

ESOT
reserve
£m
(271.6)
–

Cash flow
hedge
reserve
£m
0.4
–

Cost of
hedging
reserve
£m
0.4
–

Foreign
currency
translation
£m
(2.0)
–

Other
reserves
(Note 23)
£m
(1,443.8)
–

Retained
earnings
£m
2,052.0
610.2

Total
equity
£m
366.2
610.2

–

(0.6)
–
–
–
–

–
–
13.3
–

–

–
–
–
–
–

–

–
–
–
–
–

–
–
0.9
–

–

–
–
–
–
–

–

0.6
–
–
–
–

–

–
(94.2)
80.9
–
–

–
–
16.6
–

–
–
(284.9)
–

7.7

–
–
–
–
(40.5)

7.7
–
(24.7)
–

0.1

–
–
–
–
–

–
–
0.5
–

2.0

–
–
–
–
–

–
–
–
–

2.3

12.1

612.5

622.3

(300.2)
–
(15.4)
14.7
–

–
–
(1,443.8)
–

13.6
(213.6)
2,163.6
286.7

–

–
–
–
–
–

–

–
(190.3)
204.0
–
–

–
–
(271.2)

(11.5)

(0.4)

(2.5)

(11.5)

(0.4)

(2.5)

(46.3)

(60.7)

240.4

226.0

–
–
–
–
19.5

(3.0)
–
(19.7)

–
–
–
–
–

–
–
0.1

–
–
–
–
–

(19.3)
–
(41.9)
16.7
–

–
–
(2.5)

–
–
(1,443.8)

7.7
–
2,367.2

(300.2)
(94.2)
65.5
14.7
(40.5)

21.3
(213.6)
441.5
286.7

(19.3)
(190.3)
162.1
16.7
19.5

4.7
–
660.9

–

–
–
–
–
–

–

–
–
–
–
–

–
–
13.3

–
–
0.9

–
–
16.6

At 26 January 2019
Profit for the period
Other comprehensive
income for the period
Total comprehensive
income for the period
Share buybacks and
commitments (Note 22)
ESOT share purchases (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
Profit for the period
Other comprehensive
expense for the period
Total comprehensive
income/(expense) for the
period
Share buybacks and
commitments (Note 22)
ESOT share purchases (Note 25)
Shares sold/issued by ESOT
Share option charge
Reclassified to cost of inventory
Tax recognised directly in
equity (Note 6)
Equity dividends (Note 7)
At 30 January 2021

154

CONSOLIDATED CASH FLOW STATEMENT

Cash flows from operating activities
Operating profit
Depreciation, impairment and (profit)/loss on disposal of property, plant and equipment
Depreciation and impairment on right-of-use assets
Amortisation of intangible assets
Share option charge
Share of (profit)/loss of joint ventures and associates
Profit on disposal of associate
Exchange movement
Increase in inventories and right of return asset
Decrease/(increase) in customer and other receivables
Decrease in trade and other payables
Net pension contributions less income statement charge
Cash generated from operations
Corporation taxes paid
Net cash from operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Movement in capital accruals
Payments to acquire property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Purchase of subsidiary
Disposal of minority interest
Investment in joint venture
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 of unsecured bank loans
Issue of corporate bonds
Lease repayment
Interest paid (including lease interest)
Interest received
Proceeds from sale and leaseback transactions
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)

53 weeks to
30 January
2021
£m

52 weeks to
25 January
2020
£m

444.5
136.8
196.6
0.4
16.7
(0.5)
(1.0)
1.1
(9.6)
205.4
(29.5)
(22.9)
938.0
(113.2)
824.8

(146.3)
1.7
(144.6)
0.5
(16.7)
–
3.9
(2.4)
(159.3)

(19.3)
(189.0)
162.7
(40.0)
–
(171.0)
(101.6)
0.5
154.4
–
(203.3)
462.2
52.9
(0.3)
514.8

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

155

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyGROUP ACCOUNTING POLICIES

General Information
NEXT plc and its subsidiaries (the “Group”) is a UK based retailer which offers beautifully designed, excellent quality clothing and homeware
which are responsibly sourced and accessibly priced. 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 accounting standards in conformity with
the requirements of the Companies Act 2006 (‘IFRS’) and the applicable legal requirements of the Companies Act 2006. In addition to complying
with international accounting standards in conformity with the requirements of the Companies Act 2006, the consolidated financial statements
also comply with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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 53 weeks to 30 January 2021 (last year 52 weeks to 25 January 2020).

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. The Board also considered the Group’s current cash position, the repayment profile of its existing debt
structure (including the maturity of the £325m Bond in October 2021) and the resilience of its 12 month cash flow forecasts to a series of severe
but plausible downside scenarios such as further enforced store closures. Having considered these factors 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 53 weeks ended 30 January 2021.

These policies have been consistently applied to all the years presented, unless otherwise stated.

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. 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 28 days. Given the temporary closure of stores due
to the COVID pandemic, this policy was adjusted to provide customers with the right to return within 28 days of the store reopening. 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

156

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).

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

Plant and equipment

50 years

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.

Software
Capitalised software costs include both external direct costs of goods and services, and internal payroll-related costs for employees who are directly
associated with the software project.

Development costs are recognised as intangible assets when the following criteria are met:

•

It is technically feasible to complete the software so that it is available for use.

• Management intend to complete the software for use in the business.

• There is an ability to use or sell the software.

•

It can be demonstrated how the software will generate probable economic benefits in the future.

• Adequate technical, financial and other resources are available to complete the project.

Capitalised software development costs are amortised on a straight-line basis over their expected economic lives, normally between 3 and 5 years.
Computer software under development is held at cost less any recognised impairment loss. Any impairment in value is recognised within the
income statement.

157

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyGROUP ACCOUNTING POLICIES

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.

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 (excluding money market funds)
Money market funds
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 profit or loss
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.

158

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.

The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at FVPL. The most significant financial assets
Impairment – financial 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 161). Accrued interest is included within other creditors and accruals.

159

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyGROUP ACCOUNTING POLICIES

Financial instruments – initial recognition and subsequent
measurement
Financial liabilities

(continued)
(continued)

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 dispatched. 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.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

ECL is the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted at the original 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. The ECL model applies three macroeconomic scenarios including a base case which is viewed by management to be the
most likely outturn, together with an upside and downside scenario. A 40% weighting is applied to the base case and 30% to each of the up and
downside scenarios.

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
4 risk bands by arrears stage (See Note 28).

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.

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Customer and Other Receivables
Impairment
The key assumptions in the ECL calculation are:

(continued)

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. An analysis of historical performance suggests that the expected performance of the book is most closely aligned to the
forecast change in unemployment rate. However, management considers that 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).

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.

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 Group’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.

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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.

In accordance with IFRS 9 “Financial instruments”, the Group designates the intrinsic value of foreign currency options as hedging instruments for
hedging relationships entered into. 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.

Cash and Cash Equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial
institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Amounts held in money market funds are
held at fair value through the profit and loss and are valued using Level 1 inputs. Bank overdrafts are shown within borrowings in current liabilities
in the balance sheet. 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.

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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 to an uncertain tax position. Management uses professional advisers and in-house
tax experts to determine the amounts to be provided.

Share Buybacks
The Group has regularly returned surplus cash to shareholders through share buybacks. Shares purchased for cancellation are deducted from
retained earnings at the total consideration paid or payable. The Company also uses contingent share purchase contracts and irrevocable closed
period buyback programmes; the obligation to purchase shares is recognised in full at the inception of the contract, even when that obligation is
conditional on the share price. Any subsequent reduction in the obligation caused by the expiry or termination of a contract is credited back to
equity at that time. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Shares Held by ESOT
The NEXT Employee Share Ownership Trust (ESOT) provides for the issue of shares to Group employees, principally under share option schemes.
Shares in the Company held by the ESOT are included in the Balance Sheet at cost, including any directly attributable incremental costs, as a
deduction from equity.

Provisions
A provision is recognised where the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the obligation. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

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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 term ends and the Group remains
within the site on holdover terms, the rental costs associated with this arrangement are recognised in the Income Statement as incurred.

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 – remeasurement
The lease liability is remeasured where:

• there is a change in the assessment of exercise of an option, in which case the lease liability is remeasured by discounting the revised lease

payments using a revised discount rate;

• 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 remeasured 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 remeasured

by discounting the revised lease payments using a revised discount rate.

When the lease liability is remeasured, 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.

Right-of-use asset – initial recognition
The right-of-use asset comprises the initial measurement of the corresponding lease liability, lease incentives received, 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.

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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.

Sale and leaseback
A sale and leaseback transaction is where the Group sells an asset and immediately reacquires the use of the asset by entering into a lease with
the counterparty. A sale is recognised when control of the underlying asset passes to the counterparty. The asset sold is derecognised and a lease
liability and right-of-use asset recognised in relation to the lease. Any gain or loss arising on the transaction is recognised in the Income Statement
and relates to the rights transferred to the counterparty.

Government Grants
Grants are recognised only when there is reasonable assurance that the Group will comply with the conditions attached to them and that the
grants will be received. Grants that are receivable as compensation for expenses already incurred are recognised in profit or loss in the period in
which they become receivable.

Major Sources of Estimation Uncertainty and Judgement
The preparation of the financial statements requires estimates 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 macroeconomic 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)).

Since March 2020, the UK Government has provided an unprecedented level of support to both companies and individuals such as payment
freezes and the furlough scheme, with the objective of minimising the long-term economic impact of the pandemic. This support has, in the
short-term, reduced the impact the pandemic would otherwise have had on the performance of online customer receivables; but the long-term
economic impacts of the pandemic remain uncertain.

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Major Sources of Estimation Uncertainty and Judgement
Expected credit losses on Online customer and other receivables
The most significant areas of judgement in the January 2021 year end provision, which have collectively resulted in increases in the modelled ECL,
are (i) the impact of macroeconomic deterioration as the economy emerges from the pandemic, (ii) the expected performance of borrowers who
are currently, or were previously, on repayment plans, and (iii) the identification of higher risk segments, e.g.borrowers with a payment freeze with
another lender.

(continued)

Deterioration in the ability of customers to afford their payments will cause an increase in lifetime ECL. Management considers that current CII
values understate the underlying risk due to the Government initiatives detailed above. The weighted average CII has been uplifted by 20% to
allow for this uncertainty, aligning the underlying risk to the prior year, preventing a provision release of £14m. This is before forward looking
macroeconomic factors are included.

A key assumption within the ECL calculation is the forecast rate of UK unemployment. The expected increase in the rate of unemployment provides
a strong indicator of a deterioration in the ability of customers to afford their payments and, in turn, an increase in PD and the EAD. This is a
key driver behind the increase in the lifetime ECL of circa £20m in the period. The weighted average unemployment rate, based on forecasts
from Experian (IFRS 9 Central Forecast Report November 2020), is expected to peak at 7.5% in Q2 2021 before reducing to 4.3% by Q4 2024.
If unemployment was to peak at the upper range of the Experian forecast of 8.1% in Q2 2021 before reducing to 5.2% in Q4 2024 then the lifetime
ECL would be £4.0m higher. If unemployment peaks at the lower end of the Experian range 6.7% in Q2 2021 before reducing to 3.5% in Q4 2024
then the lifetime ECL would be £4.3m lower.

A 2% movement upwards (or downwards) in the expected rate of cash collectable following default reduces (or increases) the allowance for
lifetime ECL by £2.7m. The choice of a 2% change for the determination of sensitivity represents a reasonable, but not extreme variation in the
collection rate. The impact of changes to assumptions on the credit impaired book is not material reflecting the higher ECL rates held.

In the five weeks following the January 2021 year end, £0.2bn of the £1.2bn NEXT customer and other trade receivables has been recovered.
Management estimate that a further £0.2bn 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 £6m. A 2% change in the level of markdown applied to the selling price would impact the value of inventories going to clearance by circa £8m.

Impairment of right-of-use assets and Plant, Property and Equipment
Property, plant and equipment and right-of-use assets are reviewed for impairment if events or changes in circumstances indicate that the carrying
amount may not be recoverable. When an impairment review is performed, the recoverable amount is based on the higher of the value in use and
fair value less costs to sell. The value in use method requires the Group to apply assumptions in performing its assessment of future cash flows over
the useful life of the asset. Key assumptions used are the Board approved budget for year 1, long-term growth rate to be applied to the asset life
and the risk adjusted pre-tax discount rate used to discount the assumed cash flows to present value.

In light of the COVID pandemic and its impact on the business performance, the Group’s cash flow projections for its Retail stores have been updated
and factor in the experience of trade during periods when stores reopened following Government restrictions, the impact of social distancing
measures, and the actions the Group is taking to manage its Retail business. The cash flow projections include assumptions on store performance
throughout the remaining contractual lease term. In particular, the expected decline in like-for-like Retail sales in the budget for 2021/22 and the
subsequent assumptions on our like-for-like Retail sales represent sources of significant estimation uncertainty. A future change to the assumption
of sales growth would result in a reassessment of the value in use and could give rise to a significant change in the impairment recognised.

An improvement in the forecast sales in the year 1 budget of +2%, with no subsequent changes to sales, would result in an expected reduction in
the impairment charge of circa £5m. A larger change of +4% would result in a reduction in the impairment charge of circa £10m.

Thereafter, in years 2 to 5, the cash flow projections assumed a like-for-like decline in Retail sales of -6%. This was considered an appropriate basis
for the forecast given the historical rate of decline evident in our Retail sales in recent years. A change of 1% to the assumed annual change in like-
for-like Retail sales in this period, assuming no change in the year 1 budget, would result in a change to the impairment charge of circa £5m while
a change of 3% would result in a change in the impairment charge of circa £15m.

An increase of 2% on the discount rate applied to the impairment model would result in an increase in the impairment charge of £5m.

Defined benefit pension valuation
The assumptions applied in determining the defined benefit pension obligation (Note 20), are particularly sensitive. 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.

166

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 of 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 the lease management therefore assesses the lease term based on its expectations for the lease.

As noted above, the COVID pandemic has had a significant impact on the Retail business and the operational and financial performance of its
stores. As a result, the Group performed an impairment review on its store portfolio and recognised a significant impairment charge. This also acted
as a trigger for the Group to reassess the lease term assessment on those stores that are now forecast to be loss making. This is because the Group
no longer has a reasonable expectation of remaining in these stores under the current lease terms. As a result, the expected lease term of 79 leases
have been reduced resulting in the reduction in the right-of-use asset of £50.8m, a reduction in the associated lease liability of £55.2m and a gain
of £4.4m (recognised within Cost of sales).

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 mark 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.

Adoption of new accounting standards, interpretations and amendments
The group has applied the following standards and amendments for the first time in these financial statements:

• Definition of Material – Amendments to IAS 1 and IAS 8

• Definition of a Business – Amendments to IFRS 3

The application of these new standards and amendments did not have a material impact on the Financial Statements.

Certain new accounting standards and interpretations have been published that are not yet effective and have not been early adopted by the
group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable
future transactions.

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 68, 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.

167

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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” (lease
costs are instead charged to Cost of sales in the Income Statement on straight line basis) 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.

Segment sales and revenue

53 weeks to 30 January 2021

Total sales
excluding
VAT
£m
2,368.4
954.5
250.3
33.2
6.8
3,613.2
5.2
0.1
7.4
3,625.9
–
3,625.9

Commission
sales
adjustment
£m
(157.4)
(2.0)
–
–
–
(159.4)
–
–
–
(159.4)
–
(159.4)

IFRS 15
adjustments
£m
68.5
(0.6)
–
–
–
67.9
–
–
–
67.9
–
67.9

External
revenue
£m
2,279.5
951.9
250.3
33.2
6.8
3,521.7
5.2
0.1
7.4
3,534.4
–
3,534.4

Internal
revenue
£m
–
0.3
–
–
394.6
394.9
74.1
0.6
193.2
662.8
(662.8)
–

Total
segment
revenue
£m
2,279.5
952.2
250.3
33.2
401.4
3,916.6
79.3
0.7
200.6
4,197.2
(662.8)
3,534.4

NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing

Lipsy
NENA
Property Management
Total segment sales/revenue
Eliminations
Total

NENA (NEXT Europe and North Africa) is a small sourcing business acquired on 31 January 2020.

168

1. Segmental Analysis
Segment sales and revenue

(continued)

(continued)
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

52 weeks to 25 January 2020

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

Segment profit/(loss)
The view of segment profit used by the CODM does not allocate the impact of IFRS 16 because the IFRS 16 profit before tax is not used in
internal reporting.

NEXT Online
NEXT Retail
NEXT Finance
NEXT International Retail
NEXT Sourcing

Lipsy
Property Management
Total segment profit
Central costs and other
Recharge of interest
Share option charge
Unrealised foreign exchange losses
Trading profit
Share of results of associates and joint ventures
Finance income
Finance costs
Profit before tax excluding IFRS 16
IFRS 16
Profit before tax including IFRS 16

53 weeks to
30 January
2021
£m
472.1
(205.9)
112.4
3.4
17.8
399.8
5.2
(39.9)
365.1
(11.8)
48.4
(16.7)
(1.3)
383.7
0.5
0.6
(42.8)
342.0
0.4
342.4

52 weeks to
25 January
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

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.

Further detail on the segment performance is provided in the Chief Executive’s Review.

169

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Segmental Analysis
Segment assets, capital expenditure and depreciation

(continued)

Property, plant,
equipment and software

Capital expenditure
inc. software

Depreciation and
amortisation of software

2021
£m
238.9
239.9
–
–
2.0
0.5
9.7
491.0

2020
£m
127.4
345.4
–
0.5
2.6
2.4
100.2
578.5

2021
£m
97.3
49.6
–
–
0.5
–
15.4
162.8

2020
£m
52.3
68.8
–
–
1.1
0.1
16.5
138.8

2021
£m
23.1
92.5
–
–
0.9
0.9
0.2
117.6

2020
£m
19.8
96.8
–
0.1
1.2
1.0
0.3
119.2

NEXT Online
NEXT Retail
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
and impairment 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) are detailed below:

Non current assets include plant, property and equipment, intangible assets and right-of-use assets. It does not include investments, the deferred
tax asset or financial assets.

2021
£m
2,931.5
311.6
215.8
43.3
32.2
3,534.4

2021
£m
499.5
3.3
4.3
28.2
535.3

2021
£m
696.2
19.8
–
4.1
720.1

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

2020
£m
804.3
45.5
–
2.9
852.7

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

Right-of-use assets by geographical location
United Kingdom
Rest of Europe
Middle East
Asia
Total

170

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
NENA
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
Gain on sale and leaseback
Impairment charges on tangible assets
Impairment on right-of-use assets
Amortisation of intangible assets
Gain on lease modifications and reassessed lease term
Contingent rentals payable
Job Retention Scheme receipts

Cost of inventories recognised as an expense
Write-down of inventories to net realisable value
Total

53 weeks to 30 January 2021

Credit
account
interest
£m
–
–
250.3
–
–
–
–
–
250.3

Royalties
£m
–
–
–
4.0
–
1.6
–
–
5.6

52 weeks to 25 January 2020

Credit
account
interest
£m
–
–
268.7
–
–
–
–
–
268.7

Royalties
£m
–
–
–
5.3
–
2.3
–
–
7.6

Sale of goods
£m
2,279.5
951.9
–
29.2
6.8
3.6
0.1
–
3,271.1

Sale of goods
£m
2,054.7
1,848.2
–
51.6
9.5
10.8
–
–
3,974.8

Rental
income
£m
–
–
–
–
–
–
–
7.4
7.4

Rental
income
£m
–
–
–
–
–
–
–
15.1
15.1

2021
£m
117.3
137.9
4.3
(8.1)
23.3
64.2
0.4
(5.5)
0.8
(95.1)

Total
£m
2,279.5
951.9
250.3
33.2
6.8
5.2
0.1
7.4
3,534.4

Total
£m
2,054.7
1,848.2
268.7
56.9
9.5
13.1
–
15.1
4,266.2

2020
£m
119.2
140.3
1.2
–
4.5
1.2
–
(3.4)
2.8
–

1,219.2
150.5
1,369.7

1,462.1
117.4
1,579.5

171

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
3. Operating Profit
Due to the impact of COVID the structural shift of trade from the Group’s Retail to Online business accelerated during the year. The Group therefore
performed an impairment review on all retail stores in which the assets were written down to their value in use which is considered to be the
recoverable amount of these assets. The value in use was calculated by reference to management’s discounted forecast cash flows for each retail
store (each store assessed as a Cash Generating Unit). The cash flows were discounted using the pre-tax weighted average cost of capital, as
adjusted for the lease assets, of 7% over the term of the associated asset life.

(continued)

The resulting impairment charge has been recognised within Cost of sales. A significant amount of estimation was used to determine the impairment
required, refer to the Major Sources of Estimation Uncertainty and Judgement section with our Group Accounting Policies for further detail.

Receipts associated with the Job Retention Scheme have been recognised in Cost of sales (£63.3m), distributions costs (£26.7m) and administrative
costs (£5.1m) based on where the associated staff payroll costs are recognised. All receipts from the Job Retention Scheme have been paid in full
to staff on furlough. This has been recognised as a grant in accordance with the accounting policy set out on page 165.

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 reported in the Income Statement represent foreign exchange losses of £1.3m (2020: losses of £1.5m) 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 £1.3m (2020: £7.4m).

During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its associates,
including expenses:

Auditor's remuneration
Audit of the financial statements
Audit of subsidiaries
Total audit fees
Other assurance services
Total

2021
£000

430
485
915
80
995

2020
£000

269
408
677
138
815

The year on year increase in audit fees reflects the increased complexity of the Group and the compliance costs associated with audits.
Other assurance services relate to audit work on Corporate Responsibility reporting and turnover certificates for store leases.

172

4. Staff Costs and Key Management Personnel
Total staff costs were as follows:

Wages and salaries
Social security costs
Other pension costs

Share-based payment expense – equity-settled
Share-based payment benefit – cash-settled
Total

2021
£m
593.6
44.4
39.0
677.0
16.7
0.5
694.2

2020
£m
617.2
44.8
35.3
697.3
14.7
(0.3)
711.7

Share-based payments comprise Management, Sharesave and Share Matching Plan options and LTIP share awards, details of which are given in
Note 24. During the year the Group received funds under the UK Governments Job Retention Scheme as disclosed in Note 3.

Total staff costs by business sector were made up as follows:

NEXT Online, Retail and Finance
NEXT International Retail
NEXT Sourcing
Other activities
Total

2021
£m
640.1
0.2
29.9
24.0
694.2

2020
£m
656.8
1.2
32.5
21.2
711.7

Average employees

Full-time equivalents

2021
Number
37,097
12
4,119
319
41,547

2020
Number
39,504
59
4,317
313
44,193

2021
Number
21,059
7
4,119
306
25,491

2020
Number
23,888
45
4,317
295
28,545

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.

53 weeks to
30 January
2021
£m
3.1
–
3.1
6.2

52 weeks to
25 January
2020
£m
3.2
0.2
2.5
5.9

173

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
5. Finance Income and Costs

Interest on bank deposits
Other interest receivable
Finance income

Interest on bonds and other borrowings
Other fair value movements
Finance costs on lease liability
Finance costs

53 weeks to
30 January
2021
£m
0.4
0.2
0.6

52 weeks to
25 January
2020
£m
0.1
0.1
0.2

42.9
(0.1)
59.9
102.7

43.6
0.2
61.8
105.6

Online account interest is presented as a component of revenue.

6. Taxation
Tax charge for the period
Our tax charge for the period is shown below. Tax is made up of current and deferred tax. Current tax is the amount payable on the taxable income
in the period and any adjustments to tax payable in previous years. Deferred tax is explained on page 163.

Current tax:
Current tax on profits for the period
Adjustments in respect of prior periods
Total current tax

Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Tax expense reported in the Consolidated Income Statement

Factors affecting the tax charge in the period
The tax rate for the current period 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
Adjustments in respect of prior period
Total

2021
£m

61.2
(3.5)
57.7

(2.5)
0.5
55.7

2021
%
19.0
(0.9)
(0.9)
(0.9)
16.3

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

174

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 (credit)/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

2021
£m

(10.8)
(2.8)
(13.6)

2021
£m

(5.6)
–

3.0
(2.1)
(4.7)

2020
£m

0.5
2.8
3.3

2020
£m

(4.5)
–

(7.7)
(9.1)
(21.3)

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 obligation
Share-based payments
IFRS 16 leases
Other temporary differences
Total

The deferred tax movement in the year is as follows:
At the beginning of the period
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 period

2021
£m
23.5
5.2
(15.9)
20.9
34.7
2.0
70.4

2021
£m
55.7

13.4
0.3
1.5
(3.5)
(9.7)
13.6
(0.9)
70.4

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

175

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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)

Capital losses

Unrecognised

Gross value
2021
£m
12.3

deferred tax
2021
£m
2.3

Gross value
2020
£m
34.7

deferred tax
2020
£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. For UK corporation
tax the enacted rate of 19% was used to measure the net deferred tax asset. Following on from the Budget of 3 March 2021 this deferred tax asset
will have to be remeasured based on the potential recognition of these assets at the rate of 25% in the year ended 29 January 2022.

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
No interim or final dividend is proposed for the year to January 2021. The Trustee of the ESOT waived dividends paid in the prior year on shares
held by the ESOT.

Year to 25 January 2020
Final ordinary dividend for year to Jan 2019
Interim ordinary dividend for year to Jan 2020

Paid
1 Aug 2019
2 Jan 2020

Pence per
share
110p
57.5p

Cash Flow
Statement
£m
140.3
73.3
213.6

Statement
of Changes
in Equity
£m
140.3
73.3
213.6

176

8. Earnings Per Share

Basic Earnings Per Share

53 weeks to
30 January
2021
including
IFRS 16
223.3p

52 weeks to
25 January
2020
including
IFRS 16
472.4p

53 weeks to
30 January
2021
excluding
IFRS 16
226.3p

52 weeks to
25 January
2020
excluding
IFRS 16
459.8p

Basic Earnings Per Share is based on the profit for the period 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

53 weeks to
30 January
2021
including
IFRS 16
221.9p

52 weeks to
25 January
2020
including
IFRS 16
468.8p

53 weeks to
30 January
2021
excluding
IFRS 16
224.9p

52 weeks to
25 January
2020
excluding
IFRS 16
456.3p

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 1,486,779 non-dilutive share options in the current year (2020: 2,424,915).

Fully diluted Earnings Per Share

53 weeks to
30 January
2021
including
IFRS 16
212.5p

52 weeks to
25 January
2020
including
IFRS 16
449.1p

53 weeks to
30 January
2021
excluding
IFRS 16
215.4p

52 weeks to
25 January
2020
excluding
IFRS 16
437.1p

Fully diluted Earnings Per Share is based on the weighted average number of shares used for the calculation of basic Earnings Per Share, increased
by the weighted average total employee share options outstanding during the period. 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 total share options outstanding
Weighted average shares for fully diluted EPS

53 weeks to
30 January
2021
286.7

52 weeks to
25 January
2020
610.2

133.0
(4.6)
128.4
0.8
129.2

6.5
134.9

134.8
(5.6)
129.2
1.0
130.2

6.7
135.9

As detailed in the Remuneration Report, the annual bonus for executive directors is determined by reference to underlying pre-tax Earnings per
Share of 257.2p (2020: 564.0p). The underlying pre-tax profit on a 52 week basis, excluding IFRS 16, of £330.2m (2020: 52 week £728.5m), is 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.

177

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
9. Property, Plant and Equipment

Cost
At January 2019
Exchange movement
Additions
Disposals
At January 2020
Exchange movement
Additions
Disposals
At January 2021

Depreciation
At January 2019
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2020
Exchange movement
Provided during the year
Impairment charge
Disposals
At January 2021

Carrying amount
At January 2021
At January 2020
At January 2019

Freehold
property
£m

Leasehold
property
£m

Plant and
equipment
£m

80.8
–
16.6
–
97.4
–
15.1
(105.7)
6.8

8.6
–
0.3
–
–
8.9
–
0.1
–
(8.6)
0.4

6.4
88.5
72.2

9.2
–
–
–
9.2
–
2.0
(8.5)
2.7

1.4
–
–
–
–
1.4
–
–
–
(1.3)
0.1

2.6
7.8
7.8

1,785.0
0.1
122.2
(48.9)
1,858.4
(0.9)
129.2
(69.1)
1,917.6

1,300.1
0.1
118.9
4.5
(47.4)
1,376.2
(0.7)
117.2
23.3
(64.2)
1,451.8

465.8
482.2
484.9

Total
£m

1,875.0
0.1
138.8
(48.9)
1,965.0
(0.9)
146.3
(183.3)
1,927.1

1,310.1
0.1
119.2
4.5
(47.4)
1,386.5
(0.7)
117.3
23.3
(74.1)
1,452.3

474.8
578.5
564.9

At January 2021 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £27.4m
(2020: £38.2m). Plant and equipment includes leasehold improvements.

Due to the impact of COVID the structural shift of trade from the Group’s Retail to Online business accelerated during the year. As a result, an
impairment charge of £23.3m has been recognised on Retail store and other assets. See Note 3 for further detail.

178

10. Intangible Assets

Cost
At January 2019
Arising on acquisitions
At January 2020
Additions
Arising on acquisitions
At January 2021

Amortisation and impairment
At January 2019
Amortisation provided during the year
At January 2020
Amortisation provided during the year
At January 2021

Carrying amount
At January 2021
At January 2020
At January 2019

Brand names
and
trademarks
£m

Software
£m

Goodwill
£m

–
–
–
16.5
–
16.5

–
–
–
0.3
0.3

16.2
–
–

4.0
0.3
4.3
–
–
4.3

4.0
–
4.0
0.1
4.1

0.2
0.3
–

44.2
1.3
45.5
–
0.2
45.7

1.6
–
1.6
–
1.6

44.1
43.9
42.6

Total
£m

48.2
1.6
49.8
16.5
0.2
66.5

5.6
–
5.6
0.4
6.0

60.5
44.2
42.6

Within software additions £14.4m relates to software costs for projects that are not yet complete and hence do not yet attract amortisation.
The carrying amount of goodwill is allocated to the following cash generating units:

NEXT Sourcing
Lipsy
NEXT Beauty (formerly Marie Claire Beauty)
NENA
Total

2021
£m
30.5
12.1
1.3
0.2
44.1

2020
£m
30.5
12.1
1.3
–
43.9

At the end of January 2020 the group acquired the trade and assets of NENA (NEXT Europe and North Africa), a small sourcing business, for
consideration of £0.2m.

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 to
NEXT Sourcing
meet these requirements based on past experience. In assessing value in use, budgets for the next year were used and extrapolated for nine further
years using a growth rate of 0% (2020: 0% growth rate) and discounted at a pre-tax rate of 10% (2020: 10%).

The key assumptions in testing the goodwill for impairment are the forecast sales for the Lipsy products, particularly through the NEXT website.
Lipsy
In assessing the recoverable amount of goodwill, internal budgets for next year were used and extrapolated for nine further years using a growth
rate of 2% (2020: 2% to 5%) and discounted at a pre-tax rate of 10% (2020: 12%).

The key assumptions in testing the goodwill for impairment are the forecast sales for the beauty products, particularly through the NEXT retail
NEXT Beauty
stores and website. In assessing the recoverable amount of goodwill, internal budgets for next year were used and extrapolated for nine further
years using a growth rate of 2% (2020: 2% to 5%) and discounted at a pre-tax rate of 10% (2020: 12%).

For NEXT Sourcing, Lipsy and NEXT Beauty the calculated value in use significantly exceeded the carrying value of the goodwill and no impairment
was recognised (2020: £Nil). If the assumptions were flexed to assume a growth rate of 0% throughout a 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.

179

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
11. Leases

Right-of-use assets
Buildings
Stores
Equipment
Vehicles
Total

2021
£m
215.0
492.1
3.3
9.7
720.1

2020
£m
133.0
705.0
4.9
9.8
852.7

Due to the impact of COVID the structural shift of trade from the Group’s Retail to Online business accelerated during the year. As a result an
impairment charge of £64.2m (2020: £1.2m) has been recognised on the Store right-of-use assets. See Note 3 for further detail.

Lease liability
Current
Non-current
Total

Additions to the right-of-use assets

Depreciation on right-of-use assets
Buildings
Stores
Equipment
Vehicles
Total

Finance costs on leases
Expense on short term and low value leases
Expense on variable leases
Gain on sale and leaseback

2021
£m
(170.1)
(1,015.8)
(1,185.9)

2020
£m
(172.3)
(1,078.7)
(1,251.0)

102.5

2021
£m
20.7
112.2
1.5
3.5
137.9

2021
£m
(59.9)
(5.0)
(0.8)
8.1

40.0

2020
£m
16.2
117.3
1.9
4.9
140.3

2020
£m
(61.8)
(7.1)
(2.8)
–

During the year, the Group entered into two sale and leaseback transactions, one in respect of a warehouse and one on its head office site. As a
result of these transactions the Group received proceeds of £154.4m and recognised a gain of £8.1m within administrative expenses. The term of
the lease on the warehouse site was determined to be 26 years and on the head office 35 years (with a break option at year 25).

Additions to right-of-use assets include new leases and new contracts for leases previously on hold over.

Total lease payments in the year of £230.9m.

180

12. Associates, Joint Ventures and Other Investments

Cost
At January 2019
Additions
Retained profit/(loss)
Disposals
At January 2020
Additions
Retained profit/(loss)
Disposals
At January 2021

Amortisation/Impairment
At January 2019
Provided during the year
Impairment charge
Disposals
At January 2020
Provided during the year
Impairment charge
Disposals
At January 2021

Carrying amount
At January 2021
At January 2020
At January 2019

Interests in
associates
and
joint ventures
£m

Other
investments
£m

4.3
–
(0.1)
–
4.2
2.4
0.5
(2.8)
4.3

0.2
–
–
–
0.2
–
0.1
–
0.3

4.0
4.0
4.1

1.0
–
–
–
1.0
–
–
–
1.0

–
–
–
–
–
–
–
–
–

1.0
1.0
1.0

Total
£m

5.3
–
(0.1)
–
5.2
2.4
0.5
(2.8)
5.3

0.2
–
–
–
0.2
–
0.1
–
0.3

5.0
5.0
5.1

Additions during the year to January 2021 relate to the consideration paid for the Victoria’s Secret joint venture. Although the Group has a 51%
equity share, it has joint control of the company’s operational and financial activities. Accordingly, it has been treated as a joint venture.

181

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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 doubtful debts

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 associates and joint ventures

2021
£m
1,275.4
(51.8)
1,223.6
(195.5)
1,028.1
14.0
(0.6)
1,041.5

1,223.6
14.0
1,237.6
(196.1)
1,041.5

31.5
23.3
11.8
1,108.1

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

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% (2020: 23.9%) at the year-end date, except for £18.6m (2020: £6.0m) of next3step balance which bears interest
at 29.9% (2020: 29.9%) at the year end date.

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, other 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 £1,005m (2020: £1,200m). 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.

The ECL allowance against other debtors is immaterial in the current and prior year. The maximum exposure to credit risk at the reporting date is
the carrying value of each class of asset.

182

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 25 January 2020
New assets originated/recoveries
Transfers from lifetime ECL to credit impaired
Financial assets derecognised during the period
Amounts written off
At 30 January 2021

(continued)

2021

Credit
impaired
£m
87.8
(14.3)
45.9
(24.1)
(6.8)
88.5

Lifetime ECL
£m
1,344.2
(139.8)
(45.9)
–
(9.4)
1,149.1

An analysis of the changes in the impairment allowance for customer receivables and other trade receivables is as follows:

Loss allowance
At 25 January 2020
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 30 January 2021

2021

Credit
impaired
£m
(79.7)
13.2
(42.8)
(3.1)
22.5
6.3
(83.6)

Lifetime ECL
£m
(92.3)
(5.5)
4.5
(20.1)
–
0.9
(112.5)

Total
£m
1,432.0
(154.1)
–
(24.1)
(16.2)
1,237.6

Total
£m
(172.0)
7.7
(38.3)
(23.2)
22.5
7.2
(196.1)

In the year, Recoveries exceeded the value of New assets originated. The rate of provision recognised on Recoveries was lower than the rate
recognised on New assets originated.

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 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

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

Total
£m
1,396.5
83.5
–
(25.9)
(22.1)
1,432.0

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 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
(166.0)
6.8
(45.9)
1.5
23.2
8.4
(172.0)

183

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
13. Customer and Other Receivables

(continued)

At 25 January 2020

Impairment
Amounts recovered
Charged to the Income Statement
Used during the year
Total movement
At 30 January 2021

2021

Credit
impaired
£m
(79.7)

Lifetime ECL
£m
(92.3)

(26.8)
2.3
(24.5)
4.3
(20.2)
(112.5)

(33.0)
2.7
(30.3)
26.4
(3.9)
(83.6)

Total
£m
(172.0)

(59.8)
5.0
(54.8)
30.7
(24.1)
(196.1)

The amount charged to the Income Statement of £54.8m (2020: £41.5m) differs to the bad debt charge of £50.5m (2020: £43.3m) in the Chief
Executive’s Review on page 39 due to recoveries of previously written off assets taken directly to the Income Statement.

At 26 January 2019

Impairment
Amounts recovered
Charged to the Income Statement
Used during the year
Total movement
At 25 January 2020

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)

Total
£m
(166.0)

(44.1)
2.6
(41.5)
35.5
(6.0)
(172.0)

Information on the Group’s credit risk in relation to customer receivables is provided in Note 28.

14. Other Financial Assets

Foreign exchange contracts
Interest rate derivatives

2021

2020

Current
£m
5.0
6.1
11.1

Non-current
£m
–
39.4
39.4

Current
£m
1.7
–
1.7

Non-current
£m
–
48.4
48.4

Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge exchange risk arising from the
Group’s merchandise purchases (refer to 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 (refer to Note 19).

15. Cash and Short Term Deposits

Cash at bank and in hand
Short term deposits
Money market funds

2021
£m
221.0
317.2
70.0
608.2

2020
£m
86.6
–
–
86.6

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.

184

16. Bank Loans and Overdrafts

Bank overdrafts and short term borrowings
Unsecured committed bank loans

2021
£m
93.4
–
93.4

2020
£m
33.7
40.0
73.7

Bank overdrafts represent 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 30).

17. Trade Payables and Other Liabilities

Trade payables
Refund liabilities
Other taxation and social security
Deferred revenue from the sale of gift cards
Share-based payment liability
Other creditors and accruals

2021

2020

Current
£m
172.6
6.8
59.1
71.7
0.2
244.9
555.3

Non-current
£m
–
–
–
–
0.2
28.7
28.9

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

Trade payables do not bear interest and are generally settled on 30 day terms. Other creditors and accruals do not bear interest.

18. Other Financial Liabilities

Foreign exchange contracts
Interest rate derivatives

2021

Current
£m
32.4
4.8
37.2

Non-current
£m
–
–
–

2020

Current
£m
32.6
–
32.6

Non-current
£m
–
7.8
7.8

Foreign exchange contracts comprise forward contracts and options, of which the majority 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).

185

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
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

2021
£m

326.0
250.0
287.0
300.0
1,163.0

2020
£m

327.0
250.0
286.7
300.0
1,163.7

2021
£m

325.0
250.0
250.0
300.0
1,125.0

2020
£m

325.0
250.0
250.0
300.0
1,125.0

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
Fixed

2026 Bonds

Floating

2028 Bonds
Fixed

Total

2021
Nominal
value
£m

2021
Aggregate
interest
rate

2020
Nominal
value
£m

2020
Aggregate
interest
rate

150.0
50.0
50.0
50.0

25.0
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

5.375%
5.200%
5.150%
5.050%
6m LIBOR
+1.9%

250.0

3.000%

250.0

3.000%

250.0

6m LIBOR
+1.4%

250.0

6m LIBOR
+1.4%

300.0

3.625%

300.0

3.625%

1,125.0

For the year ended 30 January 2021, the 2021 Bond is recognised within current liabilities as this matures within 12 months of the year end date.
Interest rate risk management is explained in Note 28 and the fair values of the corporate bonds are shown in Note 27.

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 Supplemental 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.

186

20. Pension Benefits
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.

(continued)

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 30 January 2021 this buy-in policy has a value of £89m (2020: £92m) 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. Following a further High Court ruling on 20 November 2020, transfers out of the Plan
between May 1990 and October 2018 need to be revisited and equalised for GMP. Due to the relatively small impact of GMP equalisation on
benefits in the Plan and the amount of benefits transferred out of the Plan, we believe that the impact of this latest ruling is immaterial.

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.

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).

187

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits
Principal risks
The following table summarises the principal risks associated with the Group’s defined benefit arrangements:

(continued)

Investment risk

Interest rate risk

Inflation risk

Longevity risk

The present value of defined benefit liabilities is calculated using a discount rate set by reference to high quality
corporate bond yields. If plan assets underperform corporate bonds, this will create a deficit. Investment risk in the
Original Plan is negligible, as almost all liabilities in this plan are covered by the insurance contracts.

A fall in corporate bond yields would increase the value of the liabilities. This would be only partially offset by an
increase in the value of bond investments and annuity policies 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. This is partially offset
by the insurance contracts covering part of the liability.

The buy-in insurance contracts represent over 99% of the Original Plan pension liabilities, 11% of the 2013 Plan pension liabilities and 23% 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:

2021

2013
Plan
£m
8.5
(2.2)
2.1
8.4

Original
Plan
£m
–
(0.1)
0.1
–

SPA
£m
0.1
0.2
–
0.3

Total
£m
8.6
(2.1)
2.2
8.7

2020

Original
Plan
£m
–
(0.1)
0.1
–

2013
Plan
£m
5.6
(4.1)
2.3
3.8

Current service cost
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:

2021

Original
Plan
£m

SPA
£m

Total
£m

2020

2013
Plan
£m

Original
Plan
£m

0.4

(47.0)

18.8

2.3

(0.3)
0.1

(23.6)
(70.6)

(130.1)
(111.3)

(12.9)
(10.6)

2013
Plan
£m

(50.0)

(21.0)
(71.0)

13.9

2.6

(2.3)
0.3

(0.4)

–

13.5

116.9

10.8

–

127.7

SPA
£m
0.4
0.5
–
0.9

SPA
£m

0.2

(3.2)
(3.0)

Total
£m
6.0
(3.7)
2.4
4.7

Total
£m

21.3

(146.2)
(124.9)

Actuarial (losses)/gains due to
liability experience
Actuarial losses due to liability
assumption changes

Return on plan assets greater
than/(less than) discount rate
Actuarial gains/(losses)
recognised in other
comprehensive income

(57.1)

(0.1)

0.1

(57.1)

5.6

0.2

(3.0)

2.8

The surplus in the scheme has moved from £133.4m at January 2020 to £99.2m at January 2021, primarily due to actuarial losses of £57.1m.
The majority of this movement results from updating the membership data in line with the most recent triennial valuation for both actual member
experience, and the split of the pension liabilities between the various tranches of benefit.

188

20. Pension Benefits
Balance sheet valuation
The net defined benefit pension asset recognised in the Consolidated Balance Sheet is analysed as follows:

(continued)

2021

2013
Plan
£m

Original
Plan
£m

(812.1)
920.2
108.1

(136.2)
138.3
2.1

SPA
£m

(11.0)
–
(11.0)

Total
£m

(959.3)
1,058.5
99.2

2013
Plan
£m

(735.1)
883.6
148.5

2020

Original
Plan
£m

(141.5)
143.7
2.2

SPA
£m

(17.3)
–
(17.3)

Total
£m

(893.9)
1,027.3
133.4

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:

2021

2020

2013
Plan
£m
735.1
8.5
13.3
0.1
(15.9)

16.2
50.0
4.8
812.1

Original
Plan
£m
141.5
–
2.3
–
(7.3)

1.9
(2.6)
0.4
136.2

SPA
£m
17.3
0.1
0.2
–
(6.5)

0.3
(0.4)
–
11.0

Total
£m
893.9
8.6
15.8
0.1
(29.7)

18.4
47.0
5.2
959.3

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

Opening obligation
Current service cost
Interest cost
Employee contributions
Benefits paid
Actuarial losses/(gains)
– financial assumptions
– experience
– demographic assumptions
Closing obligation

The present value of the defined benefit closing obligation of £959.3m was comprised of approximately 26% relating to active participants, 46%
relating to deferred participants and 28% relating to pensioners.

Plan assets
Changes in the fair value of defined benefit pension assets were as follows:

2021

Original
Plan
£m
143.7
–
–
(7.3)
2.4

(0.4)
(0.1)
138.3

2013
Plan
£m
883.6
25.1
0.1
(15.9)
15.5

13.9
(2.1)
920.2

SPA
£m
–
–
–
–
–

–
–
–

Total
£m
1,027.3
25.1
0.1
(23.2)
17.9

13.5
(2.2)
1,058.5

2020

Original
Plan
£m
136.5
–
–
(7.1)
3.6

10.8
(0.1)
143.7

2013
Plan
£m
757.2
7.3
0.1
(17.4)
21.8

116.9
(2.3)
883.6

SPA
£m
–
–
–
–
–

–
–
–

Total
£m
893.7
7.3
0.1
(24.5)
25.4

127.7
(2.4)
1,027.3

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

189

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits
Plan assets
The fair value of plan assets was as follows:

(continued)

Equities
Equity-linked bonds
Bonds
Gilts
Property
Infrastructure
Insurance contracts
Cash and cash equivalents

2021

2020

2013
Plan
£m
188.1
67.8
118.2
331.4
60.8
52.4
89.3
12.2
920.2

Original
Plan
£m
–
–
–
2.4
–
–
135.9
–
138.3

Total
£m
188.1
67.8
118.2
333.8
60.8
52.4
225.2
12.2
1,058.5

%
17.8
6.4
11.2
31.5
5.7
4.9
21.3
1.2
100.0

2013
Plan
£m
169.4
70.4
116.8
323.7
60.2
49.7
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
60.2
49.7
233.5
1.1
1,027.2

%
16.5
6.9
11.4
31.7
5.9
4.8
22.7
0.1
100.0

None of the pension arrangements directly invest in any of the Group’s own financial instruments nor any property occupied by, or other assets
used by, the Group. The fair values of the above equity and debt instruments are determined based on quoted prices in active markets. The property
assets relate to investments in property funds and their fair value is based on quoted prices in active markets. The majority of the benefits within
the Original Plan are covered by two insurance contracts with Aviva. The insurance assets have been valued so as to match the defined benefit
obligations, the value of which was calculated by Aviva.

Principal assumptions
The IAS 19 (accounting) valuation of the defined benefit obligation was undertaken by an external qualified actuary as at January 2021 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

2021

2020

Original
plan
1.55%
3.20%
2.20%
–

3.05%
2.10%

2013 and
SPA
1.65%
2.75%
1.95%
–

2.70%
1.90%

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%

2021

2020

Pensioner
aged 65

Non-
pensioner
aged 45

Pensioner
aged 65

Non-
pensioner
aged 45

22.3
24.6

24.3
26.8

22.3
24.2

24.5
26.5

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 21.5 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.
The RPI assumption for the 2013 Plan and SPA allows for the inflation risk premium of 0.3% per annum. 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 and takes into account the alignment of RPI to CPIH from 2030.

190

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 2019) with a long term trend towards 1.5% per annum and a smoothing factor of 7.5.

(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 30 January 2021
£82m decrease
£44m decrease
£4m increase
£19m 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 2019 by Mercer, who are the 2013 Plan Actuary to the Trustees.
The valuation showed a funding deficit on the Technical Provisions basis required by legislation of £19.1m 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 31 December 2024. Under that agreement, the Group will contribute five annual payments of £4.0m by 31 December
each year if the funding level is below 105% at the preceding 30 September. In addition, if the funding level is below 96.5% for two consecutive
quarters, then an additional Company contingent contribution of up to £11.9 million is payable, subject to a maximum contingent contribution of
£11.9 million in any Company financial year.

At 31 December 2020 the 2013 Plan was estimated to be circa 99% funded on a Technical Provisions basis, with a deficit on this basis in the region
of £6m.

With effect from January 2020, the Company also agreed to pay contributions of 38% per annum of members’ frozen pensionable salaries as at
31 October 2012 towards the future accrual of benefits for active members.

Contributions
Members of the defined benefit section of the 2013 Plan contribute 3% or 5% of pensionable earnings; the Group contributes 38% 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

2021
£m
17.2
13.1
25.1
55.4

2020
£m
18.0
12.6
7.3
37.9

191

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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
by December 2021, 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 £17m (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)

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

2021
Shares ‘000

2020
Shares ‘000

133,229
(280)
132,949

138,606
(5,377)
133,229

Property costs

2021
£m
17.3
2.6
(2.0)
0.7
18.6

2021
£m

13.3
–
13.3

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

2021

Shares
‘000

280

Cost
£m

19.3
19.3

2020

Shares
‘000

5,377

2020
£m
15.7
1.0
–
0.6
17.3

2020
£m

13.9
(0.6)
13.3

Cost
£m

300.2
300.2

Subsequent to the end of the financial year and before the start of the closed period the Company did not purchase any shares for cancellation.

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.

192

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

2021

2020

Weighted
average
exercise
price

£50.36
£45.54
£46.48
£51.22
£49.83
£55.37

No. of
options

6,118,155
1,521,902
(1,581,139)
(417,763)
5,641,155
1,509,481

Weighted
average
exercise
price

£47.71
£53.85
£43.15
£51.59
£50.36
£57.99

No. of
options

5,641,155
1,890,430
(1,628,763)
(251,830)
5,650,992
1,168,515

Options were exercised on a regular basis throughout the year and the weighted average share price during this period was £67.90 (2020: £64.35).
Options outstanding at 30 January 2021 are exercisable at prices ranging between £20.70 and £70.80 (2020: £20.70 and £70.80) and have a
weighted average remaining contractual life of 6.3 years (2020: 6.2 years), as analysed in the table below:

Exercise price range
£20.70 – £43.48
£44.22
£48.12 – £48.38
£51.84 – £62.00
£66.95 – £70.80

2021

2020

Weighted
average
remaining
contractual
life
(years)

3.3
9.3
5.3
7.7
3.7
6.3

No. of
options

791,937
1,351,334
1,801,395
1,190,301
516,025
5,650,992

Weighted
average
remaining
contractual
life
(years)

4.8
–
6.7
8.4
4.7
6.2

No. of
options

1,975,147
–
1,495,544
1,308,102
862,362
5,641,155

193

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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 not 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

2021
No. of
options
36,690
9,804
(5,017)
(13,727)
27,750
–

2020
No. of
options
39,454
9,018
–
(11,782)
36,690
–

The weighted average remaining contractual life of these options is 8.3 years (2020: 5.0 years). SMP options were exercised at different times
during the year and the weighted average share price during this period was £50.16 (2020: nil as award 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
Dividend accrual awarded in the year
Vested
Forfeited
Outstanding at end of year

2021
No. of
awards
542,749
188,999
7,475
(170,471)
(33,246)
535,506

2020
No. of
awards
476,889
195,015
–
(47,654)
(81,501)
542,749

The weighted average remaining contractual life of these options is 1.4 years (2020: 1.4 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 159,164 options were granted in July 2019 in accordance with the terms of the Plan.
During the year ended 30 January 2021, Draw Downs were made and the number of options outstanding was updated to reflect this and the latest
post tax profit forecast for financial years ending January 2023 and January 2024. As at the 30 January 2021 the number of options outstanding
was 132,392. 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.

194

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 30 January 2021 and 25 January 2020
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

2021
£44.22
£44.22
31.10%
4 Years
0.04%
3.79%
£7.24

2021
£61.86
£61.86
31.10%
4 Years
0.09%
2.71%
£11.43

2021
£60.15
£48.12
27.93%
3.2 years
-0.07%
2.78%
£13.92

2021
£50.28
Nil
27.80%
3 Years
0.13%
0.00%
£50.28

2020
£56.46
£56.46
30.00%
4 years
0.78%
2.83%
£10.35

2020
–
–
–
–
–
–
–

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

195

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
24. Share-based Payments
Fair value calculations
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 30 January 2021 and 25 January 2020 based on information at the date of grant:

(continued)

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

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

2021
£40.04
Nil
30.79%
3 years
0.20%
0.00%
£19.38

2021
£62.54
Nil
27.60%
3 years
-0.16%
0.00%
£29.87

2020
£48.11
Nil
32.47%
3 years
0.67%
0.00%
£23.83

2020
£59.88
Nil
29.01%
3 years
0.46%
0.00%
£29.87

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 30 January 2021 the ESOT held 4,950,224 (2020: 5,430,961) ordinary shares of 10p each in the Company, the market value of which amounted
to £382.7m (2020: £390.7m). 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 30 January 2021 and 25 January 2020 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 transactions during the year:

Shares purchased by ESOT in the year

Shares sold by ESOT in the year
Shares issued in respect of employee share schemes

2021

2020

Shares
‘000

3,386

2,117
1,749

£m

190.3

87.4
73.4

Shares
‘000

1,551

–
1,583

£m

94.2

–
65.5

Proceeds of £77.3m (2020: £66.9m) were received on the exercise of Management and Sharesave options. The amount shown in the Statement
of Changes in Equity of £73.4m (2020: £65.5m) 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 £92.9m (2020: £80.9m). During 2020, shares were sold by the ESOT to fund a recall of a loan from the Group.
The loan recall was to provide funding to the Group during the initial stages of the pandemic. Proceeds received in relation to these share sales
totalled £87.4m.

At 30 March 2021, employee share options over 88,498 shares had been exercised subsequent to the Balance Sheet date and had been satisfied
by ordinary shares issued by the ESOT.

196

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, short term deposits and money market funds (note 15)
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**

2021
£m

2020
£m

0.7
49.8
1,076.5
608.2
1.0

(3.9)
(33.3)
(1,185.9)

(1,163.0)
(93.4)
(439.4)

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)

* Prepayments of £31.5m (2020: £38.8m) and other debtors of £0.1m (2020: £0.3m) do not meet the definition of a financial instrument.

** Other taxation and social security payables of £59.1m (2020: £73.4m), deferred income of £71.7m (2020: £74.9m), share-based payment liabilities of £0.4m (2020: £0.4m) and other

creditors of £13.6m (2020: £15.4m) 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

The fair value approximates the carrying amount because of the short maturity of
these instruments.

Long term borrowings

Derivative financial instruments

The fair value of corporate bonds is as follows:

Corporate bonds

In hedging relationships
Not in hedging relationships

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.

2021

2020

Carrying
amount
£m

463.0
700.0
1,163.0

Fair value
£m

474.3
774.4
1,248.7

Carrying
amount
£m

463.7
700.0
1,163.7

Fair value
£m

481.6
772.0
1,253.6

Corporate bonds are held at amortised cost adjusted for the fair value changes attributable to the interest rate risk being hedged.

197

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
27. Financial Instruments: Fair Values
Fair Value Hierarchy
The fair values of financial instruments measured by reference to the following levels under IFRS 13 “Fair value measurement”:

(continued)
Financial instruments

Hierarchy level

Inputs

Level 1

Level 2

Level 3

Quoted prices in active markets
for identical assets or liabilities

Corporate bonds and Money
Market Funds

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)

Derivative financial instruments

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
investments has been
equity
estimated using a discounted cash
flow model.

28. Financial Instruments:

Financial Risk Management and Hedging Activities

The Board 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. The 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.

198

28. Financial Instruments:

Financial Risk Management and Hedging Activities

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.

(continued)

The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s financial
liabilities, including cash flows in respect of derivatives:

2021
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

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

Less than
1 year
£m
93.4
216.6
406.0
371.8
1,087.8
(8.4)

(912.7)
942.4
1,109.1

Less than
1 year
£m
73.7
214.0
420.3
46.8
754.8
(6.4)

(881.6)
905.6
772.4

1 to 2
years
£m
–
193.7
26.8
29.3
249.8
(6.9)

–
–
242.9

1 to 2
years
£m
–
199.9
12.7
371.8
584.4
(6.8)

–
–
577.6

2 to 5
years
£m
–
419.5
–
337.9
757.4
(18.7)

–
–
738.7

2 to 5
years
£m
–
457.9
–
87.9
545.8
(16.8)

–
–
529.0

Over
5 years
£m
–
764.5
–
593.6
1,358.1
(5.6)

–
–
1,352.5

Over
5 years
£m
–
694.0
–
872.9
1,566.9
(11.0)

–
–
1,555.9

Total
£m
93.4
1,594.3
432.8
1,332.6
3,453.1
(39.6)

(912.7)
942.4
3,443.2

Total
£m
73.7
1,565.8
433.0
1,379.4
3,451.9
(41.0)

(881.6)
905.6
3,434.9

At 30 January 2021, the Group had borrowing facilities of £450.0m (2020: £450.0m) committed until November 2024, in respect of which all
conditions precedent have been met. None of the facilities were drawn down at January 2021 (2020: £40.0m).

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 (e.g.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 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.

199

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompany
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. The FCA has now confirmed that the LIBOR fixings relevant to the Group will no longer
be representative after 31 December 2021 which creates a requirement for the Group’s contracts which currently reference a LIBOR to use an
alternative benchmark rate. As the cessation of IBORs has been well signposted by global regulators, the Group’s stakeholders have been engaged
and a review undertaken of impacted documentation resulting in a number of workstreams being created to ensure the Group is ready for the
cessation of LIBOR at the end of this year. 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.

Fair value of group swaps
The fair values of the Group’s interest rate swaps, including accrued interest, are as follows:

Derivatives in designated fair value hedging relationships

2021
£m
40.7

2020
£m
40.6

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 30 January 2021

Nominal amount (£m)
Average price

At 25 January 2020

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
45.5 Other financial assets
(4.8) Other financial liabilities

Changes in fair value
used for measuring
ineffectiveness in
the period
£m
(2.9)
3.0

425.0
150.0

48.4 Other financial assets
(7.8) Other financial liabilities

6.8
1.5

At 30 January 2021
Interest rate swaps – assets
Interest rate swaps – liabilities
At 25 January 2020
Interest rate swaps – assets
Interest rate swaps – liabilities

* The carrying amount of derivatives includes £2.7m of interest accrual (2020: £1.9m).

200

28. Financial Instruments:

Financial Risk Management and Hedging Activities

Fair value of group swaps
The impact of the hedged items on the Balance Sheet is as follows:

(continued)

Carrying amount
£m
275.0

Accumulated fair
value adjustments

£m Line item in the Balance Sheet
38.0

Corporate bonds

Changes in fair value
used for measuring
ineffectiveness in
the period
£m
(0.8)

275.0

38.8

Corporate bonds

8.5

At 30 January 2021
Fixed-rate borrowings
At 25 January 2020
Fixed-rate borrowings

The ineffectiveness recognised in the Income Statement for the period ended 30 January 2021 was a gain of £0.1m (2020: loss 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 to the Board 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 (e.g. 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

2021
£m
(24.2)
(3.2)
(27.4)

2020
£m
(29.0)
(1.9)
(30.9)

201

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
28. Financial Instruments:

Financial Risk Management and Hedging Activities

Foreign currency hedges
Derivatives designated in hedging relationships at 30 January 2021:

(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 25 January 2020:

(continued)
Maturity

1–6 months 6–12 months
223.8
1.34

558.0
1.31

More than
one year
–
–

–
–

100.5

–
–

–

Various currencies*

–
–

–

Maturity

1–6 months
497.8
1.26

6–12 months
236.8
1.25

More than
one year
–
–

53.4
1.17

52.2

–
–

1.8

Various currencies*

–
–

–

Total
781.8
1.32

–
–

100.5

Total
734.6
1.26

53.4
1.17

54.0

* 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
223.7
665.1

Carrying amount

£m Line item in the Balance Sheet
5.0 Other financial assets
(32.4) Other financial liabilities

Changes in fair value
used for measuring
ineffectiveness in
the period
£m
2.3
(17.0)

167.4
1,095.7

1.7 Other financial assets
(32.6) Other financial liabilities

35.4
(24.9)

At 30 January 2021
Foreign exchange contracts
Foreign exchange contracts
At 25 January 2020
Foreign exchange contracts
Foreign exchange contracts

202

Closing cash
flow hedge
reserve
£m
(1.1)
(28.9)

Closing cost
of hedging
reserve
£m
–
0.1

Amount
reclassified
from OCI to
the Income
Statement
£m
0.5
–

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)

30 January 2021

(continued)

25 January 2020

Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
0.8
(15.6)

Closing cash
flow hedge
reserve
£m
1.3
(27.1)

Closing cost
of hedging
reserve
£m
–
1.6

Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
(1.0)
11.5

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
–
19.0

Cost of
hedging
recognised in
OCI
£m
–
1.0

Year ended 30 January 2021
Highly probable forecast sales
Highly probable forecast stock purchases
Year ended 25 January 2020
Highly probable forecast sales
Highly probable forecast stock purchases

–
–

–
(40.4)

–
–

(0.1)
–

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 £1,041.5m at the reporting date (2020: £1,260.0m). 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 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 2021 there
were 2.72m active customers (2020: 2.64m) with an average balance of £449 (2020: £532). 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 £33.2m (2020: £26.8m) were on a Reduced Payment Indicator (RPI) plan or COVID related Emergency Support
Plan (ESP). An allowance for Expected Credit Losses (ECLs) of £22.5m (2020: £18.0m) 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. Customers may take one or
two three-month ESP plans, during which they typically make a £1 payment a month. On completion of the RPI or ESP 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.

In addition to those identified as previously being on an RPI or ESP, data provided by Experian has been used to identify customers who are, or
have been, on a similar ‘payment freeze’ with another lender. These customers are also treated as higher risk than the arrears stage and customer
indebtedness would otherwise suggest. The ECLs applied in calculating the overlay have been uplifted by an average of c.7%, weighted by value.

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).

203

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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 at the end of the reporting period. For the
purpose of this analysis, trade receivables are recognised in Risk band 1.

(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

2021
Total
£m

677.5
185.9
167.2
118.5
1,149.1
88.5
1,237.6
(196.1)
1,041.5

2020
Total
£m

648.8
355.3
239.3
100.8
1,344.2
87.8
1,432.0
(172.0)
1,260.0

Analysis of customer receivables and other trade receivables, stratified by credit grade, is provided in the tables below. Due to Government
initiatives to support customers at this time, the underlying risk is higher than the CII index may otherwise suggest. Expected loss rates have been
uplifted using internal and external data to allow for this, in particular in relation to debt previously on payment plans.

1–30
days past
due
£m

Current
£m

7.6
3.5
4.7
5.1
–
20.9

(0.3)
(0.3)
(0.9)
(1.7)
–
(3.2)

663.1
176.9
151.9
91.1
–
1,083.0

2021
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

2.6%
7.8%
16.6%
25.3%
–
7.3%

(17.0)
(13.9)
(25.1)
(23.0)
–
(79.0)

4.6%
8.7%
19.9%
32.7%
–
15.5%

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

0.4
0.5
1.2
2.2
–
4.3

(0.1)
(0.2)
(0.6)
(1.4)
–
(2.3)

16.5%
33.4%
47.0%
68.4%
–
53.9%

0.1
0.1
0.6
1.9
–
2.7

–
(0.1)
(0.4)
(1.4)
–
(1.9)

21.9%
53.0%
64.7%
70.4%
–
67.0%

–
–
0.3
1.8
–
2.1

–
–
(0.2)
(1.4)
–
(1.6)

0.0%
0.0%
69.1%
72.8%
–
72.2%

0.1
0.1
0.3
2.4
88.5
91.4

–
–
(0.2)
(1.8)
(83.6)
(85.6)

49.1%
60.9%
72.0%
72.7%
94.5%
93.8%

6.2
4.8
8.2
14.0
–
33.2

(2.7)
(2.6)
(5.2)
(12.0)
–
(22.5)

43.6%
53.8%
63.0%
85.9%
–
67.7%

Total
£m

677.5
185.9
167.2
118.5
88.5
1,237.6

(20.1)
(17.1)
(32.6)
(42.7)
(83.6)
(196.1)

3.0%
9.2%
19.6%
36.0%
94.5%
15.8%

204

28. Financial Instruments:

Financial Risk Management and Hedging Activities

Credit risk

(continued)

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

(continued)
> 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%

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%

Credit risk on other financial assets
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 (2020: £nil). The maximum exposure to credit risk at the reporting date is the carrying value
of each class of asset as the debt is not collaterized.

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.

205

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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

2021
£m

(0.8)
0.8

2020
£m

(1.4)
1.4

2021
£m

(0.8)
0.8

2020
£m

(1.4)
1.4

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

2021
£m

(6.7)
–

0.7
–

2020
£m

(4.2)
–

2.1
–

2021
£m

(48.1)
0.1

55.8
(0.1)

2020
£m

(47.3)
(1.6)

58.2
1.9

Year end exchange rates applied in the above analysis are US Dollar 1.37 (2020: 1.31) and Euro 1.13 (2020: 1.19). Strengthening and weakening
of Sterling may not produce symmetrical results depending on the proportion and nature of foreign exchange derivatives which do not qualify for
hedge accounting.

206

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
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)

Cash flow
£m

Fair value
changes
£m

IFRS 16
£m

521.6
(59.7)
461.9
40.0
–
–
501.9

–
–
–
–
0.7
(0.7)
–

501.9

–

–
–
–
–
–
–
–

2.2
62.9
65.1
65.1

January
2021
£m

608.2
(93.4)
514.8
–
(1,163.0)
38.0
(610.2)

(170.1)
(1,015.8)
(1,185.9)
(1,796.1)

The IFRS 16 movements represent the net movement of lease additions, modifications, lease payments, finance costs and the change in the ageing
profile as each year passes.

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

Loans advanced
Amounts outstanding at year end

2021
£m

3.9

1.3
1.4

The loan of £1.4m earns interest at a commercial arms-length rate.

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

2021
£m

0.1
0.2
3.0

Amounts outstanding at the year end include a loan of £2.9m which 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

2021
£m

(0.4)
–

During the year, the Group sold its interest in Custom Gateway for consideration of £3.9m.

During the year, the Group entered into the following transactions with its new joint venture, VS Brands Holdings UK Limited, as follows:

Loans advanced
Recharge of costs
Amounts outstanding at year end

The loan of £7.7m is interest free and repayable on demand.

The Group’s other related party transactions were the remuneration of key management personnel (refer to Note 4).

2021
£m

7.7
0.9
8.2

2020
£m

6.6

–
0.9

2020
£m

0.4
0.1
2.9

2020
£m

(0.7)
–

2020
£m

–
–
–

207

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
32. Post balance sheet events
On 10 March 2021 NEXT acquired a 25% indirect interest in Reiss Limited (“Reiss”) through the acquisition of shares from existing shareholders, in
the holding company of the Reiss business. Upon completion of this deal, NEXT will make an equity investment of £33m and a debt investment of
£10m, financed from NEXT’s own cash resources.

Under the terms of the agreement, NEXT has an option to acquire an additional 26% interest at pre-agreed terms which, if exercised, would take
NEXT’s holding to 51%. The option falls away after July 2022.

Further details of the acquisition and its strategic fit with the Group are provided on page 53.

In the March 2021 Budget, the Chancellor announced an increase to the headline corporation tax rate to 25% from April 2023. As disclosed in on
page 174, this change will require a remeasurement of our net deferred tax position to 25%.

208

PARENT
COMPANY
FINANCIAL
STATEMENTS

210 Parent Company Balance Sheet

211 Parent Company Statement of Changes in Equity

212 Notes to the Parent Company Financial Statements

209

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyPARENT COMPANY BALANCE SHEET

Fixed assets
Investments

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

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

30 January
2021
£m

25 January
2020
£m

Notes

C5
C5

2,475.7
2,475.7

153.1
–
22.0
175.1

154.1
0.1
0.2
154.4

(553.7)
(378.6)

(502.2)
(347.8)

2,097.1

2,127.9

2,097.1

2,127.9

13.3
0.9
16.6
(271.1)
985.2
1,352.2

13.3
0.9
16.6
(284.8)
985.2
1,396.7

2,097.1

2,127.9

The loss for the year in the accounts of the Company is £Nil (2020: profit of £1,134.6m).

The financial statements were approved by the Board of directors and authorised for issue on 1 April 2021. They were signed on its behalf by:

Lord Wolfson of Aspley Guise
Chief Executive

Amanda James
Group Finance Director

210

PARENT COMPANY STATEMENT OF
CHANGES IN EQUITY

At 26 January 2019
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period

Share buybacks (Note C5)
ESOT share purchases (Note C5)
Shares sold/issued by ESOT
Share option charge
Equity dividends
At 25 January 2020
Profit for the year
Other comprehensive income for the period
Total comprehensive income for the period

Share buybacks (Note C5)
ESOT share purchases (Note C5)
Shares sold/issued by ESOT
Share option charge
Equity dividends

Share
capital
£m
13.9
–
–
–

Share
premium
account
£m
0.9
–
–
–

Capital
redemption
reserve
£m
16.0
–
–
–

(0.6)
–
–
–
–
13.3
–
–
–

–
–
–
–
–

–
–
–
–
–
0.9
–
–
–

–
–
–
–
–

0.6
–
–
–
–
16.6
–
–
–

–
–
–
–
–

At 30 January 2021

13.3

0.9

16.6

ESOT
reserve
£m
(271.6)
–
–
–

–
(94.1)
80.9
–
–
(284.8)
–
–
–

–
(190.3)
204.0
–
–

(271.1)

Other
reserves
£m
985.2
–
–
–

Retained
earnings
£m
776.6
1,134.6
–
1,134.6

–
–
–
–
–
985.2
–
–
–

–
–
–
–
–

(300.2)
–
(15.4)
14.7
(213.6)
1,396.7
–
–
–

(19.3)
–
(41.9)
16.7
–

Total
equity
£m
1,521.0
1,134.6
–
1,134.6

(300.2)
(94.1)
65.5
14.7
(213.6)
2,127.9
–
–
–

(19.3)
(190.3)
162.1
16.7
–

985.2

1,352.2

2,097.1

211

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanyNOTES 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 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 156 to 167. 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 (2020: £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
VS Brands Holdings UK Limited
Intimate Apparel Digital UK Limited
Intimate Apparel Retail Ireland Limited
Intimate Apparel Retail UK Limited
Lipsy Limited
LLC Next
Next Beauty Limited
Next (Asia) Limited
Next AV s.r.o.
Next Brand Limited
Next Distribution Limited
Next-E-NA Portugal, Unipessoal LDA
Next Europe & North Africa Morocco SARL
Next Europe & North Africa Tunisia 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 Ltd
Next Retail Limited
Next Retail (Ireland) Limited
Next Sourcing Company Limited

Next Sourcing (UK) Limited
Next Sourcing Limited
Next Sourcing Limited Domestic and/or Foreign
Trade Limited Liability Company
Next Sourcing Services Limited

Next Sourcing Services (India) Private Limited
Next Sourcing VM Limited
NSL Limited
Project Norwich Limited
Retail Restaurants Limited
The Next Directory Limited
Paige Group Limited (The)
Ventura Group Limited
Ventura Network Distribution Limited

* 100% owned by VS Brands Holdings UK Limited.

212

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
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
28-29 Grafton Street, Dublin, 2 D02C953 Ireland
Desford Road, Enderby, Leicester, LE19 4AT, UK
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
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
Centre le Millennium, B30, 2046 Sidi Daoud, La Marsa, Tunis
Desford Road, Enderby, Leicester, LE19 4AT, UK
c/o BDO AG Wirtschaftsprüfungsgesellschaft, Landaubogen 10, 81373, Munich, Germany
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
14/F Cityplaza 1, 1111 King’s Road, Taikoo Shing, Quarry Bay, Hong Kong
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK

% held by
Group
companies
100
100
100
100
100
49
51
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 Debtors

Amounts due from subsidiary undertaking
Other receivables

C4. Creditors due within one year

Amounts due to subsidiary undertaking
Accruals and other creditors

2021
£m
149.8
3.3
153.1

2021
£m
553.5
0.2
553.7

2020
£m
154.1
–
154.1

2020
£m
502.1
0.1
502.2

C5. 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 (2020: £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.

C6. UK registered subsidiaries exempt from Audit
The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006 for the year ended
30 January 2021.

Company name
AgraTech Limited
Lipsy Limited
Next Beauty Limited
Next Brand Limited
Next Distribution Limited
Next Holdings Limited
Next Manufacturing Limited
Next Near East Limited
Next Properties Ltd
Next Retail Limited
The Next Directory Limited
Project Norwich Limited

Registered office address
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK
Desford Road, Enderby, Leicester, LE19 4AT, UK

% held by
Group
companies
100
100
100
100
100
100
100
100
100
100
100
100

The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date in accordance with Section
479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantee as remote.

213

Strategic ReportGovernanceShareholder InformationFinancial StatementsGroupCompanySHAREHOLDER
INFORMATION

215 Half Year and Segment Analysis

216 Five Year History

217 Glossary

220 Notice of Meeting

229 Other Shareholder Information

214

HALF YEAR AND SEGMENT ANALYSIS (UNAUDITED)1

Total sales1
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing & NENA Sourcing
Lipsy
Property Management
Total

Profit before tax
NEXT Retail
NEXT Online
NEXT Finance
NEXT International Retail
NEXT Sourcing
Lipsy
Property Management
Total segment profit
Recharge of interest
Other activities
Net finance costs
Profit before tax excluding IFRS 16
IFRS 16

Profit before tax including IFRS 16

First
half
£m

Second
half
£m

53 weeks to
Jan 2021
£m

First
half
£m

Second
half
£m

52 weeks to
Jan 2020
£m

344.6
862.6
127.9
12.0
2.8
2.5
4.4
1,356.8

(175.2)
128.2
58.9
0.5
4.9
0.1
4.0
21.4
20.4
(11.4)
(21.4)
9.0
(25.5)

(16.5)

609.9
1,505.8
122.4
21.2
4.1
2.7
3.0
2,269.1

(30.7)
343.9
53.5
2.9
12.9
5.1
(43.9)
343.7
28.0
(18.0)
(20.7)
333.0
25.9

358.9

954.5
2,368.4
250.3
33.2
6.9
5.2
7.4
3,625.9

(205.9)
472.1
112.4
3.4
17.8
5.2
(39.9)
365.1
48.4
(29.4)
(42.1)
342.0
0.4

342.4

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

748.5

1 As defined in Note 1 to the Consolidated Financial Statements.

215

Strategic ReportGovernanceFinancial StatementsShareholder InformationFIVE YEAR HISTORY (UNAUDITED)

Excluding IFRS 16
Period to January
Underlying1 continuing business
Total sales2
Statutory revenue

Operating profit
Net finance costs
Profit before tax
Taxation
Profit after taxation

Total equity

2021
£m

2020
£m

2019
£m

2018
£m

2017
£m

3,625.9
3,534.4

4,361.8
4,266.2

4,220.9
4,167.4

4,117.5
4,090.7

4,136.8
4,097.3

384.2
(42.2)
342.0
(51.4)
290.6

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

836.1

612.9

553.8

482.6

510.5

Shares purchased for cancellation

0.3m

5.4m

6.3m

2.2m

3.6m

165.0p
–

435.3p
435.3p

158.0p
180.0p

416.7p
416.7p

158.0p
–

441.3p
441.3p

Dividends per share – ordinary

– special

Basic Earnings Per Share
Underlying
Total

IFRS 16 basis
Period to January
Underlying1 continuing business
Total sales2
Statutory revenue

Operating profit – underlying
Net finance costs – underlying
Profit before tax – underlying
Taxation
Profit after taxation

Total equity

–
–

226.3p
226.3p

2021
£m

57.5p
–

459.8p
459.8p

2020
£m

3,625.9
3,534.4

4,361.8
4,266.2

444.5
(102.1)
342.4
(55.7)
286.7

853.9
(105.4)
748.5
(138.3)
610.2

660.9

441.5

Shares purchased for cancellation

0.3m

5.4m

Dividends per share – ordinary

–

57.5p

Basic Earnings Per Share
Underlying
Total

223.3p
223.3p

472.4p
472.4p

1 Underlying is shown pre-exceptional items. There were no exceptional items in the data presented above.

2 As defined in Note 1 to the Consolidated Financial Statements.

216

GLOSSARY
Alternative Performance Measures (APMs) and other non-statutory measures

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.

Average customer receivables/
The average amount of money owed by all nextpay
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.

is referred to as ‘customer receivable’ or

This
‘debtor balance’.

The charge taken in relation to the performance of our
Bad debt charge
customer debtor book. This consists predominantly of
providing for future defaults.

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 FY21 was £1,050m (FY20: 1,185m).
The statutory accounts do not disclose the monthly debtor
balance needed to calculate the average debtor balance. The year
end balance is disclosed in Note 13 to the financial statements.

Impairment losses Measurement of the quality of the Online debtor book/customer
receivables. A lower bad debt charge indicates that the quality
and recoverability of the balance is higher.

None

Difference between the cost of stock and initial selling
Bought-in gross margin
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 in
Cost of funding
respect of funding costs for the Online debtor balance
(customer receivable).

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/customer balance.

The bad debt charge is the total of the in-year impairment
charge, less amounts recovered. In FY21 the total bad debt
charge disclosed in the CEO report was £51m. In Note 13 the
total Expected Credit Loss charge was £54.8m with the difference
relating to recoveries on previously written off assets.

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 as full price sales not a statutory metric.

to closest equivalent

statutory measure

Measurement of the Retail business profit by physical branch.
Provides an indication of the performance of the store portfolio.
This is based on costs which are directly attributable to the store.
Therefore, it does not include costs such as central overheads
which will be included in the statutory accounts.

Reconciliation to closest equivalent statutory measure is
therefore not applicable.

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. In the
year to January 2021 this has been calculated as:

Average Group interest = Interest cost/Average debt
= £42.2m/£792m = 5.3%

Then apply 5.3% to 85% of the Average Online customer balance
of £1,050m (as we assume that 85% is funded). This equates to a
Cost of Funding charge of £48m (prior year £36m).

Note the increase in the year on year charge is due to the
significant reduction in average debt while external finance costs
are largely unchanged. The latter has not varied as much because
the external finance costs are based on the Bonds which have not
materially changed year on year.

217

Strategic ReportGovernanceFinancial StatementsShareholder InformationGLOSSARY
Alternative Performance Measures (APMs) and other non-statutory measures

APM Definition

VAT exclusive sales from Online credit customers
Credit sales
who have purchased using their online NEXT
account, inclusive of any interest income charges and
delivery charges, and after deducting any applicable
promotional discounts.

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 sale events,
Full price sales
Total Platform sales 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

Closest equivalent
statutory measure

Purpose and reconciliation to closest statutory measure
where applicable

None

Credit sales are a direct indicator of the performance and
profitability of the Finance business.

Segment profit

to closest equivalent

statutory measure
Reconciliation
not applicable as the statutory accounts split by business segment
but not by the mechanism of customer payment.

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 because the segments are not
managed using IFRS 16 metrics.

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.

Appendix 1 includes a reconciliation of the pre and post IFRS 16
profit before tax and a walk forward of the effective tax rate while
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 2
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

Note in the current year like-for-like sales on Retail stores are not
being used as a KPI due to the disruption caused by COVID.

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.

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.

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.

218

APM Definition

Closest equivalent
statutory measure

Purpose and reconciliation to closest statutory measure
where applicable

Profit after deducting markdowns and all direct and
Net operating margin
indirect trading costs, expressed as a percentage of
achieved total sales.

None

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.

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.

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 new
Underlying like-for-like sales
openings. This is a measure of the annual performance
of stores taking into account the impact of new store
openings on existing stores.

and

Share
Underlying profit
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.

Earnings Per

Profit before tax

A measure of direct profitability of the Finance business.

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 as the business does not
report the impact of IFRS 16 at a segment level.

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 2021 was
calculated by dividing the Operating profit for segment of £112m
by the average debt balance of £1,050m. As a percentage this is
10.7% (2020: 12.4%).

The Operating profit for the segment is disclosed in Note 1 to the
financial statements.

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

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.

Reconciliation
not applicable.

to closest equivalent

statutory measure

Note in the current year like-for-like sales on Retail stores are not
being used as a KPI due to the disruption caused by COVID.

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 to
January 2021 or the year to January 2020.

However, as used in the CEO review, 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.

219

Strategic ReportGovernanceFinancial StatementsShareholder InformationNOTICE OF MEETING

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR
IMMEDIATE ATTENTION.

Further information on these resolutions can be found in Appendix
1 to this Notice.

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.

To receive and adopt the accounts and reports of the directors and
auditor for the period ended 30 January 2021.

To approve the Directors’ Remuneration Report set out on pages
115 to 132.

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 and broadcast from NEXT Head Offices, Desford Road, Enderby,
Leicestershire LE19 4AT on Thursday 20 May 2021 at 9.30 am.

Potential impact of Coronavirus (COVID) on the AGM

The ongoing Government restrictions on mass gatherings, non-
essential travel and social contact in relation to COVID are likely to
impact the ability of shareholders to attend the AGM. Based on
current restrictions, the Board has concluded that it is appropriate to
strongly urge shareholders not to attend the AGM in person this year.
Shareholders are instead requested to make use of the electronic
facilities to participate and vote remotely.

Shareholders can access the AGM at https://web.lumiagm.com.
For further information on how to join electronically, please see the
guidance included in Appendix 2 of this Notice. A step by step user
guide is set out on page 228.

If you will not be participating in the meeting electronically, or wish to
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 225 and 226
of this Notice.

Shareholders may submit questions in advance on resolutions to be put
to the AGM by emailing investors@next.co.uk. Questions submitted by
the close of business on 19 May 2021 will be answered at the meeting
as appropriate. Shareholders will also have the opportunity to submit
questions through the Lumi platform during the AGM.

The health and safety of our colleagues and shareholders is very
important to us. For any shareholder choosing to attend in person
against our recommendation, strict health and safety measures will be
enforced and will include temperature checks prior to admission and
face coverings to be worn at all times. It will not be possible to provide
refreshments. The situation in relation to COVID 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. We will continue to monitor the situation, and any
changes to 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 stock
exchange announcement.

As a precautionary measure, only a limited number of the Board will be
in attendance at the AGM to reduce the risk of all Board members being
present in the same room at the same time. Directors will be unable to
informally converse with shareholders before or after the meeting due
to social distancing measures.

The following resolutions will be proposed at the AGM, resolutions
1 to 14 as ordinary resolutions and 15 to 20 as special resolutions.

To elect the following director appointed by the directors since the last
AGM who is seeking election in accordance with the Company’s Articles
of Association:

3 Tom Hall

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 Jane Shields

10 Dame Dianne Thompson

11 Lord Wolfson

12 To re-appoint PricewaterhouseCoopers LLP as auditor of the
Company, to hold office until the conclusion of the 2022 AGM of
the Company.

13 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.

14 Directors’ authority to allot shares

That:

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;

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 20 August 2022.

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).

15 General disapplication of pre-emption rights

That, subject to resolution 14 being passed:

the directors be given power to allot equity securities for cash;

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;

220

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 20 August 2022; and

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).

16 Additional disapplication of pre-emption rights

That, subject to resolutions 14 and 15 being passed:

the directors be given the power to allot additional equity
securities for cash;

the power under paragraph (a) above (other than in connection
with a rights issue) shall be:

independent bid for an ordinary share of the Company as
derived from the London Stock Exchange Trading System;

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 20 August 2022;

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.

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;

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 20 August 2022; and

other than in respect of authorities granted pursuant to
resolution 15, all previous unutilised authorities under Sections
570 and 573 of the 2006 Act shall cease to have effect (save
to the extent that they are exercisable by reason of any offer
or agreement made prior to the date of this new resolution
which would or might require shares to be allotted on or after
that date).

18 Off-market purchases of own shares

That, in accordance with Section 694 of the 2006 Act, the proposed
programme agreements to be entered into between the Company
and any of Goldman Sachs International, UBS AG London Branch,
BNP Paribas 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 223 and 224. 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 20 August 2022 (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).

17 On-market purchases of own shares

19 Amendment to the articles of association

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:

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 18 below;

the minimum price which may be paid for ordinary shares
(exclusive of expenses) is 10p per ordinary share;

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

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.

20 Notice of general meetings

That a general meeting (other than an AGM) may be called on not
less than 14 clear days’ notice.

By order of the Board

Seonna Anderson
Company Secretary
Registered Office: Desford Road, Enderby, Leicester LE19 4AT

20 April 2021

221

Strategic ReportGovernanceFinancial StatementsShareholder Information

NOTICE OF MEETING

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 period ended
30 January 2021, together with the report of the auditor.

2 To approve the Directors’
Remuneration Report
The Directors’ Remuneration Report sets out the pay and benefits
received by each of the directors for the period ended 30 January
2021 and is subject to an advisory vote by shareholders. The Report
(excluding the Directors’ Remuneration Policy) is set out on pages 115
to 132 of the Annual Report for the period ended 30 January 2021.

3–11 Directors
In accordance with the UK Corporate Governance Code 2018,
all directors will stand for election or re-election at this year’s AGM.

Directors’ biographies are set out on pages 98 and 99 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.

12 and 13 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 13 proposes that the auditor’s remuneration be determined
by the Audit Committee.

14 Renewal of the powers of directors to
allot shares
Ordinary resolution 14(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 31 March 2021.
In accordance with institutional guidelines, resolution 14(a)(ii) will also
allow directors to allot further ordinary shares, in connection with a pre-
emptive offer by way of a rights issue, up to a total maximum nominal
amount of £8,800,000, representing approximately two thirds of the
Company’s existing issued share capital, excluding treasury shares, as
at that date. As at 31 March 2021 (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 2022 or,
if earlier, 20 August 2022.

15 and 16 Authority to disapply
pre-emption rights
In special resolution 15, the directors are seeking authority to allot
equity securities for cash without first offering them to existing
shareholders in proportion to their holdings. This resolution limits the
aggregate nominal value of ordinary shares which may be issued by the
directors on a non pre-emptive basis to £664,000, representing 5% of
the issued ordinary share capital of the Company as at 31 March 2021.
This authority also allows the directors, within the same aggregate limit,
to sell for cash, shares that may be held by the Company in treasury.

Special resolution 16 seeks separate and additional authority to allot
up to an additional 5% of the issued ordinary share capital of the
Company on a non-pre emptive basis in connection with an acquisition
or specified capital investment (within the meaning given in the
Pre-Emption Group’s Statement of Principles) which is announced at the
same time as the allotment, or which has taken place in the six month
period before and is disclosed in the announcement of the allotment.

In accordance with the Pre-Emption Group’s Statement of Principles,
the directors do not intend to issue more than 7.5% of the share capital
of the Company for cash 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 2022 or, if earlier,
20 August 2022.

17 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 31 March 2021, NEXT
has returned over £4bn to shareholders by way of share buybacks
and over £3.5bn 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. Share buybacks have
not been made at the expense of investment in the business. Over the
last five years, NEXT has invested over £675m 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

222

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 2022 or, if earlier,
20 August 2022.

18 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 2020
AGM up to 31 March 2021.

• 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 22, passed at the Company’s 2020 AGM, granted
authority to the Company to make on-market purchases of a maximum
number of 19,929,000 shares and expires on the earlier of the date of
the 2021 AGM or 14 August 2021. 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, 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 2021 AGM or 14 August 2021. Pursuant to those authorities and
up to 31 March 2021, the Company has not bought back any shares
for cancellation and no shares were bought back under contingent
purchase contracts.

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.

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

Under Sections 693 and 694 of the 2006 Act, the Programme Agreements
and Contingent Forward Trades are contingent purchase contracts to
purchase shares by the Company off-market. Accordingly, resolution
18, which will be proposed as a special resolution, seeks shareholder

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Strategic ReportGovernanceFinancial StatementsShareholder InformationNOTICE OF MEETING

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 2022 and 20 August 2022 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 31 March 2021;

• 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% of the average of the
middle market price of a share according to the Daily Official List
of the London Stock Exchange for the 5 business days immediately
preceding the day on which the share is purchased;

19 Articles of Association
Special resolution 19 proposes a change to the Company’s Articles
of Association to increase the maximum total fees payable to non-
executive directors. The current Article 61 (directors’ fees) of the articles
will be amended by increasing the numerical limit from £750,000 to
£1,000,000.

The limit has not been increased for a number of years, and this
increase will bring the Company’s articles in line with those of its peers.
The increase will provide the Company with the flexibility to appoint
additional non-executive directors if appropriate. No increase to the
existing non-executive directors’ fees is planned as a result of this
limit increase.

20 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

• the Forward Price will be no more than 99% of the share price at the

(ii) offers the facility for all shareholders to vote by electronic means.

The Company would like to preserve its ability to call general meetings
(other than an AGM) on 14 clear days’ notice. This shorter notice period
would not be used as a matter of routine, but only where the flexibility
is merited by the business of the meeting and is thought to be in the
interests of shareholders as a whole.

Resolution 20 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 2021 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.

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 20 May 2021 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 2022 AGM or on 20 August
2022, whichever is the earlier, unless such authority is renewed prior
to that time (except in relation to the purchase of shares under any
CFT effected before the expiry of such authority and which might be
completed wholly or partly after such expiry). The purchase of shares
under the Programme Agreements will always be physically settled by
delivery of shares to the Company (except in the case of certain events
of default or termination events).

A copy of each of the Programme Agreements will be available at the
AGM and on Lumi for 15 minutes prior to and for the duration of
the AGM on 20 May 2021. 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 2022 and 20 August
2022 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.

224

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 18 May
2021 or, if the meeting is adjourned, at 6.30 pm on the day which is two
working days before the adjourned meeting.

In line with best practice, voting on all resolutions at the 2021 AGM will
be by way of a poll. On a poll, every member present in person or by
proxy, including by electronic means, 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 during the AGM.

In respect of resolution 18 on off-market share purchase contracts, the
2006 Act provides that this resolution will not be effective if any member
of the Company holding shares to which it relates (i.e. shares which may
be purchased pursuant to the Programme Agreements) voted for the
resolution and the resolution would not have been passed if they had
not done so. Therefore, NEXT intends to disregard any poll votes which
are cast in favour of resolution 18 attaching to 3 million shares (being
the total maximum number of shares which the Company is permitted
to purchase pursuant to the Programme Agreements) from both the
total number of votes cast in favour of this resolution and the total
number of votes cast.

The total number of the Company’s issued share capital on 31 March
2021, 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
You may submit your proxy electronically by accessing our registrar’s
website www.sharevote.co.uk. You will require your unique Voting ID,
Task ID and Shareholder Reference Number as printed on the proxy
card. The use by members of the electronic proxy appointment service
will be governed by the terms and conditions of use which appear
on the website. Electronic proxies must be completed and lodged in
accordance with the instructions on the website by no later than 9.30
am on 18 May 2021.

To vote using the form of proxy, please complete and return the form to
Equiniti, to arrive not later than 9.30 am on 18 May 2021 (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 paragraphs and in the paragraph headed

“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.

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
20 May 2021 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

225

Strategic ReportGovernanceFinancial StatementsShareholder InformationCompany 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 www.nextplc.co.uk.

Under Section 527 of the 2006 Act members meeting the threshold
requirements set out in that section have the right to require the
Company to publish on a website a statement setting out any matter
relating to: (i) the audit of the Company’s accounts (including the
auditor’s report and the conduct of the audit) that are to be laid before
the AGM; or (ii) any circumstance connected with an auditor of the
Company ceasing to hold office since the previous meeting at which
annual accounts and reports were laid in accordance with Section 437
of the 2006 Act. The Company may not require the members requesting
such website publication to pay its expenses in complying with Sections
527 or 528 of the 2006 Act, and it must forward the statement to the
Company’s auditor no 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.

NOTICE OF MEETING

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 228 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

• The Programme Agreements pursuant to resolution 18

• Articles that reflect the changes proposed in resolution 19

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.

226

Questions
To submit a question through the Lumi website, click on the speech
bubble icon and type your question at the bottom of the screen.
Once finished, press the ‘send’ icon to the right of the message box.

Questions will be moderated before being sent to the Chairman. This is
to avoid repetition and to ensure the smooth running of the meeting.
If multiple questions on the same topic are received, the Chairman may
provide a single answer to address shareholder queries on the same
topic. We will publish questions and answers on our website after
the AGM.

Requirements
An active internet connection is required at all times in order to allow
you to cast your vote when the poll opens, submit questions and listen
to the audiocast. It is the user’s responsibility to ensure you remain
connected for the duration of the meeting.

Duly appointed proxies and
corporate representatives
Please contact the Company’s registrar before 09:30 am on 19 May
2021 on 0371 384 2164 or +44(0) 121 415 7047 if you are calling from
outside the UK for your SRN and PIN.

Lines are open 8.30 am to 5.30 pm Monday to Friday (excluding public
holidays in England & Wales).

APPENDIX 2
Accessing the AGM website
For the 2021 AGM, shareholders will be able to attend and participate
in the meeting electronically. This can be done by accessing the AGM
website, https://web.lumiagm.com

Lumi AGM can be accessed using most internet browsers such as Edge,
Chrome, Firefox and Safari on a PC, laptop or other internet-enabled
device such as a tablet or smartphone. Access to the meeting via the
website https://web.lumiagm.com will be available from 8.30 am on
20 May 2021. The AGM will commence at 9.30 am.

Logging In
You will be prompted to enter a Meeting ID which is 135-277-531.

You will then be prompted to enter your unique Shareholder Reference
Number (SRN) and PIN which is the first two and last two digits of your
SRN. These can be found on your form of proxy.

Broadcast
Once logged in, and at the commencement of the meeting, you will be
able to listen to the proceedings of the meeting on your device.

Voting
Once the Chairman has formally opened the meeting, the voting
procedure will be explained. Voting will be enabled on all resolutions
at the start of the formal meeting when the Chairman formally declares
the poll open. Shareholders may, at any time while the poll is open, vote
on any or all the resolutions in the Notice of Meeting. Resolutions will
not be put forward separately.

Once the resolutions have been proposed, the list of resolutions will
appear on your screen along with the voting options. Select the option
that corresponds with how you wish to vote, “FOR”, “AGAINST” or
“WITHHELD”. Once you have selected your choice, the option will
change colour and a confirmation message will appear to indicate your
vote has been cast and received. Please note that there is no ‘Submit’
button. If you make a mistake or wish to change your vote, simply select
the correct choice. If you wish to ‘cancel’ your vote, select the ‘Cancel’
button. You will be able to do this at any time whilst the poll remains
open and before the Chairman announces its closure at the end of
the meeting.

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Strategic ReportGovernanceFinancial StatementsShareholder InformationUser Guide to Joining the Next plc 2021 Annual General Meeting Remotely

Meeting ID: 135-277-531
To login you must have your SRN and PIN

Open the Lumi AGM
website and you will be
prompted to enter the
Meeting ID. If a
shareholder attempts to
login to the website
before the meeting is
live*, a pop-up dialogue
box will appear.

* 8:30 am on 20th May 2021.
The meeting starts at 9.30 am.

After entering the
Meeting ID, you will be
prompted to enter your
unique SRN and PIN.

When successfully
authenticated, you will
be taken to the Home
Screen.

To view the meeting
presentation, expand
the “Broadcast Panel”,
located at the bottom of
your device. If viewing
through a browser, it will
appear automatically.

This can be minimised
by pressing the same
button.

When the Chairman
declares the poll open, a
list of all resolutions and
voting choices will
appear on your device.

For each resolution,
press the choice
corresponding with the
way in which you wish to
vote.

Scroll through the list to
view all resolutions.

When selected, a
confirmation message
will appear.
For - Vote received

To change your mind,
simply press the correct
choice to override your
previous selection. To
cancel your vote, press
Cancel.

To return to the voting
screen whilst the poll is
open, select the voting
icon.

If you would like to ask a
question, select the
messaging icon.

Type your message
within the chat box at
the bottom of the
messaging screen.

Click the send button to
submit.

228

OTHER SHAREHOLDER INFORMATION

Registered office
Desford Road, Enderby, Leicester LE19 4AT

Registered in England and Wales, company no. 4412362

Annual General Meeting
The AGM will be held at and broadcast from the registered office of
NEXT plc, Desford Road, Enderby, Leicester LE19 4AT at 9.30 am on
Thursday 20 May 2021. The Notice of the Meeting on pages 220 to 228
sets out business to be transacted.

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
is maintained by Equiniti (‘EQ’).
The Company share register
Please contact them online at www.shareview.co.uk or using the
contact details above if you have any enquiries about your NEXT
shareholding including the following matters:

• change of name and address;

•

loss of share certificate, dividend warrant or dividend confirmation;

if you receive duplicate sets of Company mailings as a result of
an inconsistency in name or address and wish, if appropriate,
to combine accounts.

The Shareview Portfolio service from EQ gives you more online
information about your NEXT shares and other investments. For direct
access to information held for you on the share register, including recent
balance movements and a daily valuation of investments held in your
portfolio, visit www.shareview.co.uk.

For shareholders with disabilities EQ 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 available to download from the NEXT website at www.nextplc.co.uk
or from EQ, 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 72 to 76;
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.

229

Strategic ReportGovernanceFinancial StatementsShareholder Information230

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Pureprint is a CarbonNeutral Company and FSC certified.
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The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon
emissions through the purchase and preservation of high conservation value land.

Through protecting standing forests, under threat of clearance, carbon is locked in that would otherwise be
released. These protected forests are then able to continue absorbing carbon from the atmosphere, referred
to as REDD (Reduced Emissions from Deforestation and forest Degradation). This is now recognised as one of
the most cost-effective and swiftest ways to arrest the rise in atmospheric CO2 and global warming effects.
Additional to the carbon benefits is the flora and fauna this land preserves, including a number of species
identified at risk of extinction on the IUCN Red List of Threatened Species.

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