TIDMNXT
RNS Number : 2694U
Next PLC
01 April 2021
Date: Embargoed until 07.00hrs, Thursday 1 April 2021
Contacts: Lord Wolfson, Chief Executive
Amanda James, Group Finance Director (analyst calls)
NEXT PLC Tel: 0333 777 8888
Alistair Mackinnon-Musson Email: next@rowbellpr.com
Rowbell PR Tel: 020 7717 5239
Photographs: http://www.nextplc.co.uk/media/image-gallery/campaign-images
NEXT PLC
Results for the
Year Ending
January 2021
This document contains some page number cross-referencing.
Please refer to the PDF version of this statement which is
available at
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
or on the NEXT corporate website www.nextplc.co.uk
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 GBP342m (2019/20: GBP729m, 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, Total(1) Group sales decreased by
less than 17% to GBP3.6bn (2019/20: GBP4.4bn).
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 GBP610m (2019/20: GBP1.1bn).
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 GBP121m 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) Total sales are VAT exclusive sales including the full value
of commission based sales and interest income (refer to Note 2 of
the financial statements).
CHIEF EXECUTIVE'S REVIEW
HEADLINES
Performance in the Year Ending January 2021
-- Full price sales(2) down -15% on last year.
-- Profit before tax of GBP342m(3) and in line with guidance given in January.
-- Year end net debt(4) reduced by GBP502m to GBP610m.
(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 2 of the financial statements).
(3) Profit before tax of GBP342m is pre-IFRS 16, Leases. The
financial information presented in pages 2 - 59 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 60.
(4) Net debt excludes leases.
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 April(5) 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 GBP30m of profit. As a result, we are raising our central
profit guidance by GBP30m from GBP670m to GBP700m.
(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 THE BIG PICTURE Pg A reflection on the performance of
1 6 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 GROUP FINANCIAL Pg This section provides a summary of
2 PERFORMANCE 16 Group sales and profits by division,
cash flows and financing. It also
includes a summary of Group capital
expenditure.
PART DIVISIONAL FINANCIAL Pg This section gives a detailed breakdown
3 PERFORMANCE 27 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 TOTAL PLATFORM Pg An update on our Total Platform business,
4 51 new clients we have contracted with
during the last twelve months and
new equity investments.
PART SALES AND PROFIT Pg This section covers our outlook for
5 OUTLOOK FOR 57 the year ahead, with our sales and
2021/22 profit guidance.
===== ===================== ==== ===============================================
CONTENTS
PART 1 - THE BIG PICTURE
RESILIENCE THROUGH THE PANDEMIC
RELEVANCE AND EVOLUTION
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
PART 2 - GROUP FINANCIAL PERFORMANCE
OVERVIEW OF SALES, PROFIT AND NET DEBT
SALES
PROFIT
RECONCILIATION OF CHANGES IN GROUP SALES, COSTS AND PROFIT
CASH FLOW, FINANCING AND NET DEBT
ORDINARY DIVIDS AND SHARE BUYBACKS
CASH FLOW OUTLOOK FOR THE YEARING JANUARY 2022
NET DEBT, BOND AND BANK FACILITIES
CAPITAL EXPITURE
OUTLOOK FOR CAPITAL EXPITURE
PART 3 - DIVISIONAL FINANCIAL PERFORMANCE AND ANALYSIS
NEXT ONLINE
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
NEXT FINANCE
FINANCE PROFIT AND LOSS ACCOUNT
CREDIT CUSTOMERS
PROFIT OUTLOOK FOR THE YEAR AHEAD
NEXT RETAIL
FULL PRICE SALES
RETAIL PROFIT & LOSS
RETAIL SPACE
LEASE RENEWALS AND COMMITMENTS
THE OUTLOOK FOR RETAIL SALES AND PROFIT IN THE YEAR AHEAD
OTHER BUSINESS ACTIVITY
PENSION SCHEME
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
PART 4 - TOTAL PLATFORM
CONCEPT - A REMINDER
NEW CLIENTS
TOTAL PLATFORM LIGHT
MARGIN AND RETURN ON CAPITAL
EQUITY
NEXT STEPS
PART 5 - SALES AND PROFIT OUTLOOK FOR 2021/22
APPIX 1 - STATUTORY SALES AND PROFIT
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 The diversity of our product offer, across the NEXT
Diversity 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.
Balance The financial resilience of our balance sheet, the
Sheet extent of our cash resources and the quality of our
customer receivables meant that we have not needed
to draw on emergency Government lending.
Retail Our retail park store portfolio accounted for 62%
Parks 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.
Sales Participation going into lockdown chart: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 6 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 GBP1.3bn 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%.
Group: Clothing versus Home
Online versus Retail sales sales
============================================= ===========================================
GBP sales % Participation GBP sales % Participation
17 year Jan Jan 17 year Jan Jan
% change 2005 2022(e) % change 2005 2022(e)
=============== ========= ====== ========= ============= ========= ====== =========
Retail - 39% 77% 29% Clothing +43% 90% 79%
Online/Finance +403% 23% 71% Home +219% 10% 21%
========= ====== ========= ============= ========= ====== =========
Total +61% 100% 100% Total +61% 100% 100%
========= ====== ========= ============= ========= ====== =========
Online: NEXT versus LABEL
Online: UK versus Overseas sales sales
============================================= ===========================================
GBP sales % Participation GBP sales % Participation
17 year Jan Jan 17 year Jan Jan
% change 2005 2022(e) % change 2005 2022(e)
=============== ========= ====== ========= ============= ========= ====== =========
UK +307% 100% 81% NEXT Brand +265% 100% 73%
Overseas - 0% 19% Third-parties - 0% 27%
========= ====== ========= ============= ========= ====== =========
Total +403% 100% 100% Total +403% 100% 100%
========= ====== ========= ============= ========= ====== =========
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 Whatever businesses we develop, if they are to succeed,
Value 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.
Play to We are, at heart, a fashion and homeware business
our Strengths 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.
Healthy Fashion is risky and volatile; it involves taking
Operating on many fixed costs that stick in a difficult year.
Margins 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.
A Healthy Deliver a return on capital invested commensurate
Return with the risk of any individual business. Capital
on 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 GBP399 price-starter
sofas-in-a-box or a top of the range GBP160 men's parka, price
extensions have served to increase the potential audience for our
brand.
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 Var %
================ ========== ========== ======
NEXT Fashion 35,000 13,000 +169%
NEXT Home 17,000 9,000 +89%
========== ========== ======
NEXT Total 52,000 22,000 +136%
Branded Beauty 20,000 0
LABEL Brands 130,000 7,000 +1757%
========== ========== ======
Total 202,000 29,000 +597%
NEW CUSTOMERS
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 29 ).
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.
Growth in UK Online Active Customers by Age Group graph: Click
or paste the following link into your web browser to view the PDF
document. Refer to page 11 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 graph: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 12 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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.
(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.
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 52 )
-- Victoria's Secret UK and Eire business(7) : 51%
-- NewBrand, which is launching in September: 33%
(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.
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 54 .
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.
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 GBP60m 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
GBP110m in the year ahead and a profit of more than GBP15m.
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 25 ).
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.
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 48 ).
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
GBP700m, down GBP29m on two years ago (see page 57 ). 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 sales(8) (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 GBP342m (pre-IFRS 16) and we reduced our
net debt by GBP502m to GBP610m. The 53rd week added GBP12m 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 GBP342m and net debt (including leases) reduced by
GBP567m to GBP1,796m.
(8) Total sales are VAT exclusive sales including the full value
of commission based sales (refer to Note 2 of the financial
statements).
SALES
Total sales reduced by -GBP736m, with almost all of this
reduction being in the first half of the year. In the second half,
the sales lost in Retail (-GBP368m) were almost entirely offset by
sales gained Online (+GBP364m).
Sales by Division
TOTAL SALES GBPm Jan 2021 Jan 2020 Var GBPm Var % 1st half 2nd half
var GBPm var GBPm
================== ======== ======== ======== ===== ========= =========
Online 2,368.4 2,146.6 221.8 +10% - 142 +364
Retail 954.5 1,851.9 (897.4) - 48% - 530 - 368
Finance 250.3 268.7 (18.4) - 7% - 6 - 12
======== ======== ======== ===== ========= =========
Brand 3,573.2 4,267.2 (694.0) - 16% - 678 - 16
Other 52.7 94.6 (41.9) - 44% - 24 - 18
======== ======== ======== ===== ========= =========
Total Group sales 3,625.9 4,361.8 (735.9) - 17% - 702 - 34
======== ======== ======== ===== ========= =========
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 chart: Click or paste the following
link into your web browser to view the PDF document. Refer to page
17 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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
GBPm Jan 2021 Jan 2020 Var %
================================== ======== ======== =====
Surplus stock at original selling
value (VAT Inc) 959 1,159 - 17%
Markdown sales (VAT ex.) 228 324 - 30%
Clearance sales (VAT ex.) 86 126 - 32%
======== ======== =====
Total markdown sales (VAT ex.) 314 450 - 30%
PROFIT
Profit Summary (Excluding IFRS16 Leases)
PROFIT GBPm and Earnings Per Share Jan 2021 Jan 2020 Var GBPm Var %
Online 472.1 399.6 72.5 +18%
Retail (205.9) 163.9 (369.8) - 226%
Finance (after charging interest) 112.4 146.7 (34.3) - 23%
======== ======== ======== ======
Brand 378.6 710.2 (331.6) - 47%
Sourcing and Other(9) (2.9) 27.8 (30.7)
Property (39.9) (2.2) (37.7)
Group recharge of interest from
Finance business 48.4 36.3 12.1
======== ======== ======== ======
Operating profit 384.2 772.1 (387.9) - 50%
Net external interest (42.2) (43.6) 1.4
======== ======== ======== ======
Profit before tax 342.0 728.5 (386.5) - 53%
Taxation (51.4) (134.6) 83.2 - 62%
======== ======== ======== ======
Profit after tax 290.6 593.9 (303.3) - 51%
======== ======== ======== ======
Earnings Per Share 226.3p 459.8p - 51%
=================================== ======== ======== ======== ======
(9) Other includes Franchise, Lipsy and other Group costs (page
49).
Statutory Sales and Profit
Profit before tax of GBP342m shown in the table above is stated
on a pre-IFRS 16 (Leases) basis. The financial information
presented in pages 2 to 59 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 GBP342m. The statutory
numbers are summarised below and a reconciliation to the pre-IFRS
16 is provided in the Appendix on page 60 .
STATUTORY BASIS GBPm and EPS Jan 2021 Jan 2020 Var GBPm Var %
Sales 3,534.4 4,266.2 (731.8) - 17%
Profit before tax 342.4 748.5 (406.1) - 54%
Profit after tax 286.7 610.2 (323.5) - 53%
Earnings Per Share (Basic) 223.3p 472.4p
============================= ======== ======== ======== =====
Non-recurring Costs, Savings and Profits
Within the reported profit before tax of GBP342m, there are a
number of significant, non-recurring items. These are summarised in
the table below and in total, reduced profit by -GBP16m. 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) GBPm
=============================================== =====
Business rates reduction +82
Property profit from the sale and leaseback of
properties +44
Profit from 53rd week +12
=====
Subtotal: Benefits to profit +138
Property provisions for store impairment and
onerous leases - 100
Stock and fabric provisions - 34
Bad debt provisions - 20
=====
Subtotal: Costs to profit - 154
=====
Total profit impact from non-recurring items - 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 GBP154m and a net
profit of GBP44m(10) .
(10) Under IFRS 16 the difference between the cash proceeds and
the asset sold (GBP44m) is not recognised as a gain in the year.
Instead, the gain is GBP8m 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 60.
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 GBP100m. This is the combination of an GBP18m write
down of store assets and an GBP82m provision for future cash losses
arising from onerous leases. Further details on our future sales
assumptions are given on page 49 . 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 GBP34m, 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%.
Bad Debt Provisions
We are maintaining the GBP20m 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 GBP51m includes the following two
adjustments:
1. A significant element of the property profit of GBP44m 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 GBPm 342
Tax charge GBPm - 51
====
Effective tax rate 15%
Benefit from GBP44m property profit 2%
Historical provision release and true ups
with HMRC 2%
====
UK headline tax rate 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%.
RECONCILIATION OF CHANGES IN GROUP SALES, COSTS AND PROFIT
The table below explains how the GBP736m of sales lost during
the pandemic translated into a profit reduction of -GBP387m. It
shows the year-on-year change in sales and major cost
categories.
Profit impact January 2021 versus January 2020 GBPm
==================================================================== ======
Lost Retail sales - 897
Gained Online sales +222
Lost Finance interest and other Group sales - 61
==================================================================== ======
Total lost sales - 736
The cost of stock reduced due to the
reduction in buy budgets and stock
cancellations. This was offset by
Reduction in non-recurring stock provisions of
cost of stock -GBP34m. +195
Wage costs reduced, mainly in our
Reduced wages Retail business when stores were closed. +130
Includes business rates reduction
of GBP82m plus savings in rent and
other store occupancy costs such as
Reduced store maintenance and utilities (see page
occupancy costs 44 ). +95
GBP15m saved from printing fewer catalogues,
GBP6m saved on photography and GBP9m
saved from the temporary suspension
Reduced of marketing campaigns during the
marketing costs first lockdown. +30
Higher logistics costs due to higher
Increased costs Online sales. We also incurred cost
of increases relating to overseas freight
Online operations surcharges and PPE. - 55
Property provisions of -GBP100m compared
to -GBP10m in the previous year, creating
a net increase in property provisions
Property provisions of -GBP90m. This net increase in provisions
and property profit was offset by GBP44m of property profit. - 46
Year-on-year change in profit - 387
CASH FLOW, FINANCING AND NET DEBT
HEADLINES
In the year to January 2021 we generated GBP521m of surplus cash
before distributions, which compares with GBP498m in the previous
year. Net debt reduced to GBP610m.
Cash inflows in the year were significantly enhanced by two
items that compensated for the fall in profits:
-- The net reduction of GBP206m in customer receivables.
-- The sale and leaseback of our Head Office and a warehouse
complex which generated a cash inflow of GBP110m.
GBPm Jan 2021 Jan 2020
=========================================== ========= ======== ========
Profit before tax 342 729
Depreciation and property provisions 228 131
See page
Capital expenditure 25 (163) (139)
Proceeds from sale and leaseback
(net of profit gain) 110 -
See page
Customer receivables 38 206 (27)
Working capital and other (89) (58)
Tax paid (113) (138)
======== ========
Cash flow before shareholder distributions 521 498
See page
Ordinary dividends 23 - (214)
See page
Share buybacks 23 (19) (300)
======== ========
Movement in net debt 502 (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 GBP113m of CT, of which GBP60m related to the prior year and
GBP53m related to the current year.
GBPm Jan 2021 Jan 2020
============================= ======== ========
Tax paid relating to prior
years 60 68
Tax paid relating to current
year's profit 53 70
======== ========
Total tax paid in period 113 138
ORDINARY DIVIDS 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 GBP19m.
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 YEARING JANUARY 2022
Based on our central scenario, we expect to generate GBP175m 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 GBP160m in customer receivables. This increase
is based on the assumption that payment rates move back to levels
closer to those experienced before the pandemic.
-- GBP33m relates to the investment we have made in Reiss (see page 54 ).
GBPm Jan 2022 (e)
===================================== =========== ============
Profit before tax 700
Tax (113)
See page
Capital expenditure 25 (185)
See page
Acquisition (25% of Reiss) 54 (33)
See page
Customer receivables 42 (160)
Working capital and other (34)
============
Cash flow before shareholder distributions and
bond repayment 175
Tax
Based on our central profit scenario of GBP700m, we expect to
pay Corporation Tax of GBP113m. This is made up of two elements:
(1) Corporation Tax of GBP133m, which is 19% of profit before tax
and (2) a GBP20m 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.GBP40m over the next
three years as set out in the table below:
Jan 22 Jan 23 Jan 24
GBPm (e) (e) (e) Total
============ ====== ====== ====== =====
Tax benefit 20 18 2 40
====== ====== ====== =====
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 GBP700m of profit
before tax, an increase in the UK headline rate of 6% equates to an
additional GBP42m in cash tax payments.
NET DEBT, BOND AND BANK FACILITIES
Our year end net debt at January 2021 was GBP610m, a reduction
of GBP502m in the year. This is comfortably within our existing
bond and bank facilities of GBP1,575m, with headroom of GBP965m at
the year end.
Our existing facilities include a GBP325m 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 GBP1,250m.
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 GBP175m of surplus cash before distribution to
shareholders (see page 23 ). This would further reduce the Group's
net debt to GBP435m. Even in the event that the Company decides it
is appropriate to restart dividends later this year (see page 23 ),
we estimate that the Group would still have more than GBP500m 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 GBP325m bond in October 2021.
Financing, Net Debt and Headroom Forecast: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 24 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
The Group manages the financing of its debt and liquidity to
ensure it maintains its longstanding investment grade credit
rating.
CAPITAL EXPITURE
SP BY CATEGORY
We have invested GBP163m in capital expenditure in the year to
January 2021, an increase of GBP24m on the prior year. Capex by
category is shown below, along with our forecast for the year
ahead.
GBPm Jan 2022 (e) Jan 2021 Jan 2020
============================ ============ ======== ========
Warehouse 117 100 87
Systems 38 21 9
Retail space expansion 13 29 24
Retail cosmetic/maintenance
capex 14 8 14
Head Office infrastructure 3 5 5
============ ======== ========
Total capital expenditure 185 163 139
Warehousing
Warehousing was our biggest expenditure at GBP100m. This was
part of a long-term investment programme to increase capacity. In
the year ahead we expect warehouse investment to increase to
GBP117m, 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 GBP21m of capital in systems this year. This
comprised GBP4m for hardware and infrastructure and GBP17m 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 GBP38m (GBP9m hardware and GBP29m software
development).
Retail Stores
Capital spent on Retail space expansion, at GBP29m, was GBP5m
higher than last year. This is primarily the result of delivering
four large store re-sites, due to open in Spring 2021 (GBP18m) and
four NEXT Beauty Halls (GBP8m). Investment in new space is expected
to reduce to GBP13m in the year ahead, due to fewer new store
openings.
Cosmetic and maintenance spend was GBP6m lower than last year as
non-essential work was suspended during lockdown. In the year
ahead, we expect this to increase to GBP14m, which would be a
return to more normal levels.
OUTLOOK FOR CAPITAL EXPITURE
Forecast capital expenditure to the year ending January 2025 is
set out below. The warehouse expenditure which totals GBP447m 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)
chart: Click or paste the following link into your web browser to
view the PDF document. Refer to page 26 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
Changes in Capex Outlook Since September 2020 Update
During the last six months, our five-year plan for capex spend
has increased by around GBP90m. This is largely due to the
acceleration of warehouse and systems spend (GBP65m). 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
GBP25m more than we originally estimated. The table below shows the
increase by category of spend.
Capex category Increase
============================================================== ======= ========
Increased productivity and throughput +GBP65m
- Acceleration of investment in Home warehouse
capacity +GBP30m
- Automation and storage +GBP15m
Systems - Accelerated modernisation of systems
platforms +GBP20m
Elmsall 3 overspend +GBP25m
================================================================ ======= ========
Total change in capex five-year
outlook +GBP90m
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 57 . 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 month(11) and shows how sales
improved as the year progressed. The months that were severely
affected by national lockdowns are highlighted in pink.
11 January includes the 53(rd) 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 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.
Online Full Price Sales by Month 2020/21 versus 2019/20 chart:
Click or paste the following link into your web browser to view the
PDF document. Refer to page 27 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 1st half 2nd half
GBPm Jan 2021 Jan 2020 Var % var % var %
================== ======== ======== ===== ======== ========
NEXT Brand UK 1,177 1,022 +15% - 10% +36%
LABEL UK 464 434 +7% - 21% +30%
======== ======== ===== ======== ========
Total UK Online 1,641 1,456 +13% - 13% +34%
Overseas 506 436 +16% - 3% +35%
======== ======== ===== ======== ========
Total Online full
price sales 2,147 1,892 +13% - 11% +34%
Online Full Price Sales Versus Last Year chart: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 28 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
Full Price Sales by Account Type
UK credit customers still accounted for the largest proportion
of full price sales (53%), but UK cash(12) 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 29 ).
(12) Cash customers are those who do not use a NEXT credit
account when ordering. All Overseas accounts are cash accounts.
Full price sales 1st half 2nd half
GBPm Jan 2021 Jan 2020 Var % var % var %
======================== ======== ======== ===== ======== ========
UK credit customers 1,133 1,131 +0% - 21% +18%
UK cash customers 508 325 +56% +16% +88%
======== ======== ===== ======== ========
Total UK full price
sales 1,641 1,456 +13% - 13% +34%
Overseas cash customers 506 436 +16% - 3% +35%
======== ======== ===== ======== ========
Total Online full
price sales 2,147 1,892 +13% - 11% +34%
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.
Closing Number of Active Customers Jan 2020 - Jan 2021 graph:
Click or paste the following link into your web browser to view the
PDF document. Refer to page 29 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
The chart below shows how our customer base has developed over
the last two years. Growth is shown for active(13) 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.
(13) Active customers are defined as those who have placed an
Online order or received a standard account statement in the last
20 weeks.
Online Active Customers Three Year View chart: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 29 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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.
Online + Finance
profit as a Average VAT
Profitability by customer Online margin % of Online ex. sales per
category % sales customer
========================== ============= ================ ==============
UK cash (3.73m) 26% 26% GBP227
UK credit (2.72m) 19% 27.5% GBP490
Overseas cash (1.92m) 16% 16% GBP313
============= ================ ==============
Total (8.4m) 20% 24%
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.
Total sales Change in margin
Online division GBPm Profit GBPm Margin % vs Jan 20
================ =========== =========== ======== ================
NEXT Brand UK 1,319 315 23.9% +2.9%
LABEL UK 520 72 13.9% - 1.3%
Overseas 529 85 16.0% - 0.4%
=========== =========== ======== ================
Total Online 2,368 472 19.9% +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.
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 18.6%
=========================================================================== ========
Bought-in Underlying bought-in margin was flat on last
gross margin year. 0.0%
Stock and Increased stock and fabric provisions reduced
fabric provisions margin (see page 19 ). - 0.8%
Full price sales grew by +13% but surplus
stock was down -10%. So despite lower clearance
Lower surplus rates of surplus stock, margin improved. +0.3%
Higher customer service and complaint resolution
Customer compensation costs caused by the disruption of lockdown. - 0.3%
Catalogues Reduced book volumes and savings in catalogue
& photography production improved margin. +1.2%
The temporary suspension of marketing campaigns
in the first half meant digital marketing
Marketing fell as a percentage of sales. +0.7%
Systems revenue costs were lower than last
year, boosting margin. Overall spend on systems
was up +GBP11m (+18%) but GBP14m of Online
software costs were capitalised this year
Systems (see page 25 ). +0.4%
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
Warehousing from lower Online return rates and better
& distribution warehouse productivity (+0.9%). - 0.2%
Net margin on total sales to January 2021 19.9%
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 GBP30m 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 Jan 2022 Jan 2022(e) Jan 2022(e)
and margin (e) Jan 2021 vs 1 year Jan 2020 vs 2 years
===================== ======== ======== =========== ======== ===========
Total sales GBPm 2,793 2,368 +18% 2,147 +30%
Profit GBPm 560 472 +19% 400 +40%
======== ======== =========== ======== ===========
Operating margin % 20.0% 19.9% +0.1% 18.6% 1.4%
Jan 2022 Jan 2022(e) Jan 2022(e)
Online margin by division (e) Jan 2021 vs 1 year Jan 2020 vs 2 years
========================== ======== ======== =========== ======== ===========
NEXT UK 25% 23.9% +1.1% 21.0% +4.0%
LABEL UK 15% 13.9% +1.1% 15.2% - 0.2%
Overseas 15% 16.0% - 1.0% 16.4% - 1.4%
======== ======== =========== ======== ===========
Total 20% 19.9% +0.1% 18.6% +1.4%
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.
Second
Full price sales First half half var
GBPm Jan 2021 Jan 2020 Var % var % %
========================== ======== ======== ===== ========== =========
Fashion: clothing,
footwear and accessories 254 274 -8% - 34% +15%
Sports 124 106 +18% - 7% +39%
Home 57 37 +55% +27% +78%
Branded Beauty 29 17 +73% +19% +108%
======== ======== ===== ========== =========
Total full price
sales 464 434 +7% - 21% +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 and
January 2020 charts: Click or paste the following link into your
web browser to view the PDF document. Refer to page 33 for the
relevant charts.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 +GBP20m (+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 GBP75m, with profit of c.GBP13m.
Branded Beauty
The Branded Beauty business continues to deliver strong sales
growth. Overall, full price sales increased by +GBP12m; with GBP6m
of the additional sales coming from new brands and GBP6m from
brands that have traded with us for over a year. In the year ahead,
we anticipate full price sales of around GBP42m. 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
GBP67m (14%) of LABEL sales, compared with GBP25m (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 GBP110m, up +64% on this year.
Platform Plus Jan 21 Jan 20 Jan 21 Jan 20
category No. of brands No. of brands GBPm sales(14) GBPm sales
=================== ============== ============== =============== ===========
Delivered by NEXT 96 44 +118% 29 11 +164%
Delivered by brand 97 69 +41% 38 14 +171%
============== ============== =============== ===========
Total 193 113 +71% 67 25 +168%
(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.
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%.
Second
Full price sales First half half var
GBPm Jan 2021 Jan 2020(15) Var % var % %
================= ======== ============ ===== ========== =========
Wholesale 191 188 +1% -22% 21%
Commission 273 246 +11% -20% 37%
======== ============ ===== ========== =========
LABEL full price
sales 464 434 +7% - 21% +30%
(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
week(16) boosting this figure by +4%. Full price sales in the year
were up +16%.
(16) January includes the 53(rd) 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.
Online Overseas Full Price Sales by Month 2020/21 Versus 2019/20
chart: Click or paste the following link into your web browser to
view the PDF document. Refer to page 36 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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%.
1st half 2nd half
Full price sales GBPm Jan 2021 Jan 2020 Var % % var % var
====================== ======== ======== ====== ======== ========
Third-parties
New 7 -
Discontinued - 3 - 100%
Continuous 49 35 +39% +45% +34%
======== ======== ====== ======== ========
Total third-parties 56 38 +48% +55% +43%
nextdirect.com 451 398 +13% - 9% +34%
======== ======== ====== ======== ========
Total Overseas full
price sales 507 436 +16% - 3% +35%
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 GBP100m 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 graph: Click or
paste the following link into your web browser to view the PDF
document. Refer to page 37 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
NEXT FINANCE
HEADLINES
-- Credit sales down -9%.
-- Average receivables down -11%.
-- NEXT Finance profit before cost of funding was GBP160m 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
GBP20m bad debt provision taken in respect of a possible
deterioration in bad debt in the year ahead.
GBPm Jan 2021 Jan 2020 Var %
============================== ========= ========= =====
Note of credit sales 1,592 1,748 - 9%
Average customer receivables 1,050 1,185 - 11%
========= ========= =====
Interest income 250 269 - 7%
Bad debt charge (51) (43) +17%
Overheads (39) (43) - 8%
========= ========= =====
Profit before cost of funding 160 183 - 12%
Cost of funding (48) (36) +33%
========= ========= =====
Net profit 112 147 - 23%
========= ========= =====
ROCE (after cost of funding) 10.7% 12.4%
Closing customer receivables GBP1,028m GBP1,234m - 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 GBP20m bad debt
provision (see below).
Bad Debt
The bad debt charge of GBP51m was +GBP8m higher than last year.
The table below shows the key movements in the bad debt charge from
last year.
Bad debt walk forward GBPm
=============================================== ----
Bad debt charge at prior year's rate (3.7% of
average receivables balance) (39)
Lower provision from faster payments (reducing
balances in arrears) 3
Sale of debt previously written
off 5
Provision for potential defaults resulting
from COVID (20)
----
January 2021 bad debt charge (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 GBP20m
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 chart: Click or paste the following
link into your web browser to view the PDF document. Refer to page
39 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
Cost of Funding
The Nature of This Charge
The cost of funding increased by +33% to GBP48m, 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 Jan 2021 Jan 2020 Var %
============================== ========= ========= =====
Average customer receivables GBP1,050m GBP1,185m - 11%
Debt funding % 85% 85%
========= --------- =====
Customer receivables funded
by debt GBP892m GBP1,008m - 11%
Group interest rate % 5.3% 3.6%
========= ========= =====
Cost of funding for 12 months GBP48m GBP36m +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 GBP1,125m GBP1,052m
RCF less cash on deposit (GBP333m) GBP152m
========= ========= -----
Average net debt GBP792m GBP1,204m - 34%
Total net interest charge GBP42.2m GBP43.6m - 3%
========= ========= =====
Group interest rate % 5.3% 3.6% +47%
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.
(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.
Active Credit Customers 2020/21 vs 2019/20 graph: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 41 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
The table below shows the opening, average and closing number of
active customers against last year.
Credit customers ('000) Jan 2021 Jan 2020 Var %
================================== ======== ======== =======
Opening actives 2,643 2,578 +2.5%
Average actives 2,584 2,582 +0.1%
Closing actives 2,722 2,643 +3.0%
======== ======== =======
Credit sales per average active
(GBP VAT Ex) GBP616 GBP677 - 9.0%
======== ======== =======
next3step (included in closing
actives) 125 45 +175.0%
======== ======== =======
next3step as % of closing actives 4.6% 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 GBP41m, which represents 2.6% of credit
sales.
PROFIT OUTLOOK FOR THE YEAR AHEAD
Our central guidance assumes a Finance profit of GBP116m. 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.
Jan 2022 Jan 2022(e) Jan 2022(e)
GBPm (e) Jan 2021 vs 1 year Jan 2020 vs 2 years
============================= ========= ========= =========== ========= ===========
Note of credit sales 1,868 1,592 +17% 1,748 +7%
Average customer receivables 1,072 1,050 +2% 1,185 - 10%
========= ========= =========== ========= ===========
Interest income 248 250 - 1% 269 - 8%
Bad debt charge (37) (51) - 27% (43) - 15%
Overheads (43) (39) +9% (43) +0%
========= ========= =========== ========= ===========
Profit before cost
of funding 168 160 +5% 183 - 8%
Cost of funding (52) (48) +10% (36) +46%
========= ========= =========== ========= ===========
Net profit 116 112 +3% 147 - 21%
========= ========= =========== ========= ===========
ROCE (after cost of
funding) 10.8% 10.7% 12.4%
Closing customer receivables GBP1,188m GBP1,028m +16% GBP1,234m - 4%
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
chart: Click or paste the following link into your web browser to
view the PDF document. Refer to page 43 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 Store Like-for-Like Sales Versus Last Year by Store Type
and Participation of Retail sales going into lockdown charts: Click
or paste the following link into your web browser to view the PDF
document. Refer to page 43 for the relevant charts.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
RETAIL PROFIT & LOSS
Total sales (including markdown sales) were down -48% resulting
in a loss of -GBP206m.
GBPm Jan 2021 Jan 2020 Var % Var GBPm
======================== ======== ======== ====== ========
Total sales 955 1,852 - 48% - 897
Operating profit/(loss) (206) 164 - 226% - 370
======== ======== ====== ========
The following table sets out the change in sales and major costs
versus last year.
Profit impact January 2021 versus January 2020 GBPm
========================================================================= ======
Full price sales - 802
Markdown sales - 95
========================================================================= ======
Total lost sales - 897
Stock cancellations at the start of the pandemic
and lowering of budgets for the remainder of
the year resulted in GBP320m less being spent
on stock. This reduction is net of non-recurring
Reduction stock provisions and write-offs (-GBP12m).
in Underlying bought-in margins remained flat
cost of stock on last year. +320
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
Reduced wages business. +114
The rates holiday generated a saving of GBP82m.
Rents were GBP14m lower than last year, due
to rent reductions negotiated at lease renewals
(GBP10m) and stores closures (GBP4m). Maintenance,
service charges and utilities costs fell by
GBP12m.
Rent savings were offset by a GBP7m loss of
Reduced store rental income from concessions and the addition
occupancy of a 53rd week increased occupancy costs by
costs GBP6m. +95
We impaired store assets by GBP18m, compared
with GBP4m in the prior year. (In addition
to store impairment, an GBP82m provision for
onerous leases was made in the Property Management
Store impairment division of the Group, see page 49 .) - 14
Other operational These savings include savings made in Retail
cost savings logistics, store consumables and central overheads. +12
======
Year-on-year change in profit - 370
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.
Store NEXT Concessions Total
numbers Sq. ft. Sq. ft. Sq. ft.
(k) (k) (k)
====================== ======== ======== =========== ========
January 2020 498 8,031 361 8,392
New mainline stores + 2 + 9 + 11 + 20
New NEXT Beauty Halls + 4 + 166 + 3 + 169
Mainline closures - 18 - 190 - 190
Clearance stores + 5 + 43 + 2 + 45
======== ======== =========== ========
January 2021 491 8,059 377 8,436
Change - 7 + 28 + 16 + 44
Change % + 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.
Store turnover Store profit
Reason for store closure No. (pre-COVID) Store profit %
========================= === ============== ============ ============
Low profitability 10 GBP21m GBP1.5m 7%
Consolidation 5 GBP13m GBP2.3m 18%
Forced closures 3 GBP7m GBP1.4m 19%
=== ============== ============ ============
Total 18 GBP41m GBP5.2m 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
GBP9.7m.
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.
Rent before Rent after
New lease category No. of leases renewal renewal
============================== ============= =========== ==========
Fixed rent charge 22 GBP5.2m GBP3.0m - 42%
Zero rent 7 GBP1.5m GBP0.0m - 100%
Rent linked to store turnover 33 GBP10.0m GBP4.0m - 60%
============= =========== ==========
Total 62 GBP16.7m GBP7.0m - 58%
Rent saving GBP9.7m
Rent-free incentive / capital
contributions GBP4.8m
Average lease term (to earlier of break
or lease end) 3 years
We continue to invest in stores where we have renewed the lease.
We received GBP4.8m of capital contributions or rent-free
incentives from our landlords and, in total, we will invest GBP6.1m
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 GBP7m.
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 -GBP646m since January 2017, a
reduction of 38%.
Total Outstanding Lease Commitments Jan 2017 - Jan 2021 chart:
Click or paste the following link into your web browser to view the
PDF document. Refer to page 47 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
In the same period, lease commitments for warehouses and offices
have increased by GBP111m and GBP61m 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 -GBP20m.
GBPm Jan 2022(e) Jan 2020 Var GBPm Var %
============================= =========== ======== ======== ======
Total sales 1,253 1,852 (599) - 32%
Achieved margin 712 1,099 (387) - 35%
Occupancy costs (350) (465) 115 - 25%
Rent and service charge (178) (201) 23 - 11%
Maintenance, utilities and
consumables (66) (74) 8 - 11%
Depreciation (58) (90) 32 - 36%
Rates (48) (100) 52 - 52%
Payroll (160) (210) 50 - 24%
Warehouse & distribution (105) (119) 14 - 12%
Central costs (117) (141) 24 - 17%
=========== ======== ======== ======
Profit/(loss) (20) 164 (184) - 112%
Non-Recurring Items in Retail
Within the forecast loss of -GBP20m, 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.GBP250m
and margin of c.GBP135m. This loss is offset by: (1) business rates
relief of c.GBP48m and (2) a GBP17m 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 -GBP70m. So excluding
these non-recurring items underlying Retail profit would have been
forecast at GBP50m.
GBPm Profit impact
================================================= =============
Impact of February - April c.10 week lockdown (135)
Business rates relief 48
Other costs 17
=============
Retail profit impact from non-recurring items (70)
Underlying Retail profit excluding non-recurring
items 50
However, it is important to stress that although the lockdown
might have cost Retail GBP70m 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.
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.
Jan 2022
GBPm (e) Jan 2021 Jan 2020
======================================== ======== ======== ========
NEXT Sourcing (NS) 27.0 17.8 32.0
Lipsy 14.0 5.2 13.0
Lipsy - Victoria's Secret Joint Venture 6.0 0.5 0.0
Franchise and Retail International 5.0 3.4 6.2
Property management 8.0 (39.9) (2.2)
Central costs and other non-trading
activities (30.0) (29.8) (23.4)
======== ======== ========
Total profit / (loss) 30.0 (42.8) 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 GBP7m 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 -GBP40m in the year. This
is mainly due to the net effect of two significant items:
1. Onerous lease provisions of -GBP82m. 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 +GBP44m from the sale and leaseback of a warehouse complex.
In the year ahead we expect a profit of GBP8m, mainly from the
warehouse sale and leaseback.
Interest
Net interest was GBP42.2m compared to GBP43.6m last year, on
average net debt that was down -34%. In the year ahead we are
forecasting an interest charge of GBP38m, a reduction of -GBP4.2m
against the previous year, mainly due to the fact that we intend to
repay (and not refinance) the GBP325m bond that falls due in
October 2021 (page 24 ).
PENSION SCHEME
On the IFRS accounting basis, the valuation of our defined
benefit schemes moved from a surplus of GBP133m at January 2020 to
a surplus of GBP99m at January 2021. Further detail is provided in
Note 6 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
GBP19m. The position when rolled forward to 31 December 2020 was a
deficit of GBP7m. We have paid a GBP24m 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 will be covered in detail in
our Annual Report, published on 20 April 2021.
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 GBP1m 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.
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.
NEXT Total Platform diagram : Click or paste the following link
into your web browser to view the PDF document. Refer to page 51
for the relevant diagram.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 brand(18) 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.
Target Launch
Client Date Equity Interest Description
=================== =============== ================== ============================
Childsplay Live Oct 2020 Online luxury childrenswear
Laura Ashley Live Mar 2021 Iconic home and
fashion brand
Victoria's Secret May 2021 51% share in Global lingerie,
UK and Eire UK JV with clothing and beauty
LBrands brand
NewBrand Oct 2021 33%
Reiss Feb 2022 25% with option Affordable luxury
to buy a further men's and women's
26% 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.
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 Laura Ashley example: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 53 for the relevant image.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
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 GBP200m (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 GBP10m 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 GBP10m 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 GBP20m 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.
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 Brands where both consumers and employees
Proposition understand what the brand means, what it
stands for, and where it sits in the market.
Good Online Economics 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.
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 April(19) 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 GBP30m of profit. As a result, we are raising our central
profit guidance by GBP30m from GBP670m to GBP700m.
(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.
Our central scenario for full price sales and profit by business
division is set out in the tables below.
Jan 2022 (e)
Full price sales GBPm Jan 2022 (e) % vs 2 years
============================== ============ =============
Online 2,477 +31%
Retail 1,091 - 34%
NEXT Finance interest income 248 - 8%
============ =============
Total full price sales 3,816 0%
Total Brand sales 4,294 +1%
Jan 2022 (e)
Profit/(loss) before tax GBPm Jan 2022 (e) % vs 2 years
============================== ============ =============
Online 560 +40%
Retail (20) - 112%
NEXT Finance 116 - 21%
Other Group 44 +140%
============ =============
Total Group profit before tax 700 - 4%
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.
Downside Central scenario Upside
========================= ======== ================ =======
Full price sales versus
2019/20 - 3% 0% +3%
Profit before tax GBP645m GBP700m GBP745m
Profit before tax versus
2019/20 - 11% - 4% +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.
Central Guidance image: Click or paste the following link into
your web browser to view the PDF document. Refer to page 58 for the
relevant image.
http://www.rns-pdf.londonstockexchange.com/rns/2694U_1-2021-4-1.pdf
Cost Savings and Cost Increases
A summary of the significant cost savings and cost increases is
summarised below.
Cost savings GBPm
===================================== ========
Marketing, catalogues and photography +GBP30m
Fully depreciated assets +GBP25m
Business rates relief and occupancy
cost savings +GBP55m
Other Retail savings +GBP10m
Other Group savings +GBP9m
========
Total cost savings +GBP129m
Cost increases GBPm
===================================== ========
Inflation (includes wage inflation) - GBP30m
Warehouse and distribution - GBP20m
Lower clearance rates - GBP12m
Other cost increases - GBP15m
========
Total cost increases - GBP77m
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
APPIX 1 - STATUTORY SALES AND PROFIT
STATUTORY BASIS GBPm and
EPS Jan 2021 Jan 2020 Var GBPm Var %
Sales 3,534.4 4,266.2 (731.8) - 17%
Profit before tax 342.4 748.5 (406.1) - 54%
Profit after tax 286.7 610.2 (323.5) - 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 2 to 59 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 2 to 59 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 GBP159.4m for the period to January
2021 (2020: GBP137.7m)
-- 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 GBP67.9m for the period to January
2021 (2020: GBP42.1m)
As a result, Total Sales for the period to January 2021 of
GBP3,625.9m (2020: GBP4,361.8m) are recognised for statutory
purposes as revenue of GBP3,534.4m (2020: GBP4,266.2m). 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.
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 GBP20.0m 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 +GBP20m: 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 +GBP212m; (2) benefit from
reassessment of lease term of +GBP6m less (3) the IFRS 16
depreciation -GBP138m; and (4) finance costs on the lease liability
of -GBP60m.
2. Lease provisions and impairment +GBP16m: The property and
onerous lease provision charge of GBP100m recognised under pre-IFRS
16 accounting has been reversed and an impairment charge for store
assets and right-of-use assets recognised of GBP84m. The net charge
in the Income Statement for these costs was therefore GBP16m lower
than the pre-IFRS 16 charge.
3. Sale and leaseback gain -GBP36m: 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 GBP8.1m.
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.
Jan 2021
Jan 2021 excluding including IFRS
GBPm IFRS 16 IFRS 16 impact 16
=========================== ================== ============== ===============
Profit before taxation 342.0 0.4 342.4
Taxation (51.4) (4.3) (55.7)
Profit after taxation 290.6 (3.9) 286.7
================== ============== ===============
Earnings Per Share (Basic) 226.3p 223.3p
Jan 2020
Jan 2020 excluding including IFRS
GBPm IFRS 16 IFRS 16 impact 16
=========================== ================== ============== ===============
Profit before taxation 728.5 20.0 748.5
Taxation (134.6) (3.7) (138.3)
Profit after taxation 593.9 16.3 610.2
================== ============== ===============
Earnings Per Share (Basic) 459.8p 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
GBP4.3m higher than the charge on a pre-IFRS 16 basis. This is
despite the headline profit before tax being just GBP0.4m higher.
The table below walks forward between the two tax charges.
Pre-IFRS
Corporation Tax Effective Rate walk forward 16 IFRS 16
============================================ ======== =======
Profit before tax GBPm 342.0 342.4
Tax charge GBPm - 51.4 -55.7
======== =======
Effective tax rate 15.0% 16.3%
Benefit from property profit and other
non-taxable income 2.2% 0.9%
Historical provision release and true ups
with HMRC 1.8% 1.8%
======== =======
UK headline tax rate 19.0% 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 GBP44m to GBP8m. 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.
Profit impact (IFRS
GBPm 16)
============================================= ====================
Business rates reduction +82
Profit from 53rd week +12
Property profit from the sale and leaseback
of properties +8
Store related impairment - 84
Stock and fabric provisions - 34
Bad debt provisions - 20
Total profit impact - 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).
Adjusted Net Assets and Retained Earnings
Jan 2021 excluding Jan 2021 including
GBPm IFRS 16 IFRS 16 adjustment IFRS 16
======================== ================== ================== ==================
Non-current assets 713.7 755.7 1,469.4
Current assets 2,331.4 (42.8) 2,288.6
========================= ================== ================== ==================
Total assets 3,045.1 712.9 3,758.0
========================= ================== ================== ==================
Current liabilities (1,077.6) (119.2) (1,196.8)
Non-current liabilities (1,131.4) (768.9) (1,900.3)
========================= ================== ================== ==================
Total liabilities (2,209.0) (888.1) (3,097.1)
========================= ================== ================== ==================
NET ASSETS 836.1 (175.2) 660.9
========================= ================== ================== ==================
TOTAL EQUITY 836.1 (175.2) 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 GBP720.1m and represent the key
movement in the Non-current assets adjustment of GBP755.7m.
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 GBP42.8m in current assets.
3) The recognition within current liabilities of the current
element of the lease liability of GBP170.1m. This is offset by the
removal of rent-free provisions and other rent accruals resulting
in a net adjustment of GBP119.2m.
4) The recognition of the non-current element of the lease
liability of GBP1,015.8m. 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 GBP610.2m (2020:
GBP1,112.1m). From a statutory reporting perspective, IFRS 16
results in the recognition of lease debt on the Balance Sheet of
GBP1,185.9m (2020: GBP1,251.0m). 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.
Reduction
GBPm Jan 2021 Jan 2020 in net debt
=========================== ========= ========= ============
Cash and cash equivalents 514.8 52.9
========= ========= ============
Unsecured bank loans - (40.0)
Corporate bonds (1,163.0) (1,163.7)
Fair value hedges of bonds 38.0 38.7
========= ========= ============
Net debt excluding leases (610.2) (1,112.1) 501.9
========= ========= ============
Lease debt under IFRS 16 (1,185.9) (1,251.0)
========= ========= ============
Net debt including leases (1,796.1) (2,363.1) 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.
UNAUDITED CONSOLIDATED INCOME STATEMENT
53 weeks to 52 weeks to
30 January 25 January
2021 2020
GBPm GBPm
------------------------------------------- ----------- -----------
Continuing operations
Revenue 3,284.1 3,997.5
Credit account interest 250.3 268.7
------------------------------------------- ----------- -----------
Total revenue (including credit account
interest) 3,534.4 4,266.2
Cost of sales (2,231.7) (2,584.2)
Impairment losses on customer and other
receivables (54.8) (41.5)
------------------------------------------- ----------- -----------
Gross profit 1,247.9 1,640.5
Distribution costs (555.8) (517.0)
Administrative expenses (246.8) (267.7)
Other losses (1.3) (1.5)
------------------------------------------- ----------- -----------
Trading profit 444.0 854.3
Share of results of associates and joint
ventures 0.5 (0.4)
------------------------------------------- ----------- -----------
Operating profit 444.5 853.9
Finance income 0.6 0.2
Finance costs (102.7) (105.6)
------------------------------------------- ----------- -----------
Profit before taxation 342.4 748.5
Taxation (55.7) (138.3)
------------------------------------------- ----------- -----------
Profit for the year attributable to equity
holders of
the Parent Company 286.7 610.2
------------------------------------------- ----------- -----------
53 weeks to 52 weeks to
30 January 25 January
Earnings Per Share (Note 4) 2021 2020
----------- -----------
Basic 223.3p 472.4p
Diluted 221.9p 468.8p
The Notes 1 to 14 are an integral part of these consolidated
financial statements.
UNAUDITED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
53 weeks to 52 weeks to
30 January 25 January
2021 2020
GBPm GBPm
------------------------------------------------ ----------- -----------
Profit for the period 286.7 610.2
Other comprehensive income and expenses:
Items that will not be reclassified to profit
or loss
Actuarial (losses)/gains on defined benefit
pension scheme (57.1) 2.8
Tax relating to items which will not be
reclassified 10.8 (0.5)
------------------------------------------------ ----------- -----------
Subtotal items that will not be reclassified (46.3) 2.3
------------------------------------------------ ----------- -----------
Items that may be reclassified to profit
or loss
Exchange differences on translation of foreign
operations (2.5) 2.0
Foreign currency cash flow hedges:
- fair value movements (14.2) 10.5
Cost of hedging:
- fair value movements (0.5) 0.1
Tax relating to items which may be reclassified 2.8 (2.8)
------------------------------------------------ ----------- -----------
Subtotal items that may be reclassified (14.4) 9.8
------------------------------------------------ ----------- -----------
Other comprehensive (expense)/income for
the period (60.7) 12.1
------------------------------------------------ ----------- -----------
Total comprehensive income for the period 226.0 622.3
------------------------------------------------ ----------- -----------
UNAUDITED CONSOLIDATED BALANCE SHEET
30 January 25 January
2021 2020
Notes GBPm GBPm
------------------------------------- ----- ---------- ----------
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 474.8 578.5
Intangible assets 60.5 44.2
Right-of-use assets 13 720.1 852.7
Associates, joint ventures and other
investments 5.0 5.0
Defined benefit pension asset 6 99.2 133.4
Other financial assets 7 39.4 48.4
Deferred tax assets 70.4 55.7
------------------------------------- ----- ---------- ----------
1,469.4 1,717.9
Current assets
Inventories 536.9 527.6
Customer and other receivables 8 1,108.1 1,315.3
Right of return asset 24.3 24.2
Other financial assets 7 11.1 1.7
Cash and short term deposits 608.2 86.6
------------------------------------- ----- ---------- ----------
2,288.6 1,955.4
------------------------------------- ----- ---------- ----------
Total assets 3,758.0 3,673.3
------------------------------------- ----- ---------- ----------
Current liabilities
Bank loans and overdrafts (93.4) (73.7)
Corporate bonds 10 (326.0) -
Trade payables and other liabilities 9 (555.3) (592.0)
Lease liabilities 13 (170.1) (172.3)
Other financial liabilities 7 (37.2) (32.6)
Current tax liabilities (14.8) (79.2)
------------------------------------- ----- ---------- ----------
(1,196.8) (949.8)
Non-current liabilities
Corporate bonds 10 (837.0) (1,163.7)
Provisions (18.6) (17.3)
Other financial liabilities 7 - (7.8)
Lease liabilities 13 (1,015.8) (1,078.7)
Other liabilities 9 (28.9) (14.5)
------------------------------------- ----- ---------- ----------
(1,900.3) (2,282.0)
------------------------------------- ----- ---------- ----------
Total liabilities (3,097.1) (3,231.8)
------------------------------------- ----- ---------- ----------
NET ASSETS 660.9 441.5
------------------------------------- ----- ---------- ----------
TOTAL EQUITY 660.9 441.5
------------------------------------- ----- ---------- ----------
UNAUDITED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Share Capital Cash Cost of Foreign
premium redemption flow hedging currency
Share account reserve ESOT hedge reserve translation Other Retained Total
capital GBPm GBPm reserve reserve GBPm GBPm reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 26 January
2019 13.9 0.9 16.0 (271.6) 0.4 0.4 (2.0) (1,443.8) 2,052.0 366.2
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Profit for the
period - - - - - - - - 610.2 610.2
Other
comprehensive
income for the
period - - - - 7.7 0.1 2.0 - 2.3 12.1
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Total
comprehensive
income for the
period - - - - 7.7 0.1 2.0 - 612.5 622.3
Share buybacks
and commitments (0.6) - 0.6 - - - - - (300.2) (300.2)
ESOT share
purchases - - - (94.2) - - - - - (94.2)
Shares issued by
ESOT - - - 80.9 - - - - (15.4) 65.5
Share option
charge - - - - - - - - 14.7 14.7
Reclassified to
cost of
inventory - - - - (40.5) - - - - (40.5)
Tax recognised
directly in
equity - - - - 7.7 - - - 13.6 21.3
Equity dividends
(Note 5) - - - - - - - - (213.6) (213.6)
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 25 January
2020 13.3 0.9 16.6 (284.9) (24.7) 0.5 - (1,443.8) 2,163.6 441.5
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Profit for the
period - - - - - - - - 286.7 286.7
Other
comprehensive
expense for the
period - - - - (11.5) (0.4) (2.5) - (46.3) (60.7)
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Total
comprehensive
income/(expense)
for the period - - - - (11.5) (0.4) (2.5) - 240.4 226.0
Share buybacks
and commitments - - - - - - - - (19.3) (19.3)
ESOT share
purchases - - - (190.3) - - - - - (190.3)
Shares
sold/issued
by ESOT - - - 204.0 - - - - (41.9) 162.1
Share option
charge - - - - - - - - 16.7 16.7
Reclassified to
cost of
inventory - - - - 19.5 - - - - 19.5
Tax recognised
directly in
equity - - - - (3.0) - - - 7.7 4.7
Equity dividends
(Note 5) - - - - - - - - - -
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 30 January
2021 13.3 0.9 16.6 (271.2) (19.7) 0.1 (2.5) (1,443.8) 2,367.2 660.9
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
UNAUDITED CONSOLIDATED
CASH FLOW STATEMENT
52 weeks
53 weeks to to
30 January 25 January
2021 2020
GBPm GBPm
------------------------------------------------------ ----------- -----------
Cash flows from operating activities
Operating profit 444.5 853.9
Depreciation, impairment and (profit)/loss
on disposal of property, plant and equipment 136.8 124.9
Depreciation and impairment on right-of-use
assets 196.6 138.1
Amortisation of intangible assets 0.4 -
Share option charge 16.7 14.7
Share of (profit)/loss of joint ventures and
associates (0.5) 0.1
Profit on disposal of associate (1.0) -
Exchange movement 1.1 1.7
Increase in inventories and right of return
asset (9.6) (25.6)
Decrease/(increase) in customer and other
receivables 205.4 (34.0)
Decrease in trade and other payables (29.5) (3.3)
Net pension contributions less income statement
charge (22.9) (5.3)
------------------------------------------------------ ----------- -----------
Cash generated from operations 938.0 1,065.2
Corporation taxes paid (113.2) (138.0)
------------------------------------------------------ ----------- -----------
Net cash from operating activities 824.8 927.2
------------------------------------------------------ ----------- -----------
Cash flows from investing activities
Additions to property, plant and equipment (146.3) (138.8)
Movement in capital accruals 1.7 2.4
------------------------------------------------------ ----------- -----------
Payments to acquire property, plant and equipment (144.6) (136.4)
Proceeds from sale of property, plant and
equipment 0.5 0.3
Purchase of intangible assets (16.7) -
Purchase of subsidiary - (3.0)
Disposal of minority interest 3.9 -
Investment in joint venture (2.4) -
------------------------------------------------------ ----------- -----------
Net cash from investing activities (159.3) (139.1)
------------------------------------------------------ ----------- -----------
Cash flows from financing activities
Repurchase of own shares (19.3) (300.2)
Purchase of shares by ESOT (189.0) (94.2)
Disposal of shares by ESOT 162.7 66.9
Repayment of unsecured bank loans (40.0) (215.0)
Issue of corporate bonds - 250.2
Lease repayments (171.0) (162.6)
Interest paid (including lease interest) (101.6) (100.9)
Interest received 0.5 0.2
Proceeds from sale and leaseback transactions 154.4 -
Dividends paid (Note 5) - (213.6)
------------------------------------------------------ ----------- -----------
Net cash from financing activities (203.3) (769.2)
------------------------------------------------------ ----------- -----------
Net increase in cash and cash equivalents 462.2 18.9
Opening cash and cash equivalents 52.9 34.0
Effect of exchange rate fluctuations on cash
held (0.3) -
------------------------------------------------------ ----------- -----------
Closing cash and cash equivalents (Note 12) 514.8 52.9
------------------------------------------------------ ----------- -----------
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1. Basis of preparation
The results for the financial period are for the 53 weeks to 30
January 202 1 (last year 52 weeks to 25 January 2020).
The condensed consolidated financial statements for the period
ended 30 January 2021 have been prepared in accordance with the
recognition and measurement criteria of 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 condensed consolidated financial statements are unaudited
and do not constitute statutory accounts of the Company within the
meaning of Section 434(3) of the Companies Act 2006. Statutory
accounts for the year to 25 January 20 20 have been delivered to
the Registrar of Companies. The audit report for those accounts was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under 498(2) or (3) of the
Companies Act 2006.
New accounting standards, interpretations and amendments adopted
by the Group
The accounting policies adopted in the preparation of the
condensed consolidated financial statements are the same as those
set out in the Group's annual financial statements for the 52 weeks
ended 25 January 2020 except for the adoption of new policies as
set out below.
None of these new policies resulted in a restatement of the
prior year comparatives. This is because they relate to
transactions that were new in the year and are the application of
existing accounting standards.
Sale and leaseback
A sale and leaseback transaction occurs when 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.
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.
Impact on the financial statements:
Sale and leaseback
During the year, the Group entered 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 GBP154.4m and recognised a gain of GBP8.1m 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).
Government Grants
During the year, the Group received GBP95.1m under the UK
Government's Job Retention Scheme. These amounts have been
recognised in Cost of sales (GBP63.3m), distributions costs
(GBP26.7m) and administrative costs (GBP5.1m) 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 above.
Software
During the year, the Group capitalised software development
costs of GBP16.5m within intangible assets. This expenditure
relates to software projects that fulfil the criteria as set out in
the accounting policy and in compliance with IAS 38. Amortisation
of GBP0.3m was recognised on completed projects.
Several other amendments and interpretations are effective for
the first time in 2021, but do not have an impact on the financial
statements of the Group.
Going concern
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 GBP325m 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.
2. 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 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 Commission Total
excluding sales IFRS 15 External Internal segment
VAT adjustment adjustments revenue revenue revenue
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ----------- ------------ -------- -------- --------
NEXT Online 2,368.4 (157.4) 68.5 2,279.5 - 2,279.5
NEXT Retail 954.5 (2.0) (0.6) 951.9 0.3 952.2
NEXT Finance 250.3 - - 250.3 - 250.3
NEXT International
Retail 33.2 - - 33.2 - 33.2
NEXT Sourcing 6.8 - - 6.8 394.6 401.4
---------------------------- ---------- ----------- ------------ -------- -------- --------
3,613.2 (159.4) 67.9 3,521.7 394.9 3,916.6
Lipsy 5.2 - - 5.2 74.1 79.3
NENA 0.1 - - 0.1 0.6 0.7
Property Management 7.4 - - 7.4 193.2 200.6
---------------------------- ---------- ----------- ------------ -------- -------- --------
Total segment sales/revenue 3,625.9 (159.4) 67.9 3,534.4 662.8 4,197.2
Eliminations - - - - (662.8) (662.8)
---------------------------- ---------- ----------- ------------ -------- -------- --------
Total 3,625.9 (159.4) 67.9 3,534.4 - 3,534.4
---------------------------- ---------- ----------- ------------ -------- -------- --------
NENA (NEXT Europe and North Africa) is a small sourcing business
acquired on 31 January 2020.
Segment sales and revenue
52 weeks to 25 January 2020
-------------------------------------------------------------------
Total
sales Commission Total
excluding sales IFRS 15 External Internal segment
VAT adjustment adjustments revenue revenue revenue
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ----------- ------------ -------- -------- --------
NEXT Online 2,146.6 (134.3) 42.4 2,054.7 1.6 2,056.3
NEXT Retail 1,851.9 (3.4) (0.3) 1,848.2 3.3 1,851.5
NEXT Finance 268.7 - - 268.7 - 268.7
NEXT International
Retail 56.9 - - 56.9 - 56.9
NEXT Sourcing 9.5 - - 9.5 533.4 542.9
---------------------------- ---------- ----------- ------------ -------- -------- --------
4,333.6 (137.7) 42.1 4,238.0 538.3 4,776.3
Lipsy 13.1 - - 13.1 81.8 94.9
Property Management 15.1 - - 15.1 196.2 211.3
---------------------------- ---------- ----------- ------------ -------- -------- --------
Total segment sales/revenue 4,361.8 (137.7) 42.1 4,266.2 816.3 5,082.5
Eliminations - - - - (816.3) (816.3)
---------------------------- ---------- ----------- ------------ -------- -------- --------
Total 4,361.8 (137.7) 42.1 4,266.2 - 4,266.2
---------------------------- ---------- ----------- ------------ -------- -------- --------
The view of segment profits used by the CODM does not include
the impact of IFRS 16 because the IFRS 16 profit before tax is not
used in internal reporting.
Segment profit/(loss)
53 weeks 52 weeks
to to
30 Jan 2021 25 Jan 2020
GBPm GBPm
------------------------------------------------- ------------ ------------
NEXT Online 472.1 399.6
NEXT Retail (205.9) 163.9
NEXT Finance 112.4 146.7
NEXT International Retail 3.4 6.2
NEXT Sourcing 17.8 32.0
------------------------------------------------- ------------ ------------
399.8 748.4
Lipsy 5.2 13.0
Property Management (39.9) (2.2)
------------------------------------------------- ------------ ------------
Total segment profit 365.1 759.2
Central costs and other (11.8) (6.8)
Recharge of interest 48.4 36.3
Share option charge (16.7) (14.7)
Unrealised foreign exchange losses (1.3) (1.5)
------------------------------------------------- ------------ ------------
Trading profit 383.7 772.5
Share of results of associates and joint venture 0.5 (0.4)
Finance income 0.6 0.2
Finance costs (42.8) (43.8)
------------------------------------------------- ------------ ------------
Profit before tax excluding IFRS 16 342.0 728.5
------------------------------------------------- ------------ ------------
IFRS 16 0.4 20.0
------------------------------------------------- ------------ ------------
Profit before tax including IFRS 16 342.4 748.5
------------------------------------------------- ------------ ------------
3. Revenue
The Group's disaggregated revenue recognised under contracts
with customers relates to the following categories and operating
segments:
53 weeks to 30 January 2021
-----------------------------------------------
Credit
Sale of account Rental
goods interest Royalties income Total
GBPm GBPm GBPm GBPm GBPm
-------------------- ------- --------- --------- ------- -------
NEXT Online 2,279.5 - - - 2,279.5
NEXT Retail 951.9 - - - 951.9
NEXT Finance - 250.3 - - 250.3
NEXT International
Retail 29.2 - 4.0 - 33.2
NEXT Sourcing 6.8 - - - 6.8
Lipsy 3.6 - 1.6 - 5.2
NENA 0.1 - - - 0.1
Property Management - - - 7.4 7.4
-------------------- ------- --------- --------- ------- -------
Total 3,271.1 250.3 5.6 7.4 3,534.4
-------------------- ------- --------- --------- ------- -------
52 weeks to 25 January 2020
-----------------------------------------------
Credit
Sale of account Rental
goods interest Royalties income Total
GBPm GBPm GBPm GBPm GBPm
-------------------- ------- --------- --------- ------- -------
NEXT Online 2,054.7 - - - 2,054.7
Next Retail 1,848.2 - - - 1,848.2
NEXT Finance - 268.7 - - 268.7
NEXT International
Retail 51.6 - 5.3 - 56.9
NEXT Sourcing 9.5 - - - 9.5
Lipsy 10.8 - 2.3 - 13.1
Property Management - - - 15.1 15.1
-------------------- ------- --------- --------- ------- -------
Total 3,974.8 268.7 7.6 15.1 4,266.2
-------------------- ------- --------- --------- ------- -------
4. Earnings Per Share
53 weeks to 52 weeks to 53 weeks to 52 weeks to
30 January 25 January 30 January 25 January
2021 2020 2021 2020
Including Including Excluding Excluding
IFRS 16 IFRS 16 IFRS 16 IFRS 16
------------------- ----------- ----------- ----------- -----------
Basic Earnings Per
Share 223.3p 472.4p 226.3p 459.8p
------------------- ----------- ----------- ----------- -----------
Diluted Earnings
Per Share 221.9p 468.8p 224.9p 456.3p
------------------- ----------- ----------- ----------- -----------
Basic Earnings Per Share is based on the profit for the year
attributable to the equity holders of the Parent Company divided by
the net of the weighted average number of shares ranking for
dividend less the weighted average number of shares held by the
ESOT during the period.
Diluted Earnings Per Share 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).
5. 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.
Statement
Pence Cash Flow of Changes
per Statement in Equity
Year to 25 January 2020 Paid share GBPm GBPm
------------------------------ ----------- ------ ---------- -----------
Final ordinary dividend for
year to Jan 2019 1 Aug 2019 110p 140.3 140.3
Interim ordinary dividend for
year to Jan 2020 2 Jan 2020 57.5p 73.3 73.3
------------------------------ ----------- ------ ---------- -----------
213.6 213.6
------------------------------------------ ------ ---------- -----------
6. Defined benefit pension
The principal pension scheme is the 2013 NEXT Group Pension
Plan, which includes defined benefit and defined contribution
sections.
The movement in the defined benefit pension surplus in the
period is as follows:
52 weeks
to
53 weeks to 25 January
30 January 2021 2020
GBPm GBPm
------------------------------------ ---------------- -----------
Surplus in schemes at the beginning
of the period 133.4 125.0
Current service cost (8.6) (6.0)
Administration costs (2.2) (2.4)
Net interest 2.1 3.7
Employer contributions 25.1 7.3
SPA Plan benefits paid 6.5 3.0
Actuarial gains and returns on
plan assets (57.1) 2.8
------------------------------------ ---------------- -----------
Surplus in schemes at the end of
the period 99.2 133.4
------------------------------------ ---------------- -----------
The main financial assumptions and actuarial valuations have
been updated by independent qualified actuaries under IAS 19
"Employee benefits". The following financial assumptions have been
used:
52 weeks
to
53 weeks to 25 January
30 January 2021 2020
--------------------------------- ---------------- -----------
Discount rate 1.65% 1.75%
Inflation - RPI 2.75% 2.80%
Inflation - CPI 1.95% 1.90%
Salary increases - -
Pension increases in payment
- RPI with a maximum of 5% 2.70% 2.75%
- RPI with a maximum of 2.5% and
discretionary increases 1.90% 1.90%
7. Other financial assets and liabilities
Other financial assets and other financial liabilities include
the fair value of derivative contracts which the Group uses to
manage its foreign currency and interest rate risks. All
derivatives are categorised as Level 2 under the requirements of
IFRS 13, as they are valued using techniques based significantly on
observed market data.
8. Customer and other receivables
The following table shows the components of net receivables:
2021 2020
GBPm GBPm
-------------------------------------------
Gross customer receivables 1,275.4 1,455.5
Less: refund liabilities (51.8) (49.9)
Net customer receivables 1,223.6 1,405.6
Less: allowance for expected credit losses (195.5) (171.5)
1,028.1 1,234.1
Other trade receivables 14.0 26.4
Less: allowance for doubtful debts (0.6) (0.5)
1,041.5 1,260.0
Presentation of the above, split by total receivables and
allowances:
2021 2020
GBPm GBPm
Net customer receivables 1,223.6 1,405.6
Other trade receivables 14.0 26.4
1,237.6 1,432.0
Less: allowance for expected credit losses (196.1) (172.0)
1,041.5 1,260.0
Prepayments 31.5 38.8
Other debtors 23.3 13.3
Amounts due from associates and joint venture 11.8 3.2
1,108.1 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 GBP18.6m (2020: GBP6.0m) of
next3step balance which bears interest at 29.9% (2020: 29.9%) at
the year end date.
The fair value of customer receivables and other trade
receivables is approximately GBP1,005m (2020: GBP1,200m). 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.
The amount charged to the Income Statement is respect of
Expected Credit loss was GBP54.8m (2020: GBP41.5m). This differs to
the bad debt charge of GBP50.5m (2020: GBP43.3m) in the Chief
Executive's Review on page 38 due to recoveries of previously
written off assets taken directly to the Income Statement.
9. Trade payables and other liabilities
2021 2020
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
Trade payables 172.6 - 212.8 -
Refund liabilities 6.8 - 5.4 -
Other taxation and social security 59.1 - 73.4 -
Deferred revenue from the sale
of gift cards 71.7 - 74.9 -
Share-based payment liability 0.2 0.2 0.2 0.2
Other creditors and accruals 244.9 28.7 225.3 14.3
555.3 28.9 592.0 14.5
10. Corporate bonds
Balance Sheet value Nominal value
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Corporate bond 5.375% repayable
2021 326.0 327.0 325.0 325.0
Corporate bond 3.000% repayable
2025 250.0 250.0 250.0 250.0
Corporate bond 4.375% repayable
2026 287.0 286.7 250.0 250.0
Corporate bond 3.625% repayable
2028 300.0 300.0 300.0 300.0
1,163.0 1,163.7 1,125.0 1,125.0
For the year ended 30 January 2021 the 2021 Bond has been
recognised within current liabilities as this matures within 12
months of the year end date.
11. Share capital
Movements in the Company's issued share capital during the year
are shown in the table below:
2021 2020 2021 2020
Shares '000 Shares '000 GBPm GBPm
Allocated, called up and fully
paid
Ordinary shares of 10p each
At the start of the year 133,229 138,606 13.3 13.9
Purchased for cancellation
in the year (280) (5,377) - (0.6)
132,949 133,229 13.3 13.3
2021 2021 2020 2020
Shares Cost Shares Cost
'000 GBPm '000 GBPm
Shares purchased for cancellation
in the year 280 19.3 5,377 300.2
Amount shown in Statement
of Changes in Equity 19.3 300.2
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.
12. Analysis of net debt
January Fair value January
2020 Cash flow changes IFRS 16 2021
GBPm GBPm GBPm GBPm GBPm
Cash and short term deposits 86.6 521.6 - - 608.2
Overdrafts and short term
borrowings (33.7) (59.7) - - (93.4)
Cash and cash equivalents 52.9 461.9 - - 514.8
Unsecured committed bank
loans (40.0) 40.0 - - -
Corporate bonds (1,163.7) - 0.7 - (1,163.0)
Fair value hedges of corporate
bonds 38.7 - (0.7) - 38.0
Net debt excluding leases (1,112.1) 501.9 - - (610.2)
Current lease liability (172.3) 2.2 (170.1)
Non-current lease liability (1,078.7) 62.9 (1,015.8)
(1,251.0) 65.1 (1,185.9)
Net debt including leases (2,363.1) 501.9 - 65.1 (1,796.1)
The IFRS 16 movements represent the net movement of lease
additions, modifications, lease payment, finance costs and the
change in the ageing profile as each year passes.
13. Leases
2021 2020
Right-of-use assets GBPm GBPm
Buildings 215.0 133.0
Stores 492.1 705.0
Equipment 3.3 4.9
Vehicles 9.7 9.8
Total 720.1 852.7
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 GBP64.2m (2020: GBP1.2m) has
been recognised on the Store right-of-use assets.
2021 2020
Lease Liability GBPm GBPm
Current (170.1) (172.3)
Non-current (1,015.8) (1,078.7)
Total (1,185.9) (1,251.0)
2021 2020
GBPm GBPm
Finance costs on leases (59.9) (61.8)
Gain on sale and leaseback 8.1 -
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 GBP154.4m and recognised a gain of GBP8.1m 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).
14. AGM
The Annual General Meeting will be held on Thursday 20 May 2021
at 9:30 am and details will be included in the Notice of Meeting
which is to be sent to shareholders on 20 April 2021. The Annual
Report and Accounts will also be sent to shareholders on 20 April
2021 and copies will be available from the Company's registered
office: Desford Road, Enderby, Leicester, LE19 4AT and on our
corporate website at nextplc.co.uk .
GLOSSARY
Alternative Performance Measures (APMs) and other non statutory
finance measures
APM Definition Closest Purpose and reconciliation to
equivalent closest statutory measure where
statutory applicable
measure
Active customers None Active customers have a strong
Those customers who have correlation with sales and interest
purchased products using income and helps drive understanding
their Online account or on movements in income.
received a standard account Reconciliation to closest equivalent
statement in the last 20 statutory measure not applicable.
weeks. Customers can be
either Online credit or
cash customers.
Average customer receivables None Average customer receivables
The average amount of money has a strong correlation with
owed by all nextpay and interest income on the Finance
next3step customers less P&L and helps drive understanding
any provision for bad debt. on movements in income. It also
This represents the total helps to evaluate the overall
balances we expect to recover health of the balance sheet for
averaged across the relevant the Finance business.
period. The average customer receivables
balance in FY21 was GBP1,050m
(FY20: GBP1,185m). The statutory
accounts do not disclose the
monthly customer receivables
balance needed to calculate the
average balance. However, the
closest comparative is the year-end
balance disclosed in Note 8 to
the financial statements.
Bad debt charge Impairment Measurement of the quality of
The charge taken in relation losses the Online customer receivables.
to the performance of our A lower bad debt charge indicates
customer debtor book. This that the quality and recoverability
consists predominantly of of the balance is higher.
providing for future defaults. 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 GBP51m.
In Note 8 the total Expect Credit
Loss charge was GBP54.8m with
the difference relating to recoveries
on previously written off assets.
Bought-in gross margin None Bought-in gross margin is a measure
Difference between the cost of the profit made on the sale
of stock and initial selling of stock at full price. This
price, expressed as a percentage is a key internal management
of achieved total VAT exclusive metric for assessing category
selling prices. performance.
Reconciliation to closest equivalent
statutory measure not applicable
as full price sales not a statutory
metric.
Branch profitability None Measurement of the Retail business
Retail store total sales profit by physical branch. Provides
less cost of sales, payroll, an indication of the performance
controllable costs, occupancy of the store portfolio. This
costs and depreciation, is based on costs which are directly
and before allocation of attributable to the store. Therefore,
central overheads. Expressed it does not include costs such
as a percentage of VAT inclusive as central overheads which will
sales. Net branch profit be included in the statutory
is a measure of the profitability accounts.
on a store by store level. Reconciliation to closest equivalent
statutory measure is therefore
not applicable.
Cost of funding None Required to evaluate the underlying
Interest is charged to the profitability of the Finance
NEXT Finance business in business.
respect of funding costs There is no statutory equivalent
for the Online debtor balance. as this is a metric specific
It is calculated by applying to how the Group manages its
the average Group interest funding and cost allocations.
rate (i.e. the external In the year to January 2021 this
borrowing rate of the NEXT has been calculated as:
Group divided by the average Average Group interest = Average
NEXT Group borrowing) to debt / Interest cost
the average debtor balance. = GBP792m / GBP42.2m
= 5.3%
Then apply 5.3% to 85% of the
Average Online customer balance
of GBP1,050m (as we assume that
85% of this is funded).
This equates to a Cost of Funding
charge of GBP48m.
Prior year Cost of Funding of
GBP36m.
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.
Credit sales None Credit sales are a direct indicator
VAT exclusive sales from of the performance and profitability
Online credit customers of the Finance business.
who have purchased using Reconciliation to closest equivalent
their online NEXT account, statutory measure not applicable
inclusive of any interest as the statutory accounts split
income charges and delivery by business segment but not by
charges, and after deducting the mechanism of customer payment.
any applicable promotional
discounts.
Divisional operating profit Segment A direct indicator of the performance
Divisional profit before profit of each division making up the
interest and tax, excluding total Group operating profit.
equity-settled share option A commonly used metric that provides
charges recognised under a useful method of performance
IFRS 2 "Share-based payment" comparison across the Group.
and unrealised foreign exchange The divisional operating profits
gains and losses on derivatives are the same as the Segment profits
which do not qualify for presented in Note 2 of the Financial
hedge accounting. Refer Statements. They do not include
to the Segmental Analysis the impact of IFRS 16 because
Note of the financial statements. the segments are not managed
using IFRS 16 metrics.
Earnings Per Share (EPS) Earnings A measure of the financial health
excluding IFRS 16 per share of the Group and its ability
The level of growth in EPS (including to deliver returns to shareholders.
provides a suitable measure IFRS 16) A commonly used metric that can
of the financial health be used to compare performance
of the Group and its ability to other businesses.
to deliver returns to shareholders. To reconcile the EPS excluding
Refer to Note 4 of the financial IFRS 16 to the statutory EPS
statements. 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 charge while
Note 4 of the Financial Statements
presents both EPS excluding IFRS
16 and EPS including IFRS 16.
Full price sales Revenue Full price sales are a direct
Total sales excluding items - sale of indicator of the performance
sold in our sale events, goods and profitability of the business.
Total Platform sales and
our Clearance operations
and includes interest income
relating to those sales.
Interest income Revenue Interest income is a direct indicator
The gross interest billed - credit of the performance and profitability
to nextpay and next3step account of the Finance business.
customers, before any deduction interest This is presented on the face
for unpaid interest on bad of the Income Statement and note
debt. 2 of the Financial Statements.
Like-for-like sales None This metric enables the performance
Change in sales from Retail of the Retail stores to be measured
stores which have been open on a consistent year-on-year
for at least one full year. basis and is a common term used
in the retail industry.
Reconciliation to closest equivalent
statutory measure not applicable.
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.
Net debt Statutory This measure is a good indication
Comprises cash and cash net debt of the strength of the Group's
equivalents, bank loans, balance sheet position and is
corporate bonds, fair value widely used by credit rating
hedges of corporate bonds agencies.
but excludes lease debt. As used in the Annual Report
Net debt is a measure of this excludes the debt on leases
the Group's indebtedness. unless otherwise stated.
Net debt and lease debt are presented
in Note 12 of the Financial Statements.
Net operating margin None A measure of the profitability
Profit after deducting markdowns of the Group. A commonly used
and all direct and indirect metric that can be used to compare
trading costs, expressed performance to other businesses.
as a percentage of achieved Net margin measures whether profitability
total sales. is changing at a higher or lower
rate relative to revenue.
Net profit (NEXT Finance) Profit before A measure of direct profitability
The profit, including interest tax of the Finance business.
income and the bad debt The Net profit for the Finance
charge, and after the allocation Business is presented in Note
of central overheads and 2 to the financial statements.
the cost of funding. It does not include the impact
of IFRS 16 as the business does
not report the impact of IFRS
16 at a segment level.
Return on Capital Employed None A commonly used metric that can
- ROCE (NEXT Finance) be used to compare performance
The NEXT Finance net profit to other financial businesses.
(after the interest charge It measures the profit (i.e.
relating to the cost of return) relative to the amount
funding), divided by the of capital employed. The higher
average customer receivables the ROCE the greater the return
balance. 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 GBP112m
by the average debt balance of
GBP1,050m. As a percentage this
is 10.7% (2020: 12.4%).
The Operating profit for the
segment is disclosed in Note
2 to the financial statements.
Total sales Revenue Total sales are a direct indicator
VAT exclusive full price - sale of of the performance and profitability
and markdown sales including goods of the business.
the full value of commission Total sales are reconciled to
based sales and interest Statutory sales in Note 2 of
income (as described and the Financial Statements.
reconciled in Note 2 of
the financial statements).
Underlying like-for-like None This metric enables the performance
sales of the Retail stores to be measured
Like-for-like sales, excluding on a consistent year-on-year
stores impacted by new openings. basis, without distortion from
This is a measure of the new openings, and is a common
annual performance of stores term used in the retail industry.
taking into account the Reconciliation to closest equivalent
impact of new store openings statutory measure not applicable.
on existing stores. 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.
Underlying profit and Earnings None This metric enables the profitability
Per Share of the Group and its ability
Underlying profit and Earnings to return funds to shareholders
Per Share measures exclude to be evaluated consistently
exceptional items and are year on year, and against other
shown on a consistent basis businesses.
where relevant. Allows for EPS is disclosed in Note 4 of
more consistent comparison, the Financial Statements. The
excluding one-off items. group has not incurred any exceptional
items in either the year January
2021 or the year to January 2020.
However, as used in the CEO report,
underlying profit and EPS exclude
the impact of IFRS 16, Leases.
To reconcile the underlying EPS
to the statutory EPS the impact
of IFRS 16 on the profit after
taxation must be included in
the Earnings part of the EPS
calculation.
Note 4 of the Financial Statements
presents both EPS excluding IFRS
16 and EPS including IFRS 16.
This statement, the full text of the Stock Exchange announcement
and the results presentation can be found on the Company's website
at nextplc.co.uk.
To view our range of exciting, beautifully designed, excellent
quality clothing and homeware go to next.co.uk .
Certain statements which appear in a number of places throughout
this announcement are "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
matters highlighted in the Chief Executive's review; 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 and equity markets.
These forward looking statements do not amount to any
representation that they will be achieved as they involve risks and
uncertainties and relate to events and depend upon circumstances
which may or may not occur in the future and there can be no
guarantee of future performance. Undue reliance should not be
placed on forward looking statements which speak only as of the
date of this document. NEXT does not undertake any obligation to
update publicly or revise forward looking statements, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
This information is provided by RNS, the news service of the
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END
FR GZGGDFMNGMZG
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