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.

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April 01, 2021 02:00 ET (06:00 GMT)

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