Annual Financial Report

RNS Number : 9151E

Next PLC

14 April 2011

 



Next plc

Annual Financial Report for year ended January 2011

including the Notice of Annual General Meeting ('AGM') - convened for 19 May 2011

The Company announces that the Annual Financial Report for the year ended January 2011 is today being posted or otherwise made available to shareholders and published on its website, www.nextplc.co.uk.

In accordance with Listing Rule 9.6.1 a copy of this Report together with a Form of Proxy for the 2011 Annual General Meeting has been uploaded to the National Storage Mechanism and will be available for viewing shortly at www.hemscott.com/nsm.do.

The Company's 2011 Annual General Meeting will be held at the Leicester Marriott Hotel, Smith Way, Grove Park, Leicester on Thursday 19 May 2011, commencing 9am.

A J R McKinlay

Company Secretary

Next plc

The Appendix to this announcement is a supplement to our preliminary statement of financial results made on 24 March 2011 (the "Final Results Announcement"). It contains the information required pursuant to DTR 6.3.5 that is in addition to the information communicated in the Final Results Announcement, and should be read together with the Final Results Announcement.

Appendix

Risks & uncertainties  

The Chief Executive's Review in the preliminary statement of Final Results issued on 24 March 2011 includes a commentary on the primary uncertainties affecting the Group's businesses for 2011/12.

Further details of other key risks and uncertainties relating to the Next group are set out on pages 14 to 16 of the 2011 Annual Report. The following is extracted in full and unedited form from the 2011 Annual Report.

Business strategy development & implementation

If the Board adopts the wrong business strategy or does not implement its strategies effectively, the business may suffer.  The Board needs to understand and properly manage strategic risk in order to deliver long term growth for the benefit of NEXT's stakeholders.  The Board reviews business strategy on a regular basis to determine how sales and profit budgets can be achieved or bettered and business operations made more efficient.  This process involves the setting of annual budgets and longer term financial models to identify ways in which the Group can increase shareholder value.  Critical to these processes are the consideration of wider economic and industry specific trends that affect the Group's businesses, the competitive position of its product offer and the financial structure of the Group.

Credit risk and liquidity

NEXT is exposed to credit risk in respect of its Directory and other business customers.  Rigorous procedures are in place with regard to the Group's credit customers and these procedures are regularly reviewed and updated as required.  Key suppliers whose services are essential to the successful running of the business also face credit risk. These include the supply and printing of the Directory, provision of core IT systems and certain systems and suppliers in the Group's delivery and distribution network.   The Group's risk assessment procedures for key suppliers enables it to identify alternatives and develop contingency plans in the event any of these suppliers fail.

The Group has adequate medium and long term financing in place to support its business operations for the foreseeable future.  The Board continues to assess its exposure to counterparty risk in the light of the prevailing economic climate both in the UK and globally and its treasury policy is amended as necessary to restrict counterparties with which deposits, investments and other transactions may be made. 

Management team

The success of NEXT relies on the continued service of its senior management and technical personnel and on its ability to continue to attract, motivate and retain highly qualified employees. The retail sector is very competitive and NEXT staff are frequently targeted by other companies for recruitment. The Remuneration Committee identifies senior personnel, reviews their remuneration at least annually and formulates packages that are structured to retain and motivate these employees.  In addition, the Board considers the development of senior managers to ensure that there are adequate career development opportunities for key personnel and an orderly succession and promotion to all important management positions within the Group's businesses. 

Product design & selection

The success of NEXT depends on providing exciting, beautifully designed, excellent quality clothing and homeware. Success also depends upon its ability to anticipate and respond to changing consumer preferences and trends.  Many of NEXT's products represent discretionary purchases and demand for these products can decline in periods in which consumer confidence is negatively affected.  As a consequence, NEXT may be faced with surplus stocks that cannot be sold at full price and have to be disposed of at a loss.  Executive directors and senior management continually review the design and selection of NEXT's product ranges. This ensures, so far as possible, that there is a well-balanced product mix on offer that is good value for money and in sufficient quantities at the right time to meet customer demand.

Key suppliers & supply chain management

NEXT relies on its supplier base to deliver products on time and to the quality standards it specifies. It continually seeks ways to develop and extend its supplier base so as to reduce any over-reliance on particular suppliers of product and services, and to improve the competitiveness of its product offer. If input costs rise, for example raw materials such as cotton or manufacturing labour costs overseas, NEXT management will work with existing suppliers to mitigate the inflationary impact.  When necessary, new sources of supply will be developed, in conjunction with NEXT Sourcing, its own sourcing operation, as well as through external agents and existing direct suppliers. 

Non-compliance by suppliers with the NEXT Code of Practice may increase reputational risk. Therefore, NEXT carries out regular inspections of its suppliers' operations to ensure compliance with the standards set out in this code, covering production methods, employee working conditions, quality control and inspection processes.  NEXT also monitors and reviews the financial, political and geographical aspects of its supplier base to identify any factors that may affect the continuity or quality of supply of its products.

Retail store network

Growth of NEXT's retail business is dependent upon increasing the floor space within its store network and customers spending more.  NEXT will continue to invest in new stores where its financial criteria are met and refurbish its existing portfolio when appropriate. The anticipated effect of sales deflection is factored into new store appraisals but there can be no assurance that the impact of new openings will not result in a greater deflection of sales from existing stores. 

Successful development of new stores is dependent upon a number of factors including the identification of suitable properties, obtaining planning permissions and the negotiation of acceptable purchase or lease terms.  Notwithstanding there have been a number of retail failures in recent years, prime sites will generally be in great demand. In such circumstances, increased competition can result in higher rents going forwards.

Directory customer base

Growth of the NEXT Directory business depends upon the recruitment and retention of its customer base and increasing the average spend per customer.  NEXT will continue to recruit new customers where they satisfy its credit score requirements.  However, there can be no assurance that new customers will result in higher sales per customer or lower incidence of bad debts, compared with the existing customer base. 

In addition, NEXT requires its internet website to attract new customers and encourage its existing customers to continue ordering from the Directory.  Management continually reviews the configuration, content and functionality of the NEXT website to ensure it enhances the customer shopping experience.  Service levels and response times are also monitored to ensure that the website is both resilient and secure at all times.

Warehousing & distribution

NEXT regularly reviews its warehouses and the related logistics operations that support its businesses.  Risks include business interruption due to physical property damage, access restrictions, breakdowns in warehouse systems, capacity shortages, inefficient processes and delivery service failures.  Planning processes are in place to ensure there is sufficient warehouse handling capacity for expected future business volumes over the short and longer terms. In addition, service levels, warehouse handling and delivery costs are monitored continuously to ensure goods are delivered to Retail stores, Directory customers and third party clients in a timely and cost-efficient manner.

IT systems & business continuity

NEXT is dependent upon the continued availability and integrity of its computer systems.  Each of its businesses must record and process a substantial volume of data and conduct inventory management accurately and quickly. The Group expects that its systems will require continuous enhancements and ongoing investment to prevent obsolescence and maintain responsiveness to business needs.  Back up facilities and business continuity plans are in place and are tested regularly to ensure that business interruptions are minimised and data is protected from corruption or unauthorised access or use.

Call centre capacity & service levels

NEXT is dependent on the efficient operation of its call centres to receive and respond to customer orders and enquiries in its home shopping and customer service management businesses.  Insufficient manpower and interruption in the availability of telephony systems to meet customer service requirements are the principal risks.  The Group continuously monitors call centre operations that support the NEXT Directory and Ventura businesses to ensure that there is sufficient capacity to handle call volumes and satisfy clients' customer service level requirements. Capacity forecasting is used to manage peak demands and growth in business volumes and customer and client satisfaction is measured on a regular basis.  Business continuity plans ensure the risk of business interruption is minimised. 

Treasury & financial risk management

The main financial risks of NEXT relate to the availability of funds to meet business needs, default by counterparties to financial transactions (see Credit risk and liquidity), and fluctuations in interest and foreign exchange rates.  In addition, NEXT's business expansion and share buyback strategy may necessitate the raising of additional finance, which can in turn increase interest costs and could give rise to fluctuations in profit.  Higher debt levels would also result in an increase in the proportion of cash flow dedicated to servicing debt and potentially increase its exposure to interest rate fluctuations.

NEXT operates a centralised treasury function which is responsible for managing its liquidity, interest and foreign currency risks.  The Group's treasury policy allows the use of derivative instruments provided they are not entered into for speculative purposes. Further details of the Group's treasury operations are given in Notes 28 to 32 to the financial statements.

In addition, NEXT has to fund its defined benefit pension scheme and ensure that sufficient contributions are made to meet its outstanding liabilities as they fall due.  If NEXT fails to provide sufficient and timely funding, action may be taken by either the pension scheme trustees, or the Pensions Regulator, which could result in an acceleration and/or an increase in overall contributions towards any resulting deficit.  Management meets regularly with the trustees of its pension scheme to assess fund performance, as well as to agree future contribution levels and any necessary changes to future benefits to be provided to members of the scheme.

Directors' Responsibility Statement

The annual financial report contains a responsibility statement in the form set out below.

Directors' responsibilities

The directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ("IFRS") as adopted by the European Union.

The directors are required to prepare financial statements for each financial year which present fairly the position of the Company and the Group and the financial performance and cash flows of the Company and the Group for that period.  In preparing those financial statements, the directors are required to:

-	select suitable accounting policies and then apply them consistently;
-	present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-	provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and performance; and
-	state that the Company and the Group have complied with IFRS, subject to any material departures disclosed and explained in the financial statements.

The directors confirm that the financial statements comply with the above requirements.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Responsibility Statement

We confirm that to the best of our knowledge:

a)	the financial statements, prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union, give a true and fair view of the assets, liabilities, financial position and results of the Company and the Group; and
b)	the management report incorporated into the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that they face.

On behalf of the Board

Simon Wolfson                          David Keens

Chief Executive                          Group Finance Director

 

END

 

 

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