Interim Results

Next PLC 18 September 2003 Date: Embargoed until 07.00am, Thursday 18 September 2003 Contacts: Simon Wolfson, Chief Executive David Keens, Group Finance Director NEXT PLC Tel: 020 7796 4133 (18/09/2003) Tel: 08454 567777 (thereafter) Alistair Mackinnon-Musson Philip Dennis Hudson Sandler Tel: 020 7796 4133 Email: next@hspr.co.uk Photographs available: http://www.next.co.uk/press/ (or Hudson Sandler, as above) NEXT PLC RESULTS FOR THE HALF YEAR ENDED JULY 2003 * NEXT Retail turnover up 21% * NEXT Directory turnover up 15% * Group operating profit before interest and tax up 15% to £130m * Earnings per share up 24% * Interim dividend increased 10% to 11p CHAIRMAN'S STATEMENT I am pleased to report that NEXT has continued to make good progress in the six months to July 2003. For many years we have focused on developing the NEXT Brand in its core markets of the UK and Eire, with special emphasis on delivering stylish products whilst improving their value and quality. This has resulted in significant progress over the last five years. It is worth reflecting that in the last five years NEXT has increased its turnover by 100% and its operating profit by 115%. We have further enhanced earnings per share through buying back 27% of our issued share capital at an average price of 744p. As a result EPS has grown by 129%. It is our firm belief that in the long term it is these fundamentals that will drive financial returns to shareholders. In the last five years our share price increase together with dividends paid have outperformed the FTSE100 by 185%, and in the last two years by 51%. Our medium and longer term objectives are reviewed on a regular basis. Whilst there will always be minor adjustments, we are confident that our strategy of improving the product, expanding selling space in NEXT Retail and increasing the customer base of NEXT Directory will continue to deliver healthy growth. David Jones CBE Chairman NEXT PLC CHIEF EXECUTIVE'S REVIEW NEXT's financial objective is to deliver sustainable long term growth in earnings per share. In the six months to July 2003 the NEXT Group increased its EPS to 31.7p, an increase of 24% over the previous year. The operating profit of the group increased by 15% to £130.4m. EPS rose faster than operating profit as a result of recent share buybacks. Turnover Profit before Tax Six months to July Six months to July 2003 2002 2003 2002 £m £m £m £m NEXT Retail 797.4 656.0 85.8 74.5 NEXT Directory 247.1 215.3 30.2 30.2 _________ _________ _________ _________ The NEXT Brand 1,044.5 871.3 116.0 104.7 NEXT Franchise 13.2 10.0 2.4 1.9 Ventura 52.9 49.7 5.9 5.0 Other activities 10.4 13.8 8.6 6.5 ESOP charge - - (2.5) (4.5) _________ _________ _________ _________ 1,121.0 944.8 130.4 113.6 +15% _________ _________ Interest (expense)/income (7.2) 2.2 _________ _________ Profit before tax 123.2 115.8 + 6% Taxation (37.5) (34.7) _________ _________ Profit after tax 85.7 81.1 + 6% _________ _________ Post tax earnings per share 31.7p 25.5p +24% Interest has become an expense rather than income as a result of the cash outflows associated with share buybacks, this has resulted in profit before tax growth of 6%. The financial half year for NEXT Retail and Directory ended on 2 August, whereas in 2002 it ended on 27 July. As a result of this change our sales and profit comparisons are distorted. This year the end-of-season Summer Sale was one week earlier in the financial calendar. Although both halves consist of 26 weeks, this year the first half had one week less of full price sales and one week more of discounted sales than usual. The effect is to move approximately £6m of pre-tax profit from the first to the second half. THE NEXT BRAND NEXT is committed to delivering stylish good quality products at affordable prices. It is our firm belief that NEXT will only continue to prosper if it passes on the benefits of improved buying to its customers. We have achieved improvements in quality and reductions in price on many of our products. At the same time we have continued to broaden the products we offer to our customers, particularly in the Home department. After a somewhat disappointing Autumn season last year we were able to make significant improvements to the Spring and Summer ranges. Our ranges were better balanced with greater choice for our contemporary customer. In addition we corrected the fit issues we experienced in some of our Womenswear ranges. One of the biggest challenges has been providing a reliable delivery service for our Home products. This season we have introduced a new carrier and developed new systems to manage this process. The transition has been successful but has resulted in some double-running costs and the improved service will be more expensive going forward. NEXT RETAIL NEXT Retail increased sales in the half year by 21% and profits by 15%. Like-for-like sales for the comparable period in the 290 stores that have traded continuously for at least one year were 1.8% ahead of last year. However 28 stores were planned to be affected by new openings and once these have been removed, the underlying like-for-like sales were 3.8% ahead of last year. NEXT continues to expand its portfolio of retail space in order to give its customers improved ranges in a more comfortable environment. In the first half we increased our selling space by 232,000 square feet. In the last six months we have opened stores trading more than 20,000 square feet in Chester, Croydon, Dudley Merryhill, Gateshead Team Valley and Nottingham. All five stores are trading at or above their appraised sales targets. In contrast to the last few years NEXT is beginning to increase the number of stores it trades in addition to extending and relocating existing stores. The majority of these new trading locations are in out-of-town retail parks where the breadth of our offer gives us the required scale to trade successfully. July January July Annual Change 2003 2003 2002 Store numbers 352 344 332 +20 Square footage 2,570,000 2,338,000 2,075,000 +495,000 Taken as a whole sales from new space are significantly exceeding our expectations, beating target by 26%. The payback on net capital invested in the new space is forecast to be less than 12 months. The profitable expansion of selling space is our most important avenue of growth. We remain confident that we can profitably increase space going forward and will open at least 250,000 square feet in the second half of this financial year. NEXT DIRECTORY NEXT Directory increased sales by 15% and profits were level with last year. Profit growth in the first half was hindered primarily by the increased costs of developing our Home business, including double-running costs associated with the introduction of a new furniture delivery supplier. We have taken action to improve the profitability of the Directory in the second half. We have increased our gross margins on large Home products to compensate for higher delivery costs. In addition we have increased our general delivery charge from £2.95 to £3.50 which brings it more into line with market rates for next day delivery. We have also reduced our marketing budget to cut out less productive new customer recruitment. Our general strategy for growing the Directory remains unchanged. We intend to increase the number of customers using the Directory and offer greater diversity of products through increasing page numbers. In the first half our active customer base grew to 1,576,000 an increase of 17% over last year. We printed 1,246 pages as against 1,040 pages in Spring/Summer last year. NEXT FRANCHISE Our overseas franchise operation had a good half year, with sales increasing by 32% to £13.2m and contributing a profit of £2.4m. At the end of July 2003 there were 70 franchise stores compared with 49 the previous year. All regions increased sales. Our partner in Japan has opened 10 stand-alone Childrenswear stores and the store in Iceland has started very well. VENTURA Ventura made a stronger than expected start to the year, winning new business and renewing contracts with existing clients. Profit increased to £5.9m, this includes £1.2m from the funded consumer credit business which will reduce as the collect out of customer balances continues. Our focus remains on delivering a high quality service whilst ensuring that costs are tightly controlled. Whilst we remain cautious about prospects in this very competitive market we are pleased with the significant progress Ventura has made. OTHER ACTIVITIES Profits from Other Activities for the half year were £8.6m compared with £6.5m the previous year. The main contributors were £7.0m from NEXT Asia, our product sourcing company based in Hong Kong, and £4.3m from our Property Management division which included a final £2.2m development profit from a property which we sold in a previous year. NEXT Near East, acquired in July 2002, contributed £2.6m after goodwill amortisation of £1.6m. Central costs this year include an additional £2.5m charge in respect of the group's pension scheme as weak stock markets have reduced the value of the scheme's assets, a further additional charge of a similar amount is expected in the second half. EMPLOYEE SHARE OWNERSHIP PLAN (ESOP) NEXT operates employee share option schemes and has an Employee Share Ownership Plan Trust, which purchased a further 3 million shares at an average price of 959p during the period. A charge of £2.5m has been made in respect of shares held by the Trust (last year £4.5m). At the end of July the Trust held 8.4 million shares and the company had 9.9 million employee share options outstanding. The full year charge for the ESOP last year was £8.2m whereas we expect the annual charge for the current year to be in the region of £5m. BALANCE SHEET AND CASH FLOW At the end of July we had net borrowings of £319m which included the £300m 10 year bond issued in June, the proceeds of which were used to replace shorter term bank borrowings. The cash outflow of £130m included £111m on shares purchased for cancellation and £18m on increasing the shares held in the company's ESOP. Stock levels for Autumn are in line with our requirements. Most of our £49m capital expenditure related to Retail stores and this will continue to be the case in Autumn/Winter. We anticipate that capital expenditure for the whole year will be approximately £110m. DIVIDEND The directors are pleased to declare an interim dividend of 11p, an increase of 10% (last year 10p). This will be paid on 2 January 2004 to shareholders on the register at 28 November 2003. The shares will trade ex-dividend from 26 November 2003. SHARE BUYBACK NEXT intends to continue with its strategy of buying back shares in the market as and when it is earnings enhancing and in the interests of shareholders generally. At our AGM in May 2003 shareholders renewed the authority to purchase shares when the Board considers it appropriate. During the half year we purchased and cancelled 4.5% of our shares in issue at an average price of 858p. We do not intend to buy back shares at the expense of investing in the business. In addition we intend to maintain the company's investment grade credit rating. CURRENT TRADING In the six weeks since 3 August sales in NEXT Retail are 17% ahead of last year. Like-for-like sales in the 286 stores that have been trading continuously for at least one year, and that have not benefited from capital expenditure of more than 2% of their annual turnover, are 0.8% ahead of the previous year. Included in the 286 stores are 23 stores that, as anticipated, have been directly affected by new store openings and extensions. Underlying sales in the 263 stores which have not been affected by new space are 2.5% ahead of last year. Sales in NEXT Directory for the first six weeks are 10% ahead of last year. Taken together sales for the NEXT Brand are 15% ahead of last year. Simon Wolfson Chief Executive 18 September 2003 NEXT PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT Unaudited Unaudited Six months Six months Year to to July 2003 to July 2002 Jan 2003 £m £m £m Turnover 1,121.0 944.8 2,202.6 ________ ________ ________ Operating profit 130.4 113.6 301.5 Net interest (payable)/receivable (7.2) 2.2 (0.3) ________ ________ ________ Profit on ordinary activities before taxation 123.2 115.8 301.2 Taxation on profit on ordinary activities (37.5) (34.7) (90.7) ________ ________ ________ Profit on ordinary activities after taxation 85.7 81.1 210.5 Dividends (27.5) (29.1) (86.0) ________ ________ ________ Profit for the period transferred to reserves 58.2 52.0 124.5 ________ ________ ________ Earnings per share 31.7p 25.5p 68.7p Diluted earnings per share 31.5p 25.3p 68.1p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months Six months Year to to July 2003 to July 2002 Jan 2003 £m £m £m Profit attributable to members of parent company 85.7 81.1 210.5 Exchange difference on translation of net assets of subsidiary undertakings 1.8 (2.3) (4.6) ________ ________ ________ Total recognised gains and losses relating to the period 87.5 78.8 205.9 ________ ________ ________ NEXT PLC CONSOLIDATED BALANCE SHEET Unaudited Unaudited July 2003 July 2002 Jan 2003 £m £m £m Fixed assets Goodwill 29.6 36.0 31.0 Tangible assets 339.4 309.8 323.1 Investments 0.5 0.2 0.5 Investment in own shares 62.5 54.1 47.0 ________ ________ ________ 432.0 400.1 401.6 ________ ________ ________ Current assets Property development stocks 9.5 9.1 9.1 Stocks 236.6 225.9 234.9 Debtors 340.1 279.1 318.1 Cash at bank and in hand 66.3 69.8 32.6 ________ ________ _______ 652.5 583.9 594.7 Current liabilities Creditors: amounts falling due within one year 503.0 518.1 664.9 ________ ________ ________ 149.5 65.8 (70.2) ________ ________ ________ Total assets less current liabilities 581.5 465.9 331.4 Creditors: amounts falling due after more than one year 337.8 40.1 37.0 Provision for liabilities and charges 19.5 18.9 19.3 ________ ________ ________ Net assets 224.2 406.9 275.1 ________ ________ ________ Capital and reserves Called up share capital 27.4 31.1 28.7 Share premium account 0.5 3.8 - Capital redemption reserve 2.5 7.4 1.2 Revaluation reserve 14.7 15.1 14.8 Other reserves (1,448.9) (0.7) (1,448.9) Profit and loss account 1,628.0 350.2 1,679.3 ________ ________ ________ Shareholders' funds 224.2 406.9 275.1 ________ ________ ________ NEXT PLC CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Six months Six months Year to to July 2003 to July 2002 Jan 2003 £m £m £m Net cash inflow from operating activities 148.8 99.1 314.9 ________ ________ ________ Returns on investments and servicing of finance Interest (paid)/ received (2.1) 3.4 (1.1) ________ ________ ________ Taxation UK corporation tax paid (42.0) (38.5) (90.8) UK corporation tax overpayment received - 4.0 4.0 Overseas tax paid (1.2) (1.4) (3.4) ________ ________ ________ (43.2) (35.9) (90.2) ________ ________ ________ Capital expenditure and financial investment Purchase of tangible fixed assets (48.8) (38.7) (86.3) Proceeds from disposal of fixed assets 0.1 0.6 3.1 Purchase of own shares by ESOP (28.8) (29.6) (29.6) Proceeds from disposal of shares by ESOP 10.9 8.9 12.3 ________ ________ ________ (66.6) (58.8) (100.5) ________ ________ ________ Acquisitions and disposals Disposal of subsidiary undertakings - - (1.2) Acquisition of subsidiary undertakings - (21.6) (24.6) ________ ________ ________ - (21.6) (25.8) ________ ________ ________ Equity dividends paid (56.3) (58.7) (88.4) ________ ________ ________ Cash (outflow)/inflow before management of liquid resources and financing (19.4) (72.5) 8.9 Management of liquid resources 1.8 290.1 152.8 Financing Issue of new shares 0.5 - 0.1 Company shares purchased for cancellation (111.4) (189.7) (391.8) Unsecured bank loans (150.0) - 210.0 Issue of corporate bonds 300.0 - - ________ ________ ________ 39.1 (189.7) (181.7) ________ ________ ________ Increase/(decrease) in cash in the period 21.5 27.9 (20.0) ________ ________ ________ NEXT PLC BASIS OF PREPARATION The report was approved by the Board of Directors on 18 September 2003. The accounts for the year to January 2003 are not full accounts within the meaning of Section 240 of the Companies Act 1985. Full accounts for that period incorporating an unqualified audit report have been delivered to the Registrar of Companies. Accounting policies adopted are consistent with those set out in the accounts for the year ended January 2003. Registered in England 4412362. Registered Office, Desford Road, Enderby, Leicester LE19 4AT. EARNINGS PER SHARE The calculation of earnings per share is based on £85.7m (2002: £81.1m) being the profit for the six months after taxation and 270.2m ordinary shares of 10p each (2002: 317.5m), being the weighted average number of shares ranking for dividend less the weighted average number of shares held by the ESOP during the year. Diluted earnings per share is based on £85.7m (2002: £81.1m) being the profit for the six months after taxation and 272.2m ordinary shares of 10p each (2002: 321.0m) being the weighted average number of shares used for the calculation of earnings per share above increased by the dilutive effect of potential ordinary shares from employee share option schemes of 2.0m shares (2002: 3.5m shares). RECONCILIATION OF SHAREHOLDERS' FUNDS Six months Six months Year to to July 2003 to July 2002 Jan 2003 £m £m £m Total recognised gains and losses 87.5 78.8 205.9 Dividends (27.5) (29.1) (86.0) Purchase of own shares for cancellation (111.4) (189.7) (391.7) Issue of new shares 0.5 - - ________ ________ ________ Total movement during the period (50.9) (140.0) (271.8) Shareholders' funds at January 2003 275.1 546.9 546.9 ________ ________ ________ Shareholders' funds at July 2003 224.2 406.9 275.1 ________ ________ ________ CASH FLOW: RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW Six months Six months Year to to July 2003 to July 2002 Jan 2003 £m £m £m Operating profit before interest 130.4 113.6 301.5 Depreciation 30.9 26.9 59.1 Amortisation of goodwill 1.6 - 1.6 Loss on disposal of fixed assets 1.5 0.6 0.1 Anticipated deficit in ESOP 2.5 4.5 8.2 Income from interest in associated undertakings - - (0.4) Increase in stock (2.2) (58.2) (62.8) Increase in debtors (23.5) (1.5) (39.7) Increase in creditors 6.1 15.6 52.1 Decrease in provision for liabilities and charges - (0.1) - Exchange movement 1.5 (2.3) (4.8) ________ ________ ________ Net cash inflow from operating activities 148.8 99.1 314.9 ________ ________ ________ CASH FLOW: RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS Six months Six months Year to to July 2003 to July 2002 Jan 2003 £m £m £m Increase/(decrease) in cash in the period 21.5 27.9 (20.0) Cash realised from liquid resources (1.8) (290.1) (152.8) Decrease/(increase) in cash from unsecured bank loans 150.0 - (210.0) Increase in cash from corporate bonds (300.0) - - ________ ________ ________ Changes in net (debt)/funds resulting from cash flows (130.3) (262.2) (382.8) Net (debt)/funds at January 2003 (188.8) 194.0 194.0 ________ ________ ________ Net debt at July 2003 (319.1) (68.2) (188.8) ________ ________ ________ CASH FLOW: ANALYSIS OF NET DEBT January Cash July 2003 flow 2003 £m £m £m Cash in hand 25.3 28.3 53.6 Overnight (borrowings)/deposits (10.0) 17.2 7.2 Overdrafts (1.4) (24.0) (25.4) ________ ________ ________ 13.9 21.5 35.4 Short term deposits 7.3 (1.8) 5.5 Unsecured bank loans (210.0) 150.0 (60.0) Corporate bonds - (300.0) (300.0) ________ ________ ________ Total net debt (188.8) (130.3) (319.1) ________ ________ ________ This interim statement, the full text of the Stock Exchange announcement and the interim results presentation can be found on the company's website at www.next.co.uk Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences and prospects are 'forward-looking statements' within the meaning of the United States federal securities laws. 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 various risks and uncertainties, including but not limited to failure by NEXT to predict accurately customer fashion preferences; decline in the demand for merchandise offered by NEXT; competitive influences; changes in levels 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; lack of sufficient consumer interest in NEXT Directory; acts of war or terrorism worldwide; work stoppages, slowdowns or strikes; and changes in financial and equity markets. ENDS This information is provided by RNS The company news service from the London Stock Exchange

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