Annual Financial Report

RNS Number : 1847K

Next PLC

14 April 2015

 



Contacts:	Lord Wolfson, Chief Executive
	Amanda James, Group Finance Director
	NEXT PLC	Tel:  [phone]
	Alistair Mackinnon-Musson
	Rowbell PR	Tel:  [phone]
	Email: [e-mail]
Photographs:	Photographs available at: http://press.next.co.uk/media/company-images/campaignimages.aspx

Next plc

Annual Financial Report for year ended January 2015

including the Notice of Annual General Meeting ("AGM") - convened for 14 May 2015

The Company announces that the Annual Financial Report for the year ended January 2015 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 2015 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 2015 Annual General Meeting will be held at the Leicester Marriott Hotel, Smith Way, Grove Park, Leicester on Thursday 14 May 2015, commencing 9.30 am.

S L Anderson

Company Secretary

Next plc

The Appendix to this announcement is a supplement to our preliminary statement of financial results made on 19 March 2015 (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

The Chief Executive's Review in the preliminary statement of the Financial Results Announcement issued on 19 March 2015 includes a commentary on the primary uncertainties affecting the Group's businesses for 2015/16.

Further details of other key risks and uncertainties relating to the Next group are set out on pages 24 to 26 of the 2015 Annual Report. The following is extracted in full and unedited form from the 2015 Annual Report.

Description of risk or uncertainty	How the risk or uncertainty is managed or mitigated
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 therefore 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 includes the setting of seasonal and annual budgets and longer term financial objectives to identify ways to 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. In addition, the Audit Committee monitors strategic and operational risk regularly and any significant matters are reported to the Board.
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's staff may be targeted by other companies.	The Remuneration and Nomination Committees identify senior personnel, review remuneration at least annually and formulate packages to retain and motivate these employees, including share incentive schemes. In addition, the Board considers the development of senior managers to ensure adequate career development opportunities for key personnel, with orderly succession and promotion to important management positions.
Product design & selection
NEXT's success depends on designing and selecting products that customers want to buy, at appropriate price points and in the right quantities. This includes anticipating and responding to changing consumer preferences and trends, as well as taking into account the wider consumer and economic environment. In the short term, a failure to properly manage this area may mean that NEXT is faced with surplus stocks that cannot be sold at full price and may have to be disposed of at a loss. In the longer term, the reputation of the NEXT Brand may suffer. Product design and selection is therefore at the heart of the business.	Executive directors and senior management continually review the design, selection and performance of NEXT's product ranges. This ensures, so far as possible, that there is a well-balanced product mix that is good value for money, and available in sufficient quantities and at the right time to meet customer demand. To some extent, product risk is also mitigated by the diversity of NEXT's ranges.
Key suppliers & supply chain management
NEXT relies on its supplier base to deliver products on time and to the quality standards it specifies. Failure to do so may result in an inability to service customer demand or adversely affect NEXT's reputation. Changes in global manufacturing capacity and costs may impact on profit margins. Non-compliance by suppliers with the NEXT Code of Practice may increase reputational risk.	NEXT continually seeks ways to develop its supplier base so as to reduce over-reliance on individual suppliers of products and services, and maintain the quality and competitiveness of its product offer. The Group's risk assessment procedures for key suppliers identify alternatives and develop contingency plans in the event of key supplier failure. Existing and new sources of supply are developed in conjunction with NEXT Sourcing, external agents and/or direct suppliers. 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. Further details can be found on page 28. 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.
Warehousing & distribution
NEXT regularly reviews the warehousing and distribution operations that support the business. Risks include business interruption due to physical damage, access restrictions, breakdowns, capacity shortages, IT systems failure (see next page), inefficient processes and third party 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, inbound logistics and delivery costs are monitored continuously to ensure goods are delivered to our warehouses, Retail stores and Directory customers in a timely and cost-efficient manner. Business continuity plans and insurance are in place to mitigate the impact of business interruption.
Customer experience
NEXT's performance depends on the recruitment and retention of customers, and on its ability to drive and service customer demand. This includes having an attractive, functional and reliable website and effective call centres, operating successful marketing strategies, and providing both Retail and Directory customers with service levels that meet or exceed their expectations.	The Group continuously monitors website and call centre operations that support the business to ensure that there is sufficient capacity to handle volumes. Capacity forecasting is used to manage peak demands and growth in business volumes. Market research is used to assess customer opinions and satisfaction levels, and regular customer experience visits to our stores help to ensure that our staff remain focussed on delivering excellent customer service.
Retail store network
NEXT Retail's performance depends on profitably developing the trading space of the store network. The successful development of new stores depends on a number of factors including the identification of suitable properties, obtaining planning permissions and the negotiation of acceptable lease terms. Prime retail sites will generally remain in demand, and increased competition for these can result in higher future rents.	The predominantly leased store portfolio is actively managed by senior management, with openings, refits and closures based on store profitability and cash payback. NEXT will continue to invest in new space where its financial criteria are met, and will renew and refurbish its existing portfolio when appropriate. New store appraisals include the estimated effects of sales deflection from existing stores, but there remains a risk that actual performance may differ from those estimates.
Information security, business continuity & cyber risk
NEXT is dependent upon the continued availability and integrity of its IT systems, which must record and process substantial volumes of data and conduct inventory management accurately and quickly. The Group's systems require continuous enhancement and investment to prevent obsolescence and maintain responsiveness. The threat of unauthorised or malicious attack is an on-going risk, the nature of which is constantly evolving.	Systems' vulnerability and penetration testing, business continuity plans and back up facilities 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. IT risks are also managed through the application of internal policies and change management procedures, contractual service level agreements with third party suppliers, and IT capacity management. The Audit Committee received regular briefings on cyber risk during the year (see page 45).
Financial, treasury, liquidity & credit risks
The main financial risks are the availability of funds to meet business needs, default by counterparties to financial transactions, the effect of fluctuations in foreign exchange rates and interest rates, and compliance with regulation. NEXT has a longstanding policy of returning surplus cash to shareholders through share buybacks and special dividends, whilst maintaining an appropriate level of debt. Adequate financing facilities are therefore required to support the operational needs of the business. NEXT is also exposed to credit risk, particularly in respect of its Directory customer receivables, which at £712m represents the largest item on the Group balance sheet.	NEXT operates a centralised treasury function which is responsible for managing its liquidity, interest and foreign currency risks. The Group's treasury function operates under a Board-approved policy. This includes approved counterparty and other limits which are designed to mitigate NEXT's exposure to financial risk. Further details of the Group's treasury operations are given in Note 27 to the financial statements. NEXT has adequate medium and long term financing in place to support its business operations, and the Group's cash position and forecasts are regularly monitored and reported to the Board. Rigorous procedures are in place with regard to the Group's Directory account customers, including the use of external credit reference agencies and applying set risk criteria before acceptance. These procedures are regularly reviewed and updated.

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 Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.

As a listed company within the European Union, the directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU. The directors have elected to prepare the parent company financial statements in accordance with Companies Act 2006 and UK Accounting Standard FRS 101 "Reduced Disclosure Framework".

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing the financial statements, the directors are required to:

·	select suitable accounting policies and then apply them consistently;
·	make judgements and estimates that are reasonable and prudent;
·	present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
·	in respect of the Group financial statements, 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 Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements.
·	in respect of the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
·	prepare the financial statements on a going concern basis, unless they consider that to be inappropriate.

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

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. 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.

Responsibilities Statement

We confirm that to the best of our knowledge:

a)	the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and results of the Group; and
b)	the Strategic Report contained in this annual 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; and
c)	the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

On behalf of the Board

Lord Wolfson of Aspley Guise     Chief Executive

*David Keens Group Finance Director (* David Keens was Group Finance Director at the date the 2015 Annual Report was signed and was succeeded by Amanda James on 1 April 2015.)

 

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