Annual Financial Report

RNS Number : 6318J

Next PLC

14 April 2020

 

Contacts:	Alistair Mackinnon-Musson
	Rowbell PR
	Email: [e-mail]	Tel:  [phone]
Photographs:	Photographs available at: http://press.next.co.uk/media/company-images/campaignimages.aspx

Next plc

Annual Financial Report for year ended January 2020

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

14 May 2020

The Company announces that the Annual Financial Report for the year ended January 2020 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 2020 Annual General Meeting has been uploaded to the National Storage Mechanism and will be available for viewing shortly at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Update subsequent to the signing of the Annual Financial Report

Since the Board approved the Annual Financial Report, the scale of the Coronavirus pandemic and its impact on the business has become clearer. During this challenging period, all directors have agreed to waive 20% of their salaries and fees. In addition, the payment to the executive directors of bonuses due for performance in respect of 2019/20 will be deferred for the period of the crisis .

AGM

The Company has been closely monitoring developments relating to the Coronavirus pandemic, including the related public health guidance and legislation issued by the UK Government. At the time of writing, the UK Government has prohibited public gatherings of more than two people and non-essential travel, save in certain limited circumstances.

In light of these measures, the 2020 AGM will be run as a closed meeting and shareholders will not be able to attend in person. The Company will make arrangements such that the legal requirements to hold the meeting can be satisfied through the attendance of a minimum number of people and the format of the meeting will be purely functional.

Shareholders are therefore strongly encouraged to submit a proxy vote in advance of the meeting.  Shareholders are encouraged to appoint the Chairman of the Meeting as their proxy rather than a named person who will not be permitted to attend the meeting.

This situation is constantly evolving, and the UK Government may change current restrictions or implement further measures relating to the holding of general meetings during the affected period. Any changes to the AGM (including any change to the location of the AGM) will be communicated to shareholders before the meeting through our website at nextplc.co.uk/investors/shareholder-information/company-meetings and, where appropriate, by RIS announcement.

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 2020 (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 2020 includes a commentary on the primary uncertainties affecting the Group's businesses for 2020/21.

Further details of other key risks and uncertainties relating to NEXT group are set out on pages 59 to 64 of the 2020 Annual Report. The directors' responsibilities statement can be found on page 82 of the 2020 Annual Report.  The following is extracted in full unedited text from the 2020 Annual Report.  Accordingly, page references in the text below refer to page numbers in the 2020 Annual Report.

Risk trend:  Limited increase  Unchanged 

Principal risk and description
Business strategy  development and implementation               If the Board adopts the wrong business strategy or does not implement its strategies effectively, our business may suffer. The Board therefore needs to understand and properly manage strategic risk, taking into account specific retail sector risk factors, in order to deliver long term growth for the benefit of NEXT's stakeholders.	How we manage or mitigate the risk • The Board reviews business strategy on a regular basis to  determine how sales and profit can be maximised, and business operations made more efficient • The Chief Executive provides regular updates at Board meetings regarding key opportunities and progress of major initiatives. • Our International Online business and our third-party label business provide geographic and product diversity • Our disciplined approach to sales, budgeting, investment returns and cost control ensures the Company continues to generate strong profits and cash flows • The Board and senior management consider strategic risk factors, wider economic and industry specific trends that affect the Group's businesses, the competitive position of its product and the financial structure of the Group •   A detailed plan to manage the business going forward and its longer term direction of travel exists and is clearly articulated to our stakeholders in our annual and half yearly reports • Longer term financial scenarios for our Retail business have been prepared and stress tested. This process provides a mechanism for ensuring that business profitability is maximised through efficient allocation of resources and management of costs
Product design and selection Our success depends on designing and selecting products that customers want to buy, at appropriate price points and stocked in the right quantities. In the short term, a failure to manage this risk may result in surplus stocks that cannot be sold and may have to be disposed of at a loss. Over the longer term a failure to meet the design, quality and value expectations of our customers will adversely affect the reputation of the NEXT Brand.	How we manage or mitigate the risk •   Executive directors and senior management continually review the design, selection and performance of NEXT product ranges and those of other brands sold by NEXT. To some extent, product risk is mitigated by the diversity of our ranges and our third-party label product ranges • Executive directors and senior management regularly review product range trends to assess and correct any key selection or product issues. Corrections to significant missed trends or poorer performing ranges are targeted for amendment, with alternative products being sourced within six months where necessary • Senior product management approves quality standards, with in-house quality control and testing teams in place across all product areas • Senior management regularly reviews product recalls and product safety related issues
Key suppliers and supply chain management Reliance on our supplier base to deliver products on time and to quality standards is essential. 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 or undermine our reputation as a responsible retailer.	How we manage or mitigate the risk • Stock availability is reviewed on an ongoing basis and appropriate action taken where service or delivery to customers may be negatively impacted • Management continually seeks ways to develop our supplier base to reduce over-reliance on individual suppliers and to maintain the quality and competitiveness of our offer. The Group's supplier risk assessment procedures establish contingency plans in the event of key supplier failure • Existing  and  new  sources  of  product  supply  are  developed  in conjunction with NEXT Sourcing,  external  agents  and/or direct suppliers • Our in-house global Code of Practice team carry out regular audits of our product-related suppliers' operations to ensure compliance with the standards set out in our Code. These standards cover supplier production methods, employee working conditions, quality control and inspection processes. Further details are set out on page 67 • We train relevant employees and communicate with suppliers regarding our expectations in relation to responsible sourcing, anti-bribery, human rights and modern slavery • The Audit Committee receives Code of Practice and modern slavery updates from senior management during the year • The Audit Committee receives modern slavery and anti-bribery training progress updates together with whistleblowing reports at each meeting. Significant matters are reported to the Board
Warehousing distribution ↔  Our warehousing and distribution operations provide fundamental support to the running of the business. Risks include business interruption due to physical damage, access restrictions, breakdowns, capacity and resourcing shortages, IT systems failure, inefficient and slow processes and third-party failures. Increasing choice in the products NEXT sells has been central to  the development  of  our  Online  Platform  but  the  proliferation of unique items has presented our warehouse operation with significant challenges.	How we manage or mitigate the risk • Planning processes are in place to ensure there is sufficient warehouse handling capacity for expected future business volumes over the short and longer terms • Service levels, warehouse handling, inbound logistics and delivery costs are continually monitored to ensure goods are delivered to our warehouses, Retail stores and Online customers in a timely and cost-efficient manner • Our Warehouse Leadership Team meets regularly to assess the opportunities and risks in our warehouse and logistics network • Business continuity plans and insurance are in place to mitigate the impact of business interruption • The Board has approved and keeps under regular review a warehouse investment proposal to accommodate further Online growth and transfer in customer demand from Retail to Online (see page 20 for further details) • During the year, the Audit Committee requested and received updates of key warehouse fire risks and mitigation plans from our Warehousing and Logistics directors. Following a detailed review of the risk of business interruption arising from a catastrophic event in one of our key warehouses, the Board approved an increase in the value of risk covered by insurance
Customer-facing systems     ↑ 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, a well organised and attractive store environment, effective call centres, operating successful marketing strategies, and providing both Retail and Online customers with service levels that meet or exceed their expectations.	How we manage or mitigate the risk • Continued investment in technology which supports the various component parts of the NEXT Online Platform • Continual development and monitoring of performance of NEXT's UK and overseas websites, with a particular focus on improving the online customer experience • A range of key trade and operational meetings keep under review the performance, evolution, risks and opportunities of the NEXT customer facing systems. Executive directors are in attendance at each of these key meetings • Market research and customer feedback is used to assess customer opinions and satisfaction levels to help to ensure that we remain focused on delivering excellent customer service •   Ongoing monitoring of KPIs and feedback from website and call centre support operations
Management of long term liabilities and capital expenditure Poor management of NEXT's longer term liabilities and capital expenditure could jeopardise the long term sustainability of the business. It is important to ensure that the business continues to be responsive and flexible to meet the challenges of a rapidly changing Retail sector.	How we manage or mitigate the risk • Our predominantly leased store portfolio is actively managed by senior management, with openings, refits and closures based on strict store profitability and cash payback criteria • We undertake regular reviews of lease expiry and break clauses to identify opportunities for exit or renegotiation of commitments. Leases will not be automatically renewed if acceptable terms are not agreed • The Board regularly reviews our lease commitments, new store openings and potential store closures • We ensure that we make healthy returns on capital employed, commensurate with the risks involved in our sector (in practical terms this means a return of no less than 15% on capital invested). • Appropriate amortisation accounting policies reduce the risk of unexpected significant write-off
Information security, business continuity and cyber risk The continued availability and integrity of our IT systems is critical to successful trading. Our systems must record and process substantial volumes of data and conduct inventory management accurately and quickly. Continuous enhancement and investment is required to prevent obsolescence and maintain responsiveness. The threat of unauthorised or malicious attack is an ongoing risk, the nature of which is constantly evolving and becoming increasingly sophisticated. Our brand reputation could be negatively impacted by cyber security breaches. The Group could inadvertently process customer or employee data in a manner deemed unethical or unlawful, resulting in significant financial penalties, remediation costs, reputational damage and/or restrictions on our ability to operate. This is against a backdrop of: The changing attitude of UK consumers toward their data and how it is used Increasingly complex and fast-evolving  data  protection  law  and regulation Rapid technological advances delivering an enhanced ability to gather, draw insight from and monetise personal data	How we manage or mitigate the risk • We operate an Information Security and Data Protection Steering Committee. Its main activities include agreement and monitoring of related key risks, activities and incidents. The Committee comprises two executive directors and relevant senior management • Significant investment in systems' development and security programmes has continued during the year, complemented by in- house dedicated information and physical security resources • Systems vulnerability and penetration testing is carried out regularly by both internal and external resources to ensure that data is protected from corruption or unauthorised access or use • Critical systems backup facilities and business continuity plans are reviewed and updated regularly • Major incident simulations and business continuity tests are carried out periodically • IT risks are managed through the application of internal policies and change management procedures, imposing contractual security requirements and service level agreements on third-party suppliers, and IT capacity management • All staff and contractors are required to read, accept and comply with the Group's data protection and information security policies, which are kept under regular review and supported by training • Information security and data protection risk exposure was reviewed during the year by both  the  Audit  Committee  and  the Board, target risk appetites were agreed and the controls necessary to achieve target were documented. A roadmap was prepared and approved to address gaps between current and target risk exposures
Financial, treasury, liquidity and credit risks  ↔  NEXT's ability to meet its financial obligations and to support the operations of the business is dependent on having sufficient funding over the short, medium and long term. NEXT is reliant on the availability of adequate financing from banks and capital markets to meet its liquidity needs. NEXT is exposed to foreign exchange risk and profits may be adversely affected by unforeseen moves in foreign exchange rates. NEXT might suffer financial loss if a counterparty with which it has transacted fails and is unable to fulfil its contract. NEXT is also exposed to credit risk, particularly in respect of our Online customer receivables, which at £1.4bn represents the largest item on the Group Balance Sheet.	How we manage or mitigate the risk •   NEXT operates a centralised treasury function which is responsible for managing liquidity, interest and foreign currency risks. It operates under a Board approved Treasury policy. Approved counterparty and other limits are in place to mitigate NEXT's exposure to counterparty failure. Further details of the Group's treasury operations are given in Note 28 to the financial statements • The Group's debt position, available funding and cash flow projections are regularly monitored and reported to the Board. The Board will agree funding for the Group in advance of its requirement to mitigate exposure to illiquid market conditions • NEXT has a Treasury Committee which includes the Group Finance Director. The Treasury Committee usually meets weekly to  review the Group's treasury and liquidity risks including foreign exchange exposures • Rigorous procedures are in place with regards to our credit  account customers, including the use of external credit reference agencies and applying set risk criteria before acceptance. These procedures are regularly reviewed and updated • Continual monitoring of our credit customers' payment   behaviours and credit take up levels is in place • The Board and Audit Committee receives regular updates  throughout the year regarding the customer credit business
Regulatory compliance in relation to our consumer credit business  ↑ Failure to continuously adapt to the increasingly broad, stringent and fast-evolving regulatory framework applicable to the operation of the Group's customer credit business could result in significant financial penalties and remediation costs, reputational damage and/ or restrictions on our ability to operate.	How we manage or mitigate the risk · Policies and training are in place for those employees and contractors working in the business areas that are subject to financial regulation. These are kept under review and updated. · A dedicated financial regulatory compliance and quality assurance team monitors compliance and any changing requirements, working with external advisers as required. · NEXT has identified a set of Conduct and Compliance risks, documented in an operational risk register, with owners and associated controls. · Key risk and control performance indicators are managed through a series of operational meetings and reported quarterly to the Retail Credit Board.

Directors' Responsibilities statement

Directors' Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial 52 week period. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law).

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 Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing the financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently

• state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements

• make judgements and accounting estimates that are reasonable and prudent and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

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

The directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for

the prevention and detection of fraud and other irregularities.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the

information necessary for shareholders to assess the Group and Parent Company's position and performance, business model and strategy.

Each of the directors, whose names and functions are listed on pages 80 and 81, confirm that to the best of their knowledge:

• the Parent Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company

• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group and

• the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Lord Wolfson of Aspley Guise Chief Executive

Amanda James Group Finance Director

14 April 2020

 

END

 

 

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