Final Results

Next PLC 23 March 2005 Date: Embargoed until 07.00am, Wednesday 23 March 2005 Contacts: Simon Wolfson, Chief Executive David Keens, Group Finance Director NEXT PLC Tel: 020 7796 4133 (23/03/05) Tel: 08454 567777 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 Year Ended January 2005 • Group turnover up 13% to £2,858m • Group profit before tax up 18% to £423m • Buyback 1.5% of share capital for £57m • Earnings per share up 26% to 118p • Total dividend up 17% to 41p Chairman's Statement I am pleased to report that NEXT has had another successful year, in which we achieved good growth in both sales and profit. Earnings per share increased by 26% and the total dividend rose by 17% to 41p. The success of the business has been based on the continued drive to deliver well designed, good quality ranges to our customers. We have continued to offer improved value by passing on the benefits of better buying. Alongside the development of our ranges we have continued to expand our store portfolio, the new space has performed well and has provided an excellent return on the capital invested. Profits resulting from a successful trading strategy have continued to be enhanced through share buybacks. We began to buy back our shares in March 2000 and since then we have bought and cancelled 113 million shares representing 30% of the shares in issue at that date, at an average price of 797p. During the year we appointed two new non-executive directors, Jonathan Dawson who joined the Board on 13 May 2004, and Christine Cross who joined on 19 January 2005. In September of last year we indicated that we expected 2005 to be more challenging. Whilst it is important not to draw too many conclusions from short periods of time, the first seven weeks of the current year would suggest that our caution was well placed. After many years in retail I am acutely aware that over-reaction to a difficult consumer environment can do more damage than the poor environment itself, and I am pleased that NEXT is clear about what needs to be done. We will continue to focus, first and foremost, on delivering the right product ranges to our customers. We will not be diverted from taking profitable new space and we will make extra efforts to manage our costs without making cuts that may damage the long term prospects of the Company. NEXT has a strong balance sheet, very healthy net margins and is well placed to cope with the challenges of the year ahead. I remain confident that despite challenging trading conditions we will be able to advance both total sales and profits in the coming year. David Jones C.B.E Chairman Chief Executive's Review INTRODUCTION In the year to January 2005 Group turnover was £2,858m, 13.6% ahead of the previous year. Sales in NEXT Retail were up 13.7% and in NEXT Directory were up 12.9%. The net margins of the business moved forward mainly as a result of improved buying margins and good control over central overheads, this resulted in operating profits increasing by more than sales at 17.5%. Profits after interest were up 18.1%, a lower tax rate and share buybacks further enhanced earnings per share to give growth of 26.2%. Our financial objective is the delivery of long term sustainable growth in earnings per share. The diagram below shows how healthy growth in sales has delivered exceptional growth in earnings per share. Improved Operating Financial Profit before Tax and share Earnings per margin profit gearing tax buybacks share Sales +13.6% +17.5% +18.1% +26.2% PROFIT AND LOSS ACCOUNT Turnover Profit & excluding VAT Earnings per share 2005 2004 2005 2004 £m £m £m £m Restated NEXT Retail 2,057.6 1,809.3 307.4 259.4 NEXT Directory 602.6 533.7 89.5 77.0 The NEXT Brand 2,660.2 2,343.0 396.9 336.4 NEXT Sourcing 20.2 17.6 28.5 23.7 NEXT Franchise 33.5 28.8 6.0 5.3 Ventura 131.8 112.0 12.9 15.4 Other activities 12.8 14.6 (1.8) (5.1) Share option charge - (1.4) - (0.2) Turnover & operating profit 2,858.5 2,516.0 441.1 375.5 Interest expense (18.2) (17.3) Profit before tax 422.9 358.2 Taxation (121.9) (108.1) Profit after tax 301.0 250.1 Earnings per share 118.5p 93.9p STATEMENT OF FINANCIAL OBJECTIVE The financial objective of the NEXT Group is to maximise sustainable long term growth in earnings per share. We aim to achieve this in our operating businesses in the following ways: • Improving and developing NEXT product ranges • Profitably increasing NEXT selling space • Increasing the number of customers shopping from home with the NEXT Directory • Buying back shares for cancellation as and when it is in the interests of our shareholders generally We explained last September that we felt that the retail environment would be more challenging for NEXT in 2005. We are still very cautious about the outlook for consumer spending; however we believe that NEXT will continue to grow both its sales and profits in the year ahead even though achieving underlying like-for-like growth may be challenging. THE DEVELOPMENT OF NEXT PRODUCT RANGES Improving style, quality and value NEXT's approach to improving value is simple: as long as we can maintain our profitability then we will pass on the benefits of improved buying to our customers. Over the last year we have continued to make significant advances in sourcing and this, combined with a weaker dollar, has enabled us to pass on noticeable improvements in value to our customers without sacrificing gross margin. Outlook for improving value in 2005/6 We will continue, where trading conditions permit, with our drive to deliver better value products to our customers. Although price remains important we believe that improving quality and design will be more important to the consumer for the Autumn Winter season. THE DEVELOPMENT OF NEXT RETAIL Rationale for space expansion We have made excellent progress in the acquisition of profitable new space. Most of this growth has come from retail parks on the edge of, or out of, town. In these locations we have sufficient critical mass with Womenswear, Menswear, Childrenswear and Home to make a real difference to the popularity of the parks we go onto. The acquisition of new space remains governed by strict financial criteria. Every new store aims to pay back the net capital invested in less than 24 months and to achieve at least 15% store profit on sales before distribution and central costs. When appraising new stores we account for downturn in neighbouring stores and do not factor in any future like-for-like growth. The store must achieve the investment criteria based on its expected first year sales. Performance of new space New space opened during the year is exceeding its appraised sales target by 11% and is forecast to pay back the net capital invested in 15 months. Profile of new space During the year we added a net 483,000 square feet to our trading space, increasing the total by 17% to 3,327,000 square feet. The table below shows how our store portfolio has changed over the last three years. Store Size Number of Stores % of Selling Space (square feet) 2005 2004 2003 2005 2004 2003 Less than 5,000 152 166 182 14% 18% 23% 5,000-10,000 112 99 96 25% 26% 29% 10,000-15,000 61 45 34 22% 19% 18% 15,000-20,000 29 25 19 15% 15% 14% Greater than 20,000 30 23 13 24% 22% 16% TOTAL 384 358 344 Deflection and like-for-like sales NEXT defines like-for-like stores as those that have traded for at least one full year and have not benefited from significant capital expenditure. Inevitably this includes all those stores that have been adversely affected by new openings. Total like-for-like sales for the year were up 1.4% whilst those stores unaffected by new openings were up 3.6%. When preparing our budgets or analysing the performance of our ranges we focus on the true like-for-like sales before deflection. If we were to use total like-for-likes as a measure of success, it would discourage us from acquiring profitable new space. Putting profit first NEXT is aware that some commentators use total like-for-like sales as the key measure of retail success. Indeed some reports do not mention total sales growth or growth in earnings per share. Nonetheless, it would not be logical to allow this potential for adverse publicity to inhibit our efforts to acquire profitable new space, which will continue. New space in the year ahead We currently expect to increase net selling space by at least 800,000 square feet in the year ahead, significantly more than was achieved in each of the last two years. We believe that taking new space in a potentially difficult year is the right strategy, as long as the space we are taking is the right space. A lease commitment is rarely for less than fifteen years, so the economic environment in any one particular year should not be the determining factor when considering a new store. In this respect, it is an important feature of our appraisal process that we do not assume any like-for-like growth when considering a new site. Trial store in Denmark Last year we opened a trial store in Copenhagen. After one full year the forecast ongoing profitability of the store before central overheads is 5% and the payback on capital invested is 52 months. Clearly neither the return on capital nor the profitability satisfies our appraisal criteria. Whilst the store is not yet successful enough to warrant any roll out, it is sufficiently profitable to justify continuing our trial in Denmark. THE DEVELOPMENT OF NEXT DIRECTORY Growing the customer base The growth in new customers has been the most significant contributor to the growth of sales in our home shopping division. We start the new year with 14.8% more customers than a year ago. January 2005 January 2004 Growth Total active customers 1,905,000 1,660,000 14.8% Expansion of pages and product offer Growth in pages has been more limited and we do not foresee the opportunity to significantly increase the Directory product offer in the coming year. PAGES 2005 2004 Growth Womens 906 890 +2% Mens 534 490 +9% Childrens 448 476 -6% Home 712 652 +9% TOTAL 2,600 2,508 +4% Increasing importance of the Internet The Internet continues to grow in importance to the Directory, both as a method of recruitment and as a sales vehicle. We currently take more than 30% of our orders this way and envisage that its participation will grow in the future. In the coming year we estimate sales over the Internet will be in the region of £200m. However, the vast majority of Internet customers use the Directory to select garments then use the Internet to order and manage their accounts. We believe we can further develop our website, in particular through the addition of much improved search facilities. WAREHOUSE INVESTMENT During the year we extended and consolidated our warehousing for palletised stock to accommodate the growth in our home furnishings business. This involved the successful commissioning of a 600,000 square foot warehouse with a capital spend of £10m. Warehouse development 2005/6 By the end of the year our boxed and palletised warehouses were working to their maximum capacity and this produced a significant strain on warehouse operations. In August of this year we expect to further increase capacity in both boxed and palletised warehousing. We will open the highly mechanised extension to our boxed warehouse which is being fitted out at a cost of £40m. We will also lease a 500,000 square foot warehouse for palletised product with a fit out cost of circa £4m. The opening of these facilities will result in a rise in our fixed costs of approximately £5m per annum, but are necessary to support continued growth. Outlook for warehousing 2006/7 In 2006 we expect to open the extension to our bulk storage of hanging garments. The capital expenditure for this project will be in the order of £10m, some of which will be spent in the year ahead. Beyond 2006/7 By 2008 we anticipate we will need to spend a further £50m opening additional boxed and palletised warehouses. The timing of this will depend very much on the growth of the business between now and then, as yet we have made no commitments in respect of this potential investment. Average selling price and warehouse requirements The decreases we have achieved in average selling prices over the last few years has placed particular pressure on warehouse operations, as unit sales have grown faster than cash revenue. In the Autumn Winter 2005 season we will be focusing more on improving quality than reducing prices, so we expect the rate of growth in units to be more in line with sales growth going forward. NEXT SOURCING We have merged NEXT Asia and NEXT Near East into one overseas sourcing operation, and renamed it NEXT Sourcing Limited (NSL). In Hong Kong, Turkey, Sri Lanka, Romania and other locations we now employ over 1,000 people engaged in the design, sourcing, buying, merchandising and quality control of NEXT products. In Sri Lanka, NSL owns and operates a garment sewing factory which employs a further 2,000 people. NSL operates as a profit centre and must compete on an even footing with other factories and independent sourcing offices. It charges commission on the product it sources, operating costs are deducted and the balance is reported as profit. This year NSL profits amounted to £28.5m compared with £23.7m last year. We are not budgeting for a significant change in NSL profits for the coming year, as any increase in turnover is likely to be offset by the cost of developing the new structure. NEXT FRANCHISE Our overseas franchise operation had another successful year, with sales increasing by 16.4% and profit by 13.6% at £6m. At the end of January 2005 there were 80 franchise stores compared with 70 the previous year. The Middle East continues to be our largest region with 32 stores. Our partner in Japan now has 24 stores. VENTURA At the beginning of the last financial year we indicated that we expected Ventura's profit to fall back significantly as a result of re-negotiating its biggest contract to a much more competitive margin. This affected the last six months of the financial year. The detrimental effect of this re-negotiation was to some extent mitigated by better than expected growth in new business. As a result Ventura achieved profits of £12.9m as against £15.4m last year. Ventura currently subcontracts some work to a partner in India. We believe that, in the long run, we cannot be reliant on third parties for what is an increasingly important resource for Ventura. As a result we will be opening our own call centre in Pune, near to Mumbai. Capital investment will be in the order of £8.5m. It is anticipated that both NEXT Directory and Ventura will be operating out of this facility by the end of the current year. Ventura now has a broad client base and its services are priced competitively. However, much of our revenue is dependent on the underlying growth of our clients' businesses. Given our caution about the general economy we remain cautious for Ventura's underlying prospects in the year ahead. As a result of this, and approximately £2m of start up costs for the Indian call centre, we expect Ventura's profit for the coming year to be in the order of £10m. OTHER ACTIVITIES The Other Activities charge was £1.8m. Other activities include our Property Management Division, Choice (an associated company which operates a chain of fourteen discount stores), Cotton Traders (an associated company selling its own brand products) and Central Costs, the largest element of which is a pension charge. The total cost of the Group's pension schemes increased to £18.6m from £17.6m last year, including a charge of £5m in respect of the past service deficit. We estimate that the year end deficit was £44m, unchanged from last year. During the year the Company made additional cash contributions of £7.5m and we expect these further contributions to continue for the foreseeable future. SHARE OPTIONS Over 9,500 of our employees currently hold options over almost 10 million shares in NEXT. Our employee share ownership trust purchases shares in the market and issues them to employees when options are exercised. It currently holds 9 million shares. Our main employee share scheme, which was first approved by shareholders in 1995, is due for renewal and a resolution will be put to this year's AGM. Due to a change in accounting standards we are required to recalculate the charge for share options. This results in reducing the previous year's charge of £5.1m down to £0.2m and a charge for the year just ended of £1.4m. For the coming year, accounting standards are changing again and, whilst we can not yet be certain of the impact, we currently anticipate a charge in the region of £7m. SHARE BUYBACKS During the year we purchased a further 4 million shares for cancellation at an average price of 1444p, for a cash cost of £57m. This was 1.5% of the shares in issue at the beginning of the year. We intend to continue with our strategy of buying back shares as and when it is in the interests of shareholders generally. Share buybacks are not made at the expense of capital investment in the business. The primary use of capital will continue to be investment in the development of the core businesses and we aim to maintain the Company's investment grade credit rating. BALANCE SHEET AND CASH FLOW At January 2005 net borrowings were £250m compared with £306m the previous year. The cash inflow of £56m was after the £57m cost of shares purchased for cancellation. Borrowings are financed through a £300m 5.25% 10 year bond, which was issued in June 2003, and medium term bank facilities. The majority of our borrowings are at fixed interest rates and therefore, at current levels of debt, any rate changes in the medium term will not have a significant impact on our cost of borrowing. Capital expenditure amounted to £144m, of which £97m was spent on stores and £36m on warehousing. Stock levels at £302m were broadly in line with our requirements. Debtors of £436m include the £311m account balances of our Directory customers. DIVIDEND The Directors recommend a final dividend of 28p against 24p last year, bringing the total for the year to 41p compared with 35p last year, an increase of 17%. The dividend is covered 2.9 times by earnings per share of 118.5p. CURRENT TRADING Current trade For the seven weeks to 20 March, NEXT Retail sales are 8.2% ahead of the previous year. Like-for-like sales in the 279 stores which have been trading for at least one year and have not been affected by the opening of new space are down 0.9%. Like-for-like sales in the 333 stores including those which, as planned, have been impacted by the opening of new space are 3.5% below last year. NEXT Directory sales for the seven weeks are 10.4% ahead of the previous year. Taken together, sales for the NEXT Brand are 8.8% ahead. Outlook Whilst there are parts of our ranges that we believe could be better, we think that the poor performance during the last seven weeks is indicative of an underlying easing of consumer demand. As we indicated in September 2004, we anticipated a more challenging consumer environment in the current year and do not foresee any significant economic improvement for at least six months. We are clear about what our response to the challenge of a tougher environment will be: • We will continue to focus on delivering well designed, good quality clothing and where possible pass on the benefit of better buying to the consumer. However, increasing fixed costs will require a more conservative approach to selling price reductions. • We will continue to invest in profitable new space where our strict investment criteria are met. • We will place even greater emphasis on controlling costs in the business but will not sacrifice the long term prospects of the Company in return for short term cost savings. Our next trading statement will be made on 18 May 2005, which is the date of our Annual General Meeting. Simon Wolfson 23 March 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the financial year ended 29 January 2005 2004 £m £m Restated Turnover 2,858.5 2,516.0 _________ _________ Profit before interest 441.1 375.5 Net interest payable (18.2) (17.3) _________ _________ Profit on ordinary activities before taxation 422.9 358.2 Taxation on profit on ordinary activities (121.9) (108.1) _________ _________ Profit on ordinary activities after taxation 301.0 250.1 Dividends (103.0) (89.3) _________ _________ Profit for the year transferred to reserves 198.0 160.8 _________ _________ Earnings per share 118.5p 93.9p Diluted earnings per share 116.7p 93.0p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the financial year ended 29 January 2005 2004 £m £m Restated Profit attributable to members of the parent company 301.0 250.1 Exchange difference on translation of net assets of subsidiary undertakings 0.6 (1.6) Total recognised gains and losses relating to the year 301.6 248.5 Prior period adjustment (Share options) 6.9 - _________ _________ 308.5 248.5 _________ _________ CONSOLIDATED BALANCE SHEET As at 29 January 2005 2004 £m £m Restated Fixed assets Goodwill 31.9 36.2 Tangible assets 422.1 355.7 Investments 1.5 1.0 ________ ________ 455.5 392.9 ________ ________ Current assets Property development stocks 5.9 5.9 Stocks 295.7 263.5 Debtors 436.0 378.5 Cash at bank and in hand 72.3 62.3 ________ ________ 809.9 710.2 Current liabilities Creditors: amounts falling due within one year 620.1 576.6 ________ ________ Net current assets 189.8 133.6 ________ ________ Total assets less current liabilities 645.3 526.5 Creditors: amounts falling due after more than one year 349.3 352.7 Provision for liabilities and charges 23.3 18.7 ________ ________ Net assets 272.7 155.1 ________ ________ Capital and reserves Called up share capital 26.1 26.5 Share premium account 0.6 0.6 Revaluation reserve 9.4 14.0 Capital redemption reserve 3.8 3.4 ESOP reserve (93.3) (72.8) Other reserves (1,448.9) (1,448.9) Profit and loss account 1,775.0 1,632.3 ________ ________ Shareholders' funds 272.7 155.1 ________ ________ CONSOLIDATED CASH FLOW STATEMENT For the financial year ended 29 January 2005 2004 £m £m Net cash inflow from operating activities 506.5 402.2 _______ ________ Returns on investments and servicing of finance Interest paid (19.0) (9.7) _______ ________ Taxation UK corporation tax paid (113.6) (91.8) Overseas tax paid (3.5) (4.5) _______ ________ (117.1) (96.3) _______ ________ Capital expenditure and financial investment Purchase of tangible fixed assets (144.0) (99.8) Proceeds from disposal of fixed assets 7.7 4.2 _______ ________ (136.3) (95.6) _______ ________ Acquisitions and disposals Purchase of investment in associated company (1.2) - _______ ________ (1.2) - _______ ________ Equity dividends paid (94.2) (85.4) _______ ________ Cash inflow before management of liquid resources and financing 138.7 115.2 Management of liquid resources (2.0) 4.3 Financing Issue of equity shares - 0.6 Company shares purchased for cancellation (57.3) (209.0) Capital element of finance lease repayments (0.2) (0.1) Unsecured bank loans (60.0) (150.0) Issue of corporate bond - 300.0 Purchase of own shares by ESOP (41.1) (40.2) Proceeds from disposal of shares by ESOP 16.0 16.2 _______ ________ (142.6) (82.5) _______ ________ (Decrease)/increase in cash in the year (5.9) 37.0 _______ ________ Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the year (5.9) 37.0 Cash outflow/(inflow) from management of liquid resources 2.0 (4.3) Decrease in cash from unsecured bank loan 60.0 150.0 Cash inflow from corporate bond issue - (300.0) Capital element of finance lease repayments 0.2 0.1 _______ ________ Changes in net debt resulting from cash flows 56.3 (117.2) New finance leases (0.2) (0.9) _______ ________ Movement in net debt in the period 56.1 (118.1) Net debt at January 2004 (306.9) (188.8) _______ ________ Net debt at January 2005 (250.8) (306.9) _______ ________ BASIS OF PREPARATION The report was approved by the Board of Directors on 23 March 2005. The financial information for the year ended 29 January 2005 is unaudited and does not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. The results for the year ended 31 January 2004 have been restated following the implementation of UITF 38 Accounting for ESOP Trusts and the revision of UITF 17 Employee Share Schemes. All other accounting policies adopted are consistent with those set out in the accounts for the year ended 31 January 2004. Full accounts for that period incorporating an unqualified audit report have been delivered to the Registrar of Companies. SEGMENTAL INFORMATION The results for the year are for the 52 weeks to 29 January 2005 (last year 52 weeks to 31 January 2004) with the exception of Ventura, NEXT Sourcing and certain other activities which relate to the year to 31 January. By business sector: Turnover Operating profit 2005 2004 2005 2004 £m £m £m £m NEXT Retail 2,057.6 1,809.3 307.4 259.4 NEXT Directory 602.6 533.7 89.5 77.0 NEXT Sourcing 20.2 17.6 28.5 23.7 NEXT Franchise 33.5 28.8 6.0 5.3 Ventura 131.8 112.0 12.9 15.4 Other activities 12.8 14.6 (3.2) (5.3) _________ _________ _______ _______ 2,858.5 2,516.0 441.1 375.5 _________ _________ _______ _______ By geographical destination: United Kingdom 2,761.2 2,438.3 410.1 348.8 Rest of Europe 68.6 53.2 1.6 1.4 North America - - 0.1 0.2 Middle East 19.7 16.8 4.4 3.0 Asia 9.0 7.7 24.9 22.1 _________ _________ _______ _______ 2,858.5 2,516.0 441.1 375.5 _________ _________ _______ _______ EARNINGS PER SHARE The calculation of earnings per share is based on £301.0m (2004 restated: £250.1m) being the profit for the year after taxation and 254.1m ordinary shares of 10p each (2004: 266.3m), being the weighted average number of shares ranking for dividend less the weighted average number of shares held by the ESOP during the year. The calculation of diluted earnings per share is based on £301.0m (2004 restated: £250.1m) being the profit for the year after taxation and 257.9m ordinary shares of 10p each (2004: 268.9m) 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 3.8m shares (2004: 2.6m shares). HALF YEAR ANALYSIS Year ended January First Second 2005 First Second 2004 half half half half Restated £m £m £m £m £m £m Turnover NEXT Retail 924.3 1,133.3 2,057.6 797.4 1,011.9 1,809.3 NEXT Directory 278.2 324.4 602.6 247.1 286.6 533.7 NEXT Sourcing 8.6 11.6 20.2 6.3 11.3 17.6 NEXT Franchise 14.2 19.3 33.5 13.2 15.6 28.8 Ventura 64.1 67.7 131.8 52.9 59.1 112.0 Other activities 4.1 8.7 12.8 4.1 10.5 14.6 _________ _________ _________ _________ _________ _________ 1,293.5 1,565.0 2,858.5 1,121.0 1,395.0 2,516.0 _________ _________ _________ _________ _________ _________ Profit before tax NEXT Retail 114.9 192.5 307.4 85.8 173.6 259.4 NEXT Directory 38.6 50.9 89.5 30.2 46.8 77.0 NEXT Sourcing 10.4 18.1 28.5 9.6 14.1 23.7 NEXT Franchise 2.5 3.5 6.0 2.4 2.9 5.3 Ventura 6.4 6.5 12.9 5.9 9.5 15.4 Other activities (0.3) (1.5) (1.8) (1.0) (4.1) (5.1) Share option charge (restated) (0.6) (0.8) (1.4) (0.4) 0.2 (0.2) _______ _______ _______ _______ _______ _______ Profit before interest 171.9 269.2 441.1 132.5 243.0 375.5 Interest charge (9.2) (9.0) (18.2) (7.2) (10.1) (17.3) _______ _______ _______ _______ _______ _______ Profit before tax 162.7 260.2 422.9 125.3 232.9 358.2 _______ _______ _______ _______ _______ _______ RECONCILIATION OF SHAREHOLDERS' FUNDS 2005 2004 £m £m Restated Total recognised gains and losses relating to the year 301.6 248.5 Dividends (103.0) (89.3) Shares purchased for cancellation (57.3) (209.0) New ordinary share capital issued - 0.6 Purchase of own shares by ESOP (41.1) (40.2) Proceeds from issue of shares by ESOP 16.0 16.2 Share option charge 1.4 0.2 _______ _______ Total movement during the year 117.6 (73.0) Opening shareholders' funds (originally £221.0m before deducting prior period adjustment of £65.9m) 155.1 228.1 _______ _______ Closing shareholders' funds 272.7 155.1 _______ _______ CASH FLOW: RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW 2005 2004 £m £m Restated Profit before interest 441.1 375.5 Depreciation 70.9 62.3 Amortisation of goodwill 4.3 4.4 (Profit)/loss on disposal of fixed assets (0.9) 1.4 Share option charge 1.4 0.2 Income from interest in associated undertakings 0.5 (0.7) Increase in stock (32.2) (25.6) Increase in debtors (57.4) (61.9) Increase in creditors 78.1 48.3 Exchange movement 0.7 (1.7) _______ _______ Net cash inflow from operating activities 506.5 402.2 _______ _______ CASH FLOW: ANALYSIS OF NET DEBT January Cash Other non January 2004 flow cash 2005 £m £m changes £m £m Cash in hand 57.3 10.0 - 67.3 Overnight deposits/(borrowings) 2.0 (17.6) - (15.6) Overdrafts (8.4) 1.7 - (6.7) _______ ________ ________ ________ 50.9 (5.9) - 45.0 Short term deposits 3.0 2.0 - 5.0 Unsecured bank loans (60.0) 60.0 - - Corporate bond (300.0) - - (300.0) Finance leases (0.8) 0.2 (0.8) (0.2) _______ ________ ________ ________ Total (306.9) 56.3 (0.2) (250.8) ________ ________ ________ ________ INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group is required to prepare its financial statements for the year ended January 2006 and all subsequent periods in accordance with International Financial Reporting Standards ('IFRS'). This will require an opening balance sheet as at 1 February 2004 to be prepared under IFRS, together with a full profit and loss account, balance sheet and cash flow statement for the year ended January 2005 for comparative purposes. The Group intends to publish these restated figures in advance of the announcement of its first IFRS results for the six months ended July 2005. The review of the impact of the change to IFRS has continued during the year. The principal adjustments to the Group's financial statements are expected to arise from changes to accounting for financial instruments, operating lease incentives, share based payments, goodwill, pensions, deferred taxation and the presentation of dividends. AGM / DIVIDEND / ANNUAL REPORT AND ACCOUNTS It is intended that the recommended dividend will be paid on 1 July 2005 to shareholders registered on 27 May 2005. The Annual General Meeting will be held at One Great George Street, Westminster, London SW1P 3AA on Wednesday 18 May 2005. The Annual Report and Accounts will be sent to shareholders by 14 April 2005 and copies will be available from the Company's registered office: Desford Road, Enderby, Leicester LE19 4AT and on the Company's website at www.next.co.uk. This statement, the full text of the Stock Exchange announcement and the 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. This information is provided by RNS The company news service from the London Stock Exchange

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