Interim Results
Next PLC
13 September 2006
Date: Embargoed until 07.00am, Wednesday 13 September 2006
Contacts: Simon Wolfson, Chief Executive
David Keens, Group Finance Director
NEXT PLC
Tel: 020 7796 4133 (13/09/06)
Tel: 08454 567 777
Alistair Mackinnon-Musson
Nicola Savage
Hudson Sandler
Tel: 020 7796 4133
Email: next@hspr.com
Photographs available: http://www.next.co.uk/press/
NEXT PLC
Results for the Half Year Ended July 2006
* Group turnover up 8.1% to £1,510.5m
* Group operating profit up 5.8% to £191.7m
* Earnings per share up 11.3%
* Interim dividend up 10.7% to 15.5p
* Buyback 6.9% of share capital for £283.5m
Chairman's Statement
NEXT has made further progress in a turbulent retail market with earnings per
share moving forward by 11.3% in the first half. This has been achieved by the
continued development of the NEXT Brand, efficiency improvements within the
group and increasing financial leverage through reducing the number of shares in
issue.
We believe that a clear focus on the design, value and efficient delivery of our
products, both through our stores and the NEXT Directory, continues to be the
strategy which will deliver the best returns to our shareholders.
I have been impressed by the resilience NEXT has shown in producing these
results. I am confident that the management team is well prepared to face the
challenging market conditions which lie ahead.
John Barton
Chairman
Chief Executive's Review
INTRODUCTION
NEXT increased operating profits in the first half by 5.8% despite very
difficult trading conditions. An excellent performance in NEXT Directory
combined with good cost control across the group more than compensated for a
disappointing performance in NEXT Retail.
Earnings per share have moved forward by more than operating profits as a result
of share buybacks and are 11.3% ahead of last year.
Turnover Profit and
excluding VAT earnings per share
Six months to July Six months to July
2006 2005 2006 2005
£m £m £m £m
NEXT Retail 1,029.7 989.4 111.1 120.6
NEXT Directory 359.4 311.8 59.6 41.3
_________ _________ _________ _________
The NEXT Brand 1,389.1 1,301.2 170.7 161.9 +5.5%
NEXT Franchise 22.0 16.5 2.5 3.3
NEXT Sourcing 2.9 5.3 15.6 13.6
Ventura 92.7 70.1 9.7 3.7
Other activities 3.8 3.7 (2.2) 0.4
Share option charge - - (4.1) (2.9)
Unrealised exchange (loss)/gain - - (0.5) 1.2
_________ _________ _________ _________
Turnover and operating profit 1,510.5 1,396.8 191.7 181.2 +5.8%
_________ _________
Interest expense (12.8) (8.6)
_________ _________
Profit before tax 178.9 172.6 +3.6%
Taxation (54.9) (52.7)
_________ _________
Profit after tax 124.0 119.9 +3.4%
_________ _________
Earnings per share 53.3p 47.9p +11.3%
NEXT RETAIL
Retail Sales
Sales in NEXT Retail were 4.1% ahead of last year. Like for like sales in
stores that traded continuously and were not affected by the opening of new
space were -7.5% down on last year. Weak full price like for like sales of
-6.6% in the first half were exacerbated by a particularly poor first week of
Sale. The Sale was at the same time as last year, which in the current retail
environment may have been too late, and initial markdowns may not have been
aggressive enough. For next year we will review both the timing of the Summer
Sale and the level of markdowns. All residual Sale stock has been written down,
current stocks are clean and in line with our Autumn/Winter requirements.
New Space
In the first half we added a net 230,000 square feet and increased the number of
stores by 18 to a total of 457.
July 2006 Jan 2006 July 2005 Annual change
Store numbers 457 439 411 +11.2%
Square footage 4,539,000 4,309,000 3,764,000 +20.6%
We estimate that payback of the net capital invested in new space will be 17
months, which will be well within our investment criteria of 24 months. When
appraising a new store we account for the loss of sales and profit from nearby
stores that we expect to suffer a downturn as a result of the new opening. Sales
from new space, net of this deflection, are now forecast to be 0.2% ahead of our
original target.
We now expect the net selling space increase for the full year will be around
500,000 square feet, taking the total to approximately 4.8 million square feet
by January 2007.
New Shop Fit
In May we launched a new shop fit concept in our Oxford Circus branch. This has
been well received by our customers and we estimate that sales have benefited by
about 8% in the three shops that have been updated. However, we expect these
sales increases to be short term and it would be unwise to assume any long term
uplift in sales as a result of the refit programme.
By the end of this financial year we anticipate that we will have refitted
364,000 square feet of our existing portfolio and opened 336,000 square feet of
new space in the new format.
Retail Profit
Profit in NEXT Retail decreased by -7.9% compared with the 4.1% increase in
total sales. Net operating margin was down from 12.2% to 10.8%. The erosion in
margin is detailed in the table below, the figures show the change as a
percentage of sales for each of our major heads of cost.
Net operating margin last year 12.2%
Increase in bought in gross margin +1.4%
Higher markdowns and obsolescence - 0.6%
Increase in branch occupancy costs - 1.9%
Increase in branch wage costs - 0.5%
Reduction in central overheads +0.2%
_________
Net operating margin this year 10.8%
_________
The improved bought in gross margin was a result of better sourcing, in
achieving this we have neither compromised quality nor increased prices to our
customers. Markdown and obsolescence worsened by -0.6% as a result of more
stock going into the end of season Sale.
Branch occupancy costs increased as a percentage of sales due to the impact of
lower like for like sales on fixed expenses, such as rent. Energy prices and
rates also rose significantly. Branch wages increased as a result of cost of
living wage rises but otherwise reflect a good level of control. Some stores
with negative like for like sales experienced diseconomies as they were already
operating on minimum levels of staffing.
NEXT DIRECTORY
Directory Sales
NEXT Directory has performed well. Sales were 15.3% ahead of last year mainly
driven by increased numbers of active customers. The average number of active
customers during the period was 8.6% ahead of last year. Improved stock
availability meant that sales were also ahead of the underlying demand which was
9.7% up on last year. The internet has become a significant part of NEXT
Directory's business and we now take 45% of its sales on-line.
New Customers
Over the half year we increased the active customer base by 35,000 taking the
total number to 2,149,000. As a result we begin the second half with 5.7% more
customers than the same time last year. We expect that growth in customer
numbers will be in the order of 5% throughout the second half.
Directory Profit
NEXT Directory profit was up 44.7% on last year, an exceptional performance,
which was significantly ahead of the growth in sales. The improvement in net
operating margin is detailed in the table below, the figures show the change as
a percentage of sales for each of our major heads of cost.
Net operating margin last year 13.2%
Increase in bought in gross margin +1.0%
Higher markdowns and obsolescence - 1.8%
Bad debt and service charge - 0.4%
Reduction in central overheads +4.6%
_________
Net operating margin this year 16.6%
_________
The bought in gross margin in NEXT Directory was up 1%. We retained much more
of the Sale stock in NEXT Directory this year, rather than transfer it to NEXT
Retail, so the markdown charge in NEXT Directory increased by 1.8%. Bad debt
provisions increased as levels of customer default continued to rise faster than
service charge income.
We made very considerable savings to operational costs in the half year and
benefited from further economies of scale. Warehouse and distribution costs
reduced as a percentage of sales by 3.3% due to revised operating methods and
new warehousing. Increased use of the internet and the benefit of our own call
centre in India delivered a 1.0% margin improvement.
Last year we investigated developing our own distribution network for NEXT
Directory. We concluded that the best solution in terms of cost and quality of
service was to renew the contract with our current provider, which we have done.
RETAIL AND DIRECTORY COST ALLOCATION
As NEXT Directory has continued to grow faster than NEXT Retail we have reviewed
the allocation of costs between the two businesses. NEXT Directory has not
previously received a charge for the customer collection and return services
provided in store, nor for preparation of Sale stock moved into NEXT Retail.
This year NEXT Retail has charged £4.7m to NEXT Directory. In order to
facilitate comparisons we have adjusted last year's figures for the comparable
charge of £4.3m. There is no change to the total NEXT Brand profit as a
consequence.
PRODUCT
Over the last year we have changed our working practices and broadened our
supplier base in order to be more responsive to new trends. The success of the
ranges in NEXT Directory is testament to the effectiveness of these
improvements. In NEXT Retail our womenswear had far too many different items in
the range. This resulted in confusing instore presentation and lack of stock
depth on key lines. The number of lines for Autumn/Winter has been reduced by
more than 10% compared to last year, and this is reflected in clearer instore
presentation.
New product trials in the NEXT Directory of precious jewellery and electricals
have been successful and we will continue to develop these ranges in Autumn/
Winter.
LIME
At the beginning of the year we announced that we would be launching a value
sub-brand in our clearance stores called Lime. This range has started better
than originally anticipated and we will be opening several trial stand alone
stores in the second half to gauge whether Lime could operate as an independent
brand. These trial stores are all existing NEXT stores that were due to be
vacated as part of our ongoing store expansion programme.
NEXT FRANCHISE
Sales to franchise partners increased by 33.8% to £22.0m. Underlying profits
increased by 8.2% prior to allocating £1.1m of fixed overheads previously
treated as a cost of the NEXT Brand. We will continue to see turnover and
profits growing at different rates due to the timing of new store openings and
product shipments, and due to the later recognition of royalty income on sales.
During the period 9 additional stores were opened in countries where we already
operate and 7 stores were opened in Russia. There are now 112 franchise stores
and a further 20 are scheduled to open in the second half of this year.
NEXT SOURCING
NEXT Sourcing profit for the half year was £15.6m compared to £13.6m last year.
We anticipate that profit in the second half will be similar to the £19m
reported last year. We have opened our own sourcing office in southern India
to complement our existing arrangements in the northern region.
VENTURA
A strong performance by Ventura in the first half resulted in profits of £9.7m
against £3.7m last year, which had a very poor first quarter. Our own call
centre in Pune, India has been open for one year and we shall be opening another
call centre in Leeds later this year to accommodate new business. We anticipate
that sales and profit in the second half will be similar to that achieved in the
first half.
OTHER ACTIVITIES
Other activities were a loss of £2.2m in the first half compared with a profit
of £0.4m last year.
Our property management division contributed £3.0m, down on last year which
included profits from the disposal of freehold properties. Associates
contributed £0.7m, down on last year which included a capital profit of £1.2m.
Net Central Costs were £5.9m, including an additional pension charge of £2.8m.
EMPLOYEE SHARE OPTIONS
The charge increased to £4.1m from £2.9m due to the phased calculation under
IFRS. We estimate that the full year charge will be £9m. At the end of July
the ESOT held 7.7 million shares which were purchased at a cost of £91.5m, there
were 10.3 million share options outstanding.
BALANCE SHEET AND CASH FLOW
At the end of July net borrowings were £660m, financed by the £300m bond which
matures in 2013 and £700m of medium term bank facilities. It is intended to
refinance part of the bank facilities through the issue of another long term
bond in the near future, subject to market conditions.
The net cash outflow for the period of £296m was predominantly £279m in respect
of shares purchased for cancellation. Capital expenditure of £71m included £44m
on retail stores and we anticipate that the full year spend will be
approximately £140m in total. Stock levels for the Autumn season are 3.8% ahead
of last year.
SHARE BUYBACKS
During the first half we purchased for cancellation 6.9% of our shares in issue
at an average price of 1665p. We are committed to purchase a further 2.8% in
the second half under contingent purchase contracts at an average price of
1617p; the July 2006 balance sheet includes a liability of £113m in respect of
these contracts.
DIVIDEND
The Directors are declaring an interim dividend of 15.5p, an increase of 10.7%
over last year. This will be paid on 2 January 2007 to shareholders on the
register at 24 November 2006. The shares will trade ex-dividend from 22
November.
CURRENT TRADING
The combined sales of NEXT Retail and NEXT Directory for the six week period
from 30 July to 9 September were up 10.6% compared to the same period last year.
NEXT Retail sales were up 10.0% in the period. Net sales growth from new space
after deducting deflection was 9.7%. Like for like sales in the 292 stores that
were unaffected by new openings were up 0.3%.
NEXT Directory sales were up 12.2% in the period.
OUTLOOK
Whilst current trade has been encouraging it is important not to read too much
into such a short period. Sales remain volatile and have been positively
affected by the cooler weather. We are currently budgeting NEXT Retail like for
like sales in the second half to be down by between -2% and -5% but of course
expect total sales to be up due to new store openings. We are budgeting for
NEXT Directory product sales to be up by between 7% and 9%.
Simon Wolfson
Chief Executive
13 September 2006
UNAUDITED CONSOLIDATED INCOME STATEMENT
Six months Six months Year
to July to July to January
2006 2005 2006
£m £m £m
Revenue 1,510.5 1,396.8 3,106.2
_________ _________ _________
Trading profit 191.0 179.6 468.9
Share of results of associates 0.7 1.6 1.8
_________ _________ _________
Operating profit before interest 191.7 181.2 470.7
Finance income 0.7 0.7 1.1
Finance costs (13.5) (9.3) (22.7)
_________ _________ _________
Profit before taxation 178.9 172.6 449.1
Taxation (54.9) (52.7) (135.6)
_________ _________ _________
Profit attributable to equity holders of the
parent company 124.0 119.9 313.5
_________ _________ _________
Earnings per share p 53.3 47.9 127.4
Diluted earnings per share p 52.6 47.3 125.9
Dividend per share p 15.5 14.0 44.0
UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED
INCOME AND EXPENSE
Six months Six months Year
to July to July to January
2006 2005 2006
£m £m £m
Income and expenses recognised directly in equity
Exchange differences on translation of foreign operations (2.4) 2.5 2.4
(Losses)/gains on cash flow hedges (20.3) 21.0 18.5
Actuarial gains/(losses) on defined benefit pension
schemes 19.0 2.4 (34.8)
Tax on items recognised directly in equity 0.1 (3.4) 10.4
_________ _________ _________
(3.6) 22.5 (3.5)
Transfers
Transferred to income statement on cash flow hedges (3.9) 5.5 (1.5)
Transferred to the carrying amount of hedged items on
cash flow hedges 2.7 (3.3) (8.6)
Profit for the period 124.0 119.9 313.5
_________ _________ _________
Total recognised income and expense for the period 119.2 144.6 299.9
_________ _________ _________
Opening balance sheet adjustment for adoption
of IAS 32 and IAS 39 - (43.7) (43.7)
_________ _________ _________
UNAUDITED CONSOLIDATED BALANCE SHEET
July 2006 July 2005 January 2006
£m £m £m
ASSETS AND LIABILITIES
Non-current assets
Property, plant & equipment 533.4 473.7 514.1
Intangible assets 36.2 36.2 36.2
Interests in associates 2.2 1.5 1.8
Other investments 1.0 - 1.0
Other financial assets 1.4 4.5 1.4
Deferred tax assets 8.5 17.6 7.8
_________ _________ _________
582.7 533.5 562.3
Current assets
Inventories 338.9 326.5 323.9
Trade and other receivables 516.9 448.5 513.8
Other financial assets 0.8 17.1 4.1
Cash and short term deposits 86.9 77.0 69.8
_________ _________ _________
943.5 869.1 911.6
_________ _________ _________
Total assets 1,526.2 1,402.6 1,473.9
_________ _________ _________
Current liabilities
Bank overdrafts (35.5) (5.9) (31.4)
Unsecured bank loans (410.2) (120.3) (100.3)
Trade and other payables (561.4) (509.1) (568.8)
Other financial liabilities (133.4) (29.8) (1.8)
Current tax liability (49.5) (54.7) (53.2)
_________ _________ _________
(1,190.0) (719.8) (755.5)
Non-current liabilities
Corporate bond (299.0) (304.6) (298.1)
Net retirement benefit obligation (84.9) (91.0) (115.6)
Provisions (9.7) (10.0) (10.0)
Other financial liabilities (3.7) - (4.5)
Other liabilities (34.0) (30.0) (34.0)
_________ ________ _________
(431.3) (435.6) (462.2)
_________ ________ _________
Total liabilities (1,621.3) (1,155.4) (1,217.7)
_________ _________ _________
Net (liabilities)/assets (95.1) 247.2 256.2
_________ _________ _________
EQUITY
Share capital 22.9 25.7 24.6
Share premium account 0.7 0.7 0.7
Capital redemption reserve 7.0 4.2 5.3
ESOT reserve (91.5) (91.1) (89.3)
Fair value reserve (18.7) 17.6 2.8
Foreign currency translation 0.5 3.1 3.0
Other reserves (1,441.8) (1,441.4) (1,441.7)
Retained earnings 1,425.8 1,728.4 1,750.8
_________ _________ _________
Total equity (95.1) 247.2 256.2
_________ _________ _________
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year to
to July 2006 to July 2005 January 2006
£m £m £m
Cash flows from operating activities
Operating profit before interest 191.7 181.2 470.7
Depreciation 49.0 36.9 81.2
Loss/(profit) on disposal of property, plant and 1.4 (0.6) (0.2)
equipment
Share option charge 4.1 2.9 8.1
Share of undistributed profit of associate companies (0.4) - (0.3)
Exchange movement (0.8) (0.2) (0.5)
Increase in inventories (15.0) (24.9) (22.3)
Increase in trade and other receivables (3.1) (12.6) (76.3)
(Decrease)/increase in trade and other payables (13.7) 2.1 62.8
Pension contributions less income statement charge (11.7) 0.8 (11.8)
________ ________ ________
Cash generated from operations 201.5 185.6 511.4
Corporation taxes paid (59.0) (52.5) (113.2)
________ ________ ________
Net cash from operating activities 142.5 133.1 398.2
________ ________ ________
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.2 8.1 8.4
Acquisition of property, plant and equipment (70.8) (93.8) (177.2)
Purchase of other investments - - (1.0)
________ ________ ________
Net cash from investing activities (70.6) (85.7) (169.8)
________ ________ ________
Cash flows from financing activities
Proceeds from issue of share capital - 0.1 0.1
Repurchase of own shares (279.2) (70.8) (217.5)
Purchase of own shares by ESOT (24.8) (8.0) (14.9)
Proceeds from disposal of shares by ESOT 16.0 8.9 15.7
Net proceeds of unsecured bank loans 309.9 120.3 100.3
Interest paid (11.0) (8.9) (21.4)
Interest received 0.6 0.9 1.2
Payment of finance lease liabilities (0.3) (0.1) (0.2)
Dividends paid (69.8) (70.1) (103.7)
________ ________ ________
Net cash from financing activities (58.6) (27.7) (240.4)
________ ________ ________
Net increase/(decrease) in cash and cash equivalents 13.3 19.7 (12.0)
Opening cash and cash equivalents 38.4 50.0 50.0
Effect of exchange rate fluctuations on cash held (0.3) 1.4 0.4
________ ________ ________
Closing cash and cash equivalents (Note 4) 51.4 71.1 38.4
________ ________ ________
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of Preparation
The group's interim results for the six months ended 29 July 2006 were approved
by the Board of Directors on 13 September 2006.
The accounting policies adopted in the preparation of the interim financial
statements are consistent with those set out in the group's annual financial
statements for the year ended 28 January 2006.
The financial statements have been prepared on the historical cost basis except
for certain financial instruments, pension assets and liabilities and share
based payment liabilities which are measured at fair value.
The interim financial statements are unaudited and do not include all of the
information required for full annual financial statements.
The financial information for the year to January 2006 does not represent 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.
2. Earnings per Share
The calculation of earnings per share is based on £124.0m (2005: £119.9m) being
the profit for the six months after taxation and 232.6m ordinary shares of 10p
each (2005: 250.3m), being the weighted average number of shares ranking for
dividend less the weighted average number of shares held by the ESOT during the
year.
Diluted earnings per share is based on £124.0m (2005: £119.9m) being the profit
for the six months after taxation and 235.5m ordinary shares of 10p each (2005:
253.7m) 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 2.9m shares (2005: 3.4m shares).
3. Reconciliation of Movements in Total Equity
Six months Six months Year to
to July 2006 to July 2005 January 2006
£m £m £m
Opening total equity 256.2 276.5 276.5
Adoption of IAS 32 and 39 - (43.7) (43.7)
________ ________ ________
Opening total equity as restated 256.2 232.8 232.8
Total recognised income and expense 119.2 144.6 299.9
Issue of shares - 0.1 0.1
Shares purchased for cancellation (283.5) (70.8) (181.1)
Contingent share purchase contracts (112.8) 7.5 -
Shares purchased by ESOT (24.8) (8.0) (14.9)
Shares issued by ESOT 16.0 8.9 15.7
Share option charge 4.1 2.9 8.1
Equity dividends paid (69.5) (70.8) (104.4)
________ ________ ________
Closing total equity (95.1) 247.2 256.2
________ ________ ________
4. Analysis of Net Debt
Other non-cash
January Cash July
2006 flow changes 2006
£m £m £m £m
Cash and short term deposits 69.8 86.9
Overdrafts (31.4) (35.5)
________ ________
Cash and cash equivalents 38.4 13.3 (0.3) 51.4
Unsecured bank loans (100.3) (309.9) - (410.2)
Corporate bond (298.1) - (0.9) (299.0)
Finance leases (2.6) 0.3 - (2.3)
________ ________ ________ ________
Total net debt (362.6) (296.3) (1.2) (660.1)
________ ________ ________ ________
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. Forward-looking statements only speak as of the date on which
they are made, and the events discussed herein may not occur. NEXT do not
undertake any obligation to update publicly or revise forward-looking
statements, whether as a result of new information, future events or otherwise,
except to the extent legally required.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 22nd November 2024
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