Interim Results
Next PLC
11 September 2007
Date: Embargoed until 07.00am, Tuesday 11 September 2007
Contacts: Simon Wolfson, Chief Executive
David Keens, Group Finance Director
NEXT PLC
Tel: 020 7796 4133 (11/09/07)
Tel: 08454 567 777 (thereafter)
Alistair Mackinnon-Musson
Nicola Savage
Hudson Sandler
Tel: 020 7796 4133
Email: next@hspr.com
Photographs available:
Fashion shots: http://www.next.co.uk/press/autumnpresspack.asp
Corporate shots: http://www.next.co.uk/press/corporate.asp
NEXT PLC
Results for the Half Year Ended July 2007
Chief Executive's Review
INTRODUCTION
Next increased operating profit in the first half by 11% in a challenging
environment. This was achieved by a strong performance in Next Directory and
good cost controls, despite a flat result in Next Retail.
Earnings per share have moved forward by more than operating profits as a result
of share buybacks and a lower tax rate, they are 22.3% ahead of last year.
Revenue Profit and
excluding VAT earnings per share
Six months to July Six months to July
2007 2006 2007 2006
£m £m £m £m
Next Retail 1,028.7 1,029.7 112.5 111.1
Next Directory 371.8 359.4 73.8 59.6
_________ _________ _________ _________
The Next Brand 1,400.5 1,389.1 186.3 170.7 +9.1%
Next International 25.3 22.0 3.4 2.5
Next Sourcing 2.5 2.9 16.4 15.6
Ventura 104.6 92.7 11.0 9.7
Other activities 5.1 3.8 (2.1) (2.2)
Share option charge - - (4.3) (4.1)
Unrealised exchange gain/(loss) - - 2.0 (0.5)
_________ _________ _________ _________
Revenue and operating profit 1,538.0 1,510.5 212.7 191.7 +11.0%
_________ _________
Interest expense (14.5) (12.8)
_________ _________
Profit before tax 198.2 178.9 +10.8%
Taxation (56.5) (54.9)
_________ _________
Profit after tax 141.7 124.0 +14.3%
_________ _________
Basic earnings per share 65.2p 53.3p +22.3%
PROGRESS
At the beginning of the year we set ourselves the objective of improving the
Retail like for like sales performance through revitalising the Next Brand. We
recognised that this would require significant investment at a time when the
retail environment would remain challenging. We aimed to achieve progress
whilst continuing to move profits forward. We have achieved the following:
• Started the process of making our ranges more aspirational, significantly
improved our marketing and commenced the roll out of a new shop fit.
• Improved like for like sales performance in our mainline stores from -7.2%
last year to -3.6% during Spring Summer 2007 in the face of a worsening
retail environment. This was within the range we gave in March.
• Despite increased levels of investment in the Brand and negative like for
like sales in Retail we have increased the operating profit of the group by
11%. This has been mainly achieved through margin improvement and
operational cost savings.
• As a result of our continuing strategy of buying back shares, earnings per
share have increased by significantly more than profits. This, together
with a reduced tax rate, takes the total EPS growth to +22.3%.
Our financial goal remains the delivery of sustainable long term growth in
earnings per share - which we believe to be the engine of long term growth in
shareholder value.
REVITALISING THE NEXT BRAND
Our aim is to get the magic back into the Next Brand, to re-establish our
reputation for great style and good taste. This is mainly about improving our
product ranges, but we have also sought to enhance every customer facing aspect
of the business: everything from our windows and bags through to our shop fit
and website. At the heart of our efforts a simple statement sums up what we
feel the Next Brand stands for:
'Exciting, beautifully designed, excellent quality clothing and homeware that
reflects the means and aspirations of our customers'
The following sections detail some of the progress we have made in the key areas
of product, marketing and shop fit.
PRODUCT
Newness
We have worked to make our ranges more forward looking, focusing on the
introduction of more new lines more often, and buying into new trends with
greater conviction. This requires us to take significant positions without
concrete evidence that they will be successful. Whilst this may appear more
risky, the alternative is to fall back on last year's best sellers, which only
guarantees slow failure - risk success or guarantee failure, that is the choice!
In addition to greater conviction we have also increased the proportion of our
stock sourced on shorter lead times through buying from sources closer to home
or through using faster transport routes.
The table below gives some quantative measure of the newness achieved within our
ranges. It gives the percentage of new Womenswear clothing lines appearing
instore for the first time, at two critical points in the season, compared to
the same times last year.
% New lines % New lines % Increase in
2007 2006 new lines
Phase 1 (August) 76% 60% +27%
Phase 3 (October) 52% 36% +44%
Emphasis on Quality
Since the beginning of this year we have shifted the emphasis of our ranges away
from price starters towards the mid and top end of our price architecture. This
is reflected in the change in average selling prices as shown below.
Autumn Winter 2007 Spring Summer Autumn Winter 2006
(E) 2007
Average selling price change +6.2% -1.6% -3.1%
It is important to stress that the change in average selling price has not been
achieved through increasing the price on like for like garments, nor have we
lost any of our entry price points. It has been achieved through increasing the
proportion of our ranges at mid price points and introducing new prices at the
top end of our ranges. These higher price items are branded 'Next Signature'
and in Autumn Winter they will account for approximately 3% of our Womenswear
buy. We believe we will have the opportunity to expand Signature next year.
BRAND MARKETING
Historically Next has not undertaken significant brand marketing activities.
We now believe that we have the opportunity to use marketing to reinforce the
changes we have made to our product ranges and stores.
We now estimate we will spend £18m more on marketing this year than last year.
In addition to press and billboard advertising we will screen two television
advertisements, one in September and another in November. Both adverts will be
produced to a high specification and the campaign will be of sufficient weight
to be highly noticeable. We will also spend £2m on more ambitious window
schemes.
SHOP FIT
Our new shop fit has two objectives; to increase the sales in the refit stores
and to enhance the Next Brand through tasteful and exciting interior design.
The refit stores continue to show approximately a 5% improvement in their sales
performance.
In the course of the season we have introduced a more radical shop fit concept.
Whilst we are not budgeting for it to give a better sales uplift than the
initial concept, we are convinced that it is a big step forward for the Brand.
In addition to the refit programme we are redecorating and updating the facia of
a significant number of stores. The 'paint and facia' work will go some way to
making the stores that have not had the benefit of a refit sit more comfortably
with the new image of the Brand. The table below summarises the square footage
that will be new, refitted or redecorated by the end of the current financial
year.
New space Refit space Redecorated space TOTAL
First Half 163,000 231,000 264,000 658,000
Second Half (E) 369,000 386,000 581,000 1,336,000
TOTAL 532,000 617,000 845,000 1,994,000
% of portfolio 10% 12% 16% 38%
Approx cost/sq ft £143 £60 £4
NEXT RETAIL
Retail Sales
Retail sales require some additional explanation. Unusually, there was a
significant difference between the performances of Next Mainline and Next
Clearance. Mainline sales finished the season up 0.2% with like for like sales
down -3.6%, this was within the guidance we gave at the start of the year of -1%
to -4% like for like.
Movement in sales:
Net sales from new space 4.7%
Mainline like for like performance (3.6%)
Impact of Next Clearance (1.2%)
Total Retail sales (0.1%)
The performance of Clearance reflects a significant reduction in the value of
Clearance stock, which was on average -25% down. This was due to selling higher
levels of Clearance stock throughout the course of 2006 and a large increase in
markdowns in the January 2007 Mainline Sale. We expect the performance of
Clearance will be closer to Mainline in the Autumn Winter season.
New Space
In the first half of the year we opened a net 124,000 square feet of new trading
space.
July 2007 Jan 2007 Half Year Change
Store numbers 488 480 +8
Square feet 000's 4,947 4,823 +124
Net sales from new space are 2.1% ahead of our appraised targets and the
forecast payback on net capital invested is 17.3 months. We expect to increase
net trading space by just over 420,000 square feet in the full year.
In the first half we opened a stand alone Home store of 16,000 square feet at
Thurrock Retail Park. As a result of the initial success of this store and the
continued expansion of our Home ranges we will open several more stand alone
Home stores. These will generally be in locations where we are unable to obtain
planning permission to sell clothing. We expect to open 2 stores in the second
half and a further 5 stores next year.
Retail Profit
Retail profit increased by 1.3% against last year. Net margins moved forwards
slightly from 10.8% to 10.9%. The margin movement is detailed below; the
figures show the change as a percentage of sales for each of our major heads of
cost:
Net operating margin last year 10.8%
Increase in achieved gross margin +2.3%
Increase in branch payroll costs -0.4%
Increase in branch occupancy costs -1.0%
Increase in central overheads -0.8%
Net operating margin this year 10.9%
The improvement in gross margin of +2.3% is partly as a result of better
sourcing with bought in gross margin improving by +1.4% (this is the difference
between what we pay for a garment and its full selling price). In Autumn Winter
we expect to continue to improve bought in gross margin but at a lower rate of
+0.7%. Again it is important to stress that this improvement will be as a
result of improved sourcing and not increased prices. Further improvements came
from fabric write offs being lower than expected (+0.4%), and settlement of a
VAT issue (+0.4%), neither of these one off gains will be repeated in the second
half, or next year. There was no significant change in markdown against last
year.
Branch wages increased as a result of the cost of living award. Central
overheads increased mainly due to the higher spend on marketing. We are
forecasting that Retail margins will be broadly flat for the second half.
NEXT DIRECTORY
Directory Sales
Directory sales increased by 3.5% in the first half. Improved stock
availability and increased service charge income meant that sales rose faster
than underlying demand, which was up just 0.9%.
Sales growth was driven by a 0.9% increase in the average number of active
customers and a 14.1% increase in pages. The majority of the additional pages
went to new and developing product areas.
We will continue to increase the breadth of Home products sold through Next
Directory and online. In addition we will also increase the availability of
non-Next branded clothing and accessories, where they do not compete directly
with our own ranges. One innovation will be the development of a separate
'Brand Directory' website which will showcase all the branded product available
in the Next Directory, along with some lines which we will only sell through
this website.
Directory Profit
Directory profit was 23.6% up on last year, a remarkable performance. The
profit growth was mainly as a result of improved operating margins; the table
below shows the change as a percentage of sales for each of our major heads of
cost:
Net operating margin last year 16.6%
Increase in achieved gross margin +0.6%
Reduction in bad debt +3.3%
Increase in service charge income +0.9%
Increase in central overheads -1.6%
Net operating margin this year 19.8%
Achieved gross margin increased by 0.6%. The bought in gross margin increased
by 1.6% and was in line with Retail. This was eroded by -0.7% as a result of
increased markdown and -0.3% from increased faulty and damaged stock.
For some time now we have been preparing for a worsening of bad debts in the
consumer debt market and one year ago we made significant changes to the credit
vetting of new applicants for the Next Directory. In particular we made changes
to the ease with which customers could obtain credit on the internet, an area
where we had experienced significant fraud. The effects of these changes began
to be felt in January 2007 and we have seen a very significant drop in
fraudulent bad debt and other defaults. This increased the net operating margins
of the business by +3.3%. At the same time, service charge income rose faster
than sales adding +0.9% to margin.
Virtually all the increase in central overheads is as a result of increased
marketing spend. Cost increases in catalogue production (-0.8%) and systems
(-0.2%) were offset by savings in warehousing and distribution (+1.1%).
In the second half we do not expect to make the same level of improvement in bad
debt. Also the warehousing and distribution savings will annualise, so we are
not forecasting for any further improvement in this area as the season
progresses. We are therefore expecting Directory net operating margins in the
second half to be broadly in line with last year.
Outlook for Directory
We are very cautious in our outlook for the Directory for the rest of this year.
There are a number of factors which we believe will hold growth in sales back
in the season ahead:
• Increased competition on the internet from existing high street retailers
who are increasing their presence online.
• Economic pressure on consumers to reduce their spending on credit.
• Imposition of the tighter credit status requirements referred to above
limiting the number of new customers we take into the Directory.
• Implementation of increased levels of credit control whereby we have
reduced the credit available to certain sections of our customer base.
We believe that the right way to manage the Directory through this part of the
cycle is to adopt the tactics we deployed in a similar situation in 1999. We
will therefore not be tempted to buy sales through taking on unprofitable
customers.
NEXT INTERNATIONAL
Sales to our international franchise partners grew by 15% to £25m. Our partners'
own sales rose by 25% to approximately £57m. Last year sales to our partners
were growing faster than profits due to the difference between product shipments
and partner sales. This has now corrected and profits grew 34% to £3.4m.
Our partners opened 13 additional stores in the period, making 142 in total.
Our largest region remains the Middle East in terms of store numbers and sales,
although Europe is growing strongly. Stores were opened in five new countries;
China, Jordan, Pakistan, Poland and Ukraine. We anticipate that a further 14
stores will be open by January 2008. The estimated expansion program is set out
in the table below.
January January July January
2009 (E) 2008 (E) 2007 2007
Existing Territories
Middle East 63 55 54 52
Far East (inc Japan) 37 37 37 38
Russia 20 15 14 13
Czech / Slovakia / Hungary 14 11 11 9
Turkey 7 7 5 5
Rest of Europe 12 11 10 10
India 9 7 3 2
New Territories
Ukraine / Poland / Romania 9 6 5 -
China / Hong Kong 6 2 1 -
Greece / Netherlands / Sweden 4 - - -
Macau / Malaysia / Taiwan 3 1 - -
Jordan / Egypt 2 2 1 -
Pakistan 2 2 1 -
New Stores 32 14 13 -
Total Stores 188 156 142 129
International sales have now grown to become a meaningful part of the business
and we are forecasting that sales by our partners will be in excess of £120m
this year. We are looking for ways in which to further improve the pace of
growth and profitability of this operation.
NEXT SOURCING
Total Next Sourcing sales reduced by 8% to £283m, while profits increased to
£16.4m. The sales reduction is attributable to currency conversion from the
weaker Dollar into Sterling, in Dollar terms sales were 0.5% ahead. These
results are in line with our previous comment that lower stock levels in Retail
and Directory would result in lower Next Sourcing sales. Action has been taken
on costs and we expect that the full year profit will be in the region of £34m.
In addition to existing overseas operations we have added a sourcing office in
northern India to complement that of southern India, which we opened last year.
VENTURA
Ventura performed well in the first half with both turnover and profit
increasing by 13%, to £104m and £11m respectively. We continue to broaden the
client portfolio and have added two more major clients. We expect Ventura to
make further progress in the second half and for full year profits to be in the
region of £23m.
Ventura now operates six call centres in the UK and one in India, employing in
total over 10,000 people. It has begun marketing warehouse and distribution
services to third parties, which will utilise available capacity in our Retail
and Directory network. Discussions are in progress with a number of prospective
clients for services to commence in 2008.
OTHER ACTIVITIES
The Other Activities charge of £2.1m includes Central Costs of £4.8m, profits
from our Property Management Division of £2.2m and associated company profits of
£0.5m.
Central Costs include an additional pension charge of £0.5m compared with £2.8m
last year. The second half last year included a £2m credit (making a full year
charge of £0.8m) whereas this year we expect a second half charge of £0.5m
(making £1m for the full year).
INTEREST, TAXATION AND EARNINGS PER SHARE
The interest charge increased to £14.5m as a consequence of share buybacks and
we expect a second half charge of not less than £22m. The expected tax rate for
the year has reduced to 28.5% following resolution of prior year issues and we
envisage a similar rate for the following year. Share buybacks and the lower
tax rate both contribute to the increase in earnings per share of 22.3%.
BALANCE SHEET AND CASH FLOW
At the end of July net borrowings were £618m, financed by £550m of bonds which
mature in 2013 and 2016, together with £450m of medium term bank facilities.
The cash inflow for the period was £71m before a £245m outflow in respect of
shares purchased and cancelled.
Capital expenditure was £90m and we anticipate that the full year spend will be
approximately £180m, including £114m on retail stores. Opening stock levels for
the Autumn season were 9% below those of last year. Creditors include £50m for
share buybacks made before the period end which were paid for after the period
end.
SHARE BUYBACKS
During the period we purchased for cancellation 6.2% of our shares for £295m at
an average price of 2101p including costs. Since then we have purchased, or
remain committed to purchase, a further 2.0% for £93m at an average price of
2049p.
DIVIDEND
The Directors are declaring an interim dividend of 18p, an increase of 16.1%
over last year. This will be paid on 2 January 2008 to shareholders on the
register at 30 November 2007. The shares will trade ex-dividend from 28
November.
CURRENT TRADING
The combined sales of Next Retail and Next Directory for the six week period
from 29 July to 8 September 2007 were down -2.9% compared to the same period
last year.
Next Retail sales were down -2.9% in the period. Mainline like for like sales
in the 310 stores that were unaffected by new openings were down -4.8%.
Next Directory sales were -2.9% down in the period.
These figures need to be treated with some caution. Our Summer Sale finished
earlier this year and the first six weeks sales last year were unusually strong,
and significantly better than the subsequent twenty weeks.
OUTLOOK FOR THE AUTUMN WINTER SEASON
We remain cautious about the outlook for the UK consumer and are acutely aware
that the full effect of recent interest rate rises has not yet filtered through
to our customers.
However, we are also satisfied that we have made significant improvements to our
ranges, marketing and stores. We are therefore budgeting for the Retail like
for like sales performance to improve in the second half and fall within a range
of -3.5% to -1%. We are budgeting for Directory second half sales to be between
-2% and +2% on last year.
Our full year internal profit forecasts for the group, based on these sales
ranges, are in-line with market expectations at this time.
We intend to issue an Interim Management Statement on 7 November 2007 which will
contain a further update on sales.
Simon Wolfson
Chief Executive
11 September 2007
UNAUDITED CONSOLIDATED INCOME STATEMENT
Six months Six months Year
to July to July to January
2007 2006 2007
£m £m £m
Revenue 1,538.0 1,510.5 3,283.8
_________ _________ _________
Trading profit 212.2 191.0 506.1
Share of results of associates 0.5 0.7 1.4
_________ _________ _________
Operating profit 212.7 191.7 507.5
Finance income 3.4 0.7 4.0
Finance costs (17.9) (13.5) (33.1)
_________ _________ _________
Profit before taxation 198.2 178.9 478.4
Taxation (56.5) (54.9) (146.9)
_________ _________ _________
Profit attributable to equity holders of
the parent company 141.7 124.0 331.5
_________ _________ _________
Basic earnings per share p 65.2 53.3 146.1
Diluted earnings per share p 64.3 52.6 144.3
Dividend per share p 18.0 15.5 49.0
UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED
INCOME AND EXPENSE
Six months Six months Year
to July to July to January
2007 2006 2007
£m £m £m
Income and expenses recognised directly in equity
Exchange differences on translation of foreign
operations (0.4) (2.4) (1.0)
Losses on cash flow hedges (9.1) (20.3) (34.7)
Hedging adjustment - - 2.3
Actuarial gains on defined benefit pension schemes 19.5 19.0 32.5
Tax on items recognised directly in equity (8.1) 0.1 (0.9)
_________ _________ _________
1.9 (3.6) (1.8)
Transfers
Transferred to income statement on cash flow hedges 14.6 (3.9) 6.2
Transferred to the carrying amount of hedged items on
cash flow hedges 6.6 2.7 5.8
_________ _________ _________
Net income/(expense) recognised directly in equity 23.1 (4.8) 10.2
Profit for the period 141.7 124.0 331.5
_________ _________ _________
Total recognised income and expense for the period 164.8 119.2 341.7
_________ _________ _________
UNAUDITED CONSOLIDATED BALANCE SHEET
July July January
2007 2006 2007
£m £m £m
ASSETS AND LIABILITIES
Non-current assets
Property, plant & equipment 581.3 533.4 544.4
Intangible assets 36.2 36.2 36.2
Interests in associates 2.2 2.2 2.2
Other investments 1.0 1.0 1.0
Other financial assets 1.7 1.4 2.2
Deferred tax assets - 8.5 2.6
_________ _________ _________
622.4 582.7 588.6
Current assets
Inventories 307.8 338.9 281.8
Trade and other receivables 558.0 516.9 577.7
Other financial assets 1.5 0.8 1.2
Cash and short term deposits 70.1 86.9 121.7
_________ _________ _________
937.4 943.5 982.4
_________ _________ _________
Total assets 1,559.8 1,526.2 1,571.0
_________ _________ _________
Current liabilities
Bank overdrafts (15.3) (35.5) (12.5)
Unsecured bank loans (120.0) (410.2) (0.1)
Trade and other payables (781.2) (561.4) (621.1)
Other financial liabilities (9.7) (133.4)
(23.6)
Current tax liability (85.8) (49.5) (81.2)
_________ _________ _________
(1,012.0) (1,190.0) (738.5)
Non-current liabilities
Corporate bonds (532.3) (299.0) (531.2)
Net retirement benefit obligation (28.1) (84.9) (47.0)
Provisions (9.5) (9.7) (9.5)
Other financial liabilities (18.0) (3.7) (19.2)
Deferred tax liabilities (10.0) - -
Other liabilities (36.9) (34.0) (36.3)
_________ ________ _________
(634.8) (431.3) (643.2)
_________ ________ _________
Total liabilities (1,646.8) (1,621.3) (1,381.7)
_________ _________ _________
Net (liabilities)/assets (87.0) (95.1) 189.3
_________ _________ _________
EQUITY
Share capital 21.3 22.9 22.7
Share premium account 0.7 0.7 0.7
Capital redemption reserve 8.6 7.0 7.2
ESOT reserve (62.1) (91.5) (76.9)
Fair value reserve (7.8) (18.7)
(19.9)
Foreign currency translation 1.6 0.5 2.0
Other reserves (1,443.8) (1,441.8) (1,443.7)
Retained earnings 1,394.5 1,425.8 1,697.2
_________ _________ _________
Total equity (87.0) (95.1) 189.3
_________ _________ _________
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
Six months Six months Year to
to July 2007 to July 2006 January 2007
£m £m £m
Cash flows from operating activities
Operating profit before interest 212.7 191.7 507.5
Depreciation 51.2 49.0 102.3
Loss on disposal of property, plant & equipment 1.6 1.4 2.9
Share option charge 4.3 4.1 8.3
Share of undistributed profit of associates - (0.4) (0.4)
Exchange movement (2.1) (0.8) 2.6
(Increase)/decrease in inventories (26.0) (15.0) 42.1
Decrease/(increase) in trade and other receivables 19.6 (3.1) (63.7)
Increase/(decrease) in trade and other payables 9.9 (13.7) 49.5
Pension contributions less income statement charge 0.6 (11.7) (36.1)
________ ________ ________
Cash generated from operations 271.8 201.5 615.0
Corporation taxes paid (47.2) (59.0) (114.2)
________ ________ ________
Net cash from operating activities 224.6 142.5 500.8
________ ________ ________
Cash flows from investing activities
Proceeds from sale of property, plant & equipment 0.1 0.2 3.4
Acquisition of property, plant & equipment (89.7) (70.8) (139.9)
________ ________ ________
Net cash from investing activities (89.6) (70.6) (136.5)
________ ________ ________
Cash flows from financing activities
Repurchase of own shares (245.1) (279.2) (316.3)
Purchase of own shares by ESOT - (24.8) (24.8)
Proceeds from disposal of shares by ESOT 16.1 16.0 27.8
Proceeds from issue of corporate bond - - 250.0
Proceeds/(repayment) of unsecured bank loans 119.9 309.9 (100.2)
Interest paid (9.4) (11.0) (28.6)
Interest received 3.5 0.6 3.8
Payment of finance lease liabilities (0.3) (0.3) (0.5)
Dividends paid (73.5) (69.8) (103.9)
________ ________ ________
Net cash from financing activities (188.8) (58.6) (292.7)
________ ________ ________
Net (decrease)/increase in cash and cash equivalents (53.8) 13.3 71.6
Opening cash and cash equivalents 109.2 38.4 38.4
Effect of exchange rate fluctuations on cash held (0.6) (0.3) (0.8)
________ ________ ________
Closing cash and cash equivalents (Note 6) 54.8 51.4 109.2
________ ________ ________
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of Preparation
The Group's interim results for the six months ended 28 July 2007 were approved
by the Board of Directors on 11 September 2007, and have been prepared in
accordance with IAS 34 Interim Financial Reporting.
The accounting policies adopted in the preparation of the interim financial
statements are the same as those set out in the Group's annual financial
statements for the year ended 27 January 2007. 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 have not been audited or reviewed by auditors
pursuant to the Auditing Practices Board guidance on 'Review of Interim
Financial Information' and do not include all of the information required for
full annual financial statements.
The financial information for the year to January 2007 does not represent
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
Statutory accounts for that period incorporating an unqualified audit report
have been delivered to the Registrar of Companies.
Changes in accounting policy
In the current financial year, the Group will adopt IFRS 7 Financial
Instruments: Disclosures and the amendment to IAS 1 Presentation of Financial
Statements for the first time. As these are disclosure standards, there is no
impact on the interim financial statements.
2. Risks & Uncertainties
The principal risks and uncertainties affecting the business activities of the
Group remain those detailed on pages 11 and 12 of the January 2007 Report &
Accounts, a copy of which is available on the Company's website at
www.next.co.uk. The Chief Executive's Review in this Interim Management Report
includes a commentary on the primary uncertainties affecting the Group's
businesses for the remaining six months of the financial year.
3. Segmental Analysis
For management purposes the Group comprises a number of divisions, the
activities and results of which are detailed in the Chief Executive's Review.
These divisions comprise the business segments which form the Group's primary
format for segmental reporting. An analysis of segment revenues is given below:
External revenue Internal revenue Total revenue
Six months to July 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
Next Retail 1,028.7 1,029.7 - - 1,028.7 1,029.7
Next Directory 371.8 359.4 - - 371.8 359.4
________ ________ ________ ________ ________ ________
Next Brand 1,400.5 1,389.1 - - 1,400.5 1,389.1
Next International 25.3 22.0 - - 25.3 22.0
Next Sourcing 2.5 2.9 280.4 305.0 282.9 307.9
Ventura 104.6 92.7 3.4 3.0 108.0 95.7
Other 5.1 3.8 78.9 73.1 84.0 76.9
Eliminations - - (362.7) (381.1) (362.7) (381.1)
________ ________ ________ ________ ________ ________
1,538.0 1,510.5 - - 1,538.0 1,510.5
________ ________ ________ ________ ________ ________
4. Earnings per Share
The calculation of basic earnings per share is based on £141.7m (2006: £124.0m)
being the profit for the six months after taxation and 217.3m ordinary shares of
10p each (2006: 232.6m), being the weighted average number of shares ranking for
dividend less the weighted average number of shares held by the ESOT during the
period.
Diluted earnings per share is based on £141.7m (2006: £124.0m) being the profit
for the six months after taxation and 220.4m ordinary shares of 10p each (2006:
235.5m) 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 3.1m shares (2006: 2.9m shares).
5. Reconciliation of Movements in Total Equity
Six months Six months Year to
to July 2007 to July 2006 January 2007
£m £m £m
Opening total equity 189.3 256.2 256.2
Total recognised income and expense 164.8 119.2 341.7
Shares purchased for cancellation (294.7) (283.5) (316.3)
Share purchase contracts (93.4) (112.8) -
Shares purchased by ESOT - (24.8) (24.8)
Shares disposed of by ESOT 16.1 16.0 27.8
Share option charge 4.3 4.1 8.3
Equity dividends paid (73.4) (69.5) (103.6)
________ ________ ________
Closing total equity (87.0) (95.1) 189.3
________ ________ ________
During the six months to July 2007 the Company purchased for cancellation
12,623,718 (2006: 14,746,199) of its own ordinary shares of 10p each in the open
market at a cost of £263.9m (2006: £246.3m). The Company also purchased for
cancellation 1,400,000 (2006: 2,275,000) of its own ordinary shares of 10p each
under off-market contingent purchase contracts at a cost of £30.8m (2006:
£37.2m).
6. Analysis of Net Debt
Other non-cash
January Cash July
2007 flow changes 2007
£m £m £m £m
Cash and short term deposits 121.7 70.1
Overdrafts (12.5) (15.3)
________ ________
Cash and cash equivalents 109.2 (53.8) (0.6) 54.8
Unsecured bank loans (0.1) (119.9) - (120.0)
Corporate bonds (531.2) - (1.1) (532.3)
Fair value hedges of corporate bond (19.4) - 1.3 (18.1)
Finance leases (2.3) 0.3 (0.1) (2.1)
________ ________ ________ ________
Total net debt (443.8) (173.4) (0.5) (617.7)
________ ________ ________ ________
Responsibility Statement
We confirm that to the best of our knowledge:
a) The condensed set of financial statements has been prepared in accordance
with IAS 34;
b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of
important events during the first six months and description of principal risks and uncertainties for the
remaining six months of the year); and
c) The interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein).
By order of the Board
Simon Wolfson David Keens
Chief Executive Group Finance Director
11 September 2007
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.
Certain statements which appear in a number of places throughout this Interim
Management Report may constitute 'forward-looking statements' which are all
matters that are not historical facts, including anticipated financial and
operational performance, business prospects and similar matters. These
forward-looking statements are identifiable by words such as 'believe', '
estimate', 'anticipate', 'plan', 'intend', 'aim', 'forecast', 'expect',
'project' and similar expressions. 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 those matters detailed in the Chief Executive's
Review; failure by Next to predict accurately customer fashion preferences;
decline in the demand for merchandise offered by Next; competitive influences;
changes in level 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.
These forward-looking statements do not amount to any representation that they
will be achieved as they involve risks and uncertainties and relate to events
and depend upon circumstances which may or may not occur in the future and there
can be no guarantee of future performance. Undue reliance should not be placed
on forward-looking statements which speak only as of the date of this document.
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.
The Risks & Uncertainties described in the Directors' Report and Business Review
for the year ended 27 January 2007 remain the principal risks affecting the
Group's businesses.
This information is provided by RNS
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