| Contacts: | Alistair Mackinnon-Musson | |
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| Rowbell PR | |
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| Email: [email protected] | Tel: 020 7717 5239 |
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| Photographs: | Photographs available at: http://press.next.co.uk/media/company-images/campaignimages.aspx | |
Next plc
Annual Financial Report for year ended January 2019
including the Notice of Annual General Meeting ("AGM") - convened for
16 May 2019
The Company announces that the Annual Financial Report for the year ended January 2019 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 2019 Annual General Meeting has been uploaded to the National Storage Mechanism and will be available for viewing shortly at http://www.morningstar.co.uk/uk/nsm
The Company's 2019 Annual General Meeting will be held at the Leicester Marriott Hotel, Smith Way, Grove Park, Leicester on Thursday 16 May 2019, commencing 9.30 am.
S L Anderson
Company Secretary
Next plc
The Appendix to this announcement is a supplement to our preliminary statement of financial results made on 21 March 2019 (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 21 March 2019 includes a commentary on the primary uncertainties affecting the Group's businesses for 2019/20.
Further details of other key risks and uncertainties relating to NEXT group are set out on pages 55 to 58 of the 2019 Annual Report. The directors' responsibilities statement can be found on page 72 of the 2019 Annual Report. The following is extracted in full unedited text from the 2019 Annual Report. Accordingly, page references in the text below refer to page numbers in the 2019 Annual Report.
Trend direction from 2017/18: ↑ Limited increase ↔ Unchanged ↓ Limited decrease
| Principal risk and description |
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| 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 updates at Board meetings regarding key sales and development opportunities and progress of agreed initiatives. · The Group Finance Director provides updates at Board meetings regarding actual sales and profit performance by business stream. · 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. · The Audit Committee monitors strategic and operational risk regularly and any significant matters are reported to the Board. Specific key activities in the year · In common with other retailers we continue to experience a significant shift by customers from shopping in retail stores to shopping online. Longer term financial scenarios for our Retail business have been prepared and stress tested during the year (see page 14). This process provides a mechanism for ensuring that business profitability is maximised through efficient allocation of resources and management of costs. |
| Management team ↔ Our success relies on the continued service of our senior management and technical personnel, and on our ability to attract, motivate and retain highly qualified employees. | How we manage or mitigate the risk · The Board considers the development of senior management to ensure there are opportunities for career development and promotion to important management positions. · The Remuneration Committee reviews executive director and senior management remuneration at least annually and formulates packages to retain and motivate these employees, including long-term incentive schemes. Remuneration policies are designed to be simple, transparent and aligned to the business strategy of delivering sustainable long-term shareholder value. · The Nomination Committee considers and reviews the skills, diversity, experience and succession planning of the Board and senior management. This also incorporates emergency cover planning. |
| 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. · 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 deemed necessary. · Senior product management approve quality standards, with in-house quality control and testing teams in place across all product areas. · Senior management regularly review 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 seek ways to develop our supplier base to reduce over reliance on individual suppliers 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 inspections 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. Refer to further details on page 62. · We train relevant employees and communicate with suppliers regarding our expectations in relation to responsible sourcing, anti-bribery, human rights and modern slavery. Specific key activities in the year · The Audit Committee received Code of Practice and modern slavery updates from senior management during the year. · The Audit Committee received 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 processes and third-party failures. The recent acceleration in our Online sales has taken some of our warehouses closer to some of their capacity limits.
| 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. · Business continuity plans and insurance are in place to mitigate the impact of business interruption. Specific key activities in the year · The Board approved a four year warehouse investment proposal to accommodate further Online growth and transfer in customer demand from Retail to Online. Refer to page 42 for further details. · The Audit Committee requested and received an update of key warehouse risks and mitigation plans from our Warehousing and Logistics directors. |
| Customer experience ↔ NEXT's performance depends on the recruitment and retention of customers, and on its ability to drive and service customer demand. This includes having an attractive, functional and reliable website, 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 the development of NEXT's UK and overseas websites, with a particular focus on improving the online customer experience. · Continued investment in online marketing initiatives. Refer to page 31 for further details. · Market research and customer feedback is used to assess customer opinions and satisfaction levels to help to ensure that staff remain focused on delivering excellent customer service. · Ongoing monitoring of website and call centre support operations, including an online chat facility, to ensure sufficient capacity to handle volumes and queries. · Call centre employees receive comprehensive training on an ongoing basis, to ensure they achieve the highest standards of service. |
| Retail store network ↑ NEXT Retail's performance depends on profitably managing the trading space of the store network, including lease portfolio and refurbishment decisions. Successful development of new stores depends on a number of factors including identification of suitable properties, obtaining planning permissions and the negotiation of acceptable lease terms.
| 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 will continue to invest in new space where our financial criteria are met, and will renew and refurbish our existing portfolio when appropriate. · 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. Specific key activities in the year · Senior management have undertaken regular reviews of our Retail store cost base in order to identify key efficiency opportunities. · Senior management undertake scenario stress testing of our store portfolio to review and manage profitability. This includes pessimistic long-term scenarios. Refer to page 14 for more details. |
| 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.
| How we manage or mitigate the risk · The Information Security Steering Committee continues to be in place. Main activities include agreement and monitoring of related key risks, activities and incidents. The Committee is comprised of 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 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, contractual service level agreements with third-party suppliers, and IT capacity management. Specific key activities in the year · A Group wide GDPR awareness programme was undertaken providing employee data security training, review and update of data inventories, third party contract updates and third party security audits. · Ernst & Young LLP again undertook an independent Information Security maturity assessment with results reported to the Audit Committee. · Each Audit Committee meeting in the year included Information Security and cyber risk updates. · The Audit Committee also received a Business Continuity update during the year. |
| 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 £1.2bn represents the largest item on the Group Balance Sheet.
| How we manage or mitigate the risk · NEXT operate 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 27 of 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. Specific key activities in the year · The Board and Audit Committee received regular updates throughout the year regarding the customer credit business. |
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.
We confirm that to the best of our 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 Directors' 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.
In the case of each director in office at the date the Directors' Report is approved:
· so far as the director is aware, there is no relevant audit information of which the Group and Parent Company's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Parent Company's auditors are aware of that information.
On behalf of the Board
| Lord Wolfson of Aspley Guise Chief Executive | Amanda James Group Finance Director |
21 March 2019