TIDMNXT
RNS Number : 2805Z
Next PLC
17 September 2020
Date: Embargoed until 07.00hrs, Thursday 17 September 2020
Contacts: Amanda James, Group Finance Director (analyst calls)
NEXT PLC Tel: 0333 777 8888
Alistair Mackinnon-Musson Email: next@rowbellpr.com
Rowbell PR Tel: 020 7717 5239
Photographs: http://www.nextplc.co.uk/media/image-gallery/campaign-images
NEXT PLC
Results for the
Half Year Ending
July 2020
This document contains some page and note number
cross-referencing. Please refer to the PDF version of this
statement which is available at
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
or on the NEXT corporate website www.nextplc.co.uk
CHIEF EXECUTIVE'S REVIEW
HEADLINES
Performance in the First Half
-- Profit before tax of GBP9m(1)
-- Full price sales(2) down -33% on last year
-- Surplus cash generation (after capex, tax and interest) of GBP347m
Guidance for the Full Year
-- Full price sales in the last seven weeks up +4% on last year;
a strong start but driven by recent cool weather and fewer overseas
holidays
-- Central guidance: full price sales for the rest of the year to be -12%
-- Central guidance: profit before tax of GBP300m(3) , up from
the central scenario of GBP195m given in July's Trading
Statement
-- Central guidance: year end net debt to reduce by GBP462m, to
GBP650m. Year end net debt forecast to be around 65% of GBP1.0bn
customer receivables
(1) Profit before tax of GBP9m is pre-IFRS 16, Leases. The
financial information presented in pages 2 - 41 is that used by
management to monitor and assess business performance. They are not
statutory measures. A reconciliation to the statutory equivalents
is provided in the Appendix on page 42.
(2) Full price sales are Total sales excluding VAT, less items
sold in our mid-season, end-of-season Sale events and our Clearance
operations. These are not statutory sales (refer to Note 3 of the
financial statements).
(3) Profit before tax of GBP300m is on a 52 week basis. This
year has 53 weeks; the extra week is forecast to add GBP12m of
profit before tax.
PURPOSE AND STRUCTURE OF THIS DOCUMENT
This is a long document: the way the different parts of the
business have performed through lockdown, the emerging shape of the
Company's finances, the lessons we have learnt over the last few
months and the new businesses we are developing all require careful
explanation. For those without the time to read the whole report,
the 10 page summary starting on page 4 attempts to summarise the
main themes and facts within the report.
Our motive for giving such a comprehensive view of the Company's
performance and plans goes beyond the primary task of keeping
shareholders informed. The more clarity we give about the state of
the Company's sales, finances and prospects, the better we
ourselves understand the business. The more precise and coherent we
are in explaining our objectives and plans, the more likely it is
that we will succeed in implementing them - and execution is ninety
per cent of the battle! So, our six-monthly reports have become
more than just a means of communicating our performance, they are
an intrinsic part of planning and leading the organisation.
For ease of reading, this document is divided into the following
parts:
1. Big picture and summary (page 4)
2. Detailed analysis of financial performance (page 14)
3. Sales, profit and cash scenarios, and outlook for the remainder of the year (page 40)
TABLE OF CONTENTS
CHIEF EXECUTIVE'S REVIEW
PART 1 - BIG PICTURE: A SUMMARY OF THE REPORT
FOUR KEY MESSAGES
SALES RESILIENCE
FINANCIAL STABILITY
NEW WAYS OF WORKING
NEW BUSINESS DEVELOPMENTS
FOCUS ON THE NEXT BRAND
SUMMARY
PART 2 - FINANCIAL PERFORMANCE
GROUP FINANCIAL PERFORMANCE
SALES
PROFIT, CASH FLOW AND NET DEBT
NON-RECURRING PROFIT & LOSS ITEMS
OVERVIEW OF CHANGES IN GROUP SALES, COSTS AND PROFIT
TAXATION
NEXT ONLINE
FULL PRICE SALES BY WEEK
FULL PRICE SALES BY DIVISION
ONLINE TOTAL SALES AND PROFIT BY DIVISION
MARKDOWN SALES
CUSTOMER BASE
FOCUS ON LABEL
FOCUS ON ONLINE OVERSEAS SALES
ONLINE WAREHOUSE CAPACITY
NEXT RETAIL
FULL PRICE SALES BY WEEK
TOTAL SALES AND PROFIT/LOSS
RETAIL SPACE AND LEASE COMMITMENTS
NEXT FINANCE
HEADLINES
IMPACT OF THE PANDEMIC
CREDIT CUSTOMERS
INTEREST INCOME
BAD DEBT
FINANCE BALANCE SHEET AND COST OF FUNDING
OTHER BUSINESS ACTIVITY
NEXT SOURCING
FRANCHISE STORES AND INTERNATIONAL RETAIL
LIPSY
NON-TRADING ACTIVITIES
CASH FLOW
PROCEEDS ON SALE AND LEASEBACK TRANSACTIONS
WORKING CAPITAL, PENSION, TAX and ESOT
CAPITAL EXPITURE
FIVE YEAR OUTLOOK FOR CAPITAL EXPITURE
ORDINARY DIVIDS AND SHARE BUYBACKS
NET DEBT, BOND AND BANK FACILITIES
PART 3 - FULL YEAR SALES, PROFIT AND CASH SCENARIOS
FULL PRICE SALES SCENARIOS
PROFIT BEFORE TAX, CASH AND NET DEBT
THIRD QUARTER TRADING UPDATE
APPIX 1
APPIX 2
PART 1 - BIG PICTURE:
A SUMMARY OF THE REPORT
FOUR KEY MESSAGES
There are four main themes that have emerged through the course
of the year:
Sales The Company's sales performance through the pandemic has been more
Resilience resilient than we expected.
The scale of our Online business (in the UK and overseas), the breadth
of our product offer,
and the fact that much of our store portfolio is located out of town,
have served to mitigate
the worst effects of the pandemic on trade.
Financial Stability The Company's finances are in good shape. We have reduced our stock
levels and costs as the
pandemic progressed. We have also generated cash flow from: (1) our
customer credit book and
(2) the sale of some assets. These actions, along with the fact that the
business went into
the pandemic with healthy net margins and low capital requirements, mean
that we are likely
to go into next year with significantly less net debt than we had at the
start of the year.
New Ways From a business perspective the pandemic has been hugely expensive and
of Working disruptive - but there
has been much to learn from the experience. We have discovered powerful
ways to improve our
warehouse and call centre operations. Perhaps more importantly, the
experience of having to
work from home has opened our eyes to new and better ways of working,
collaborating and communicating
amongst ourselves and with our suppliers.
Opportunities for New Business Development The sharp slowdown in our operations has given many of us the time and
the motivation to accelerate
our efforts to leverage the Company's skills, people and infrastructure
- developing new businesses
in a rapidly changing world. We have consciously increased our appetite
for new ideas, along
with our willingness to take on the risks associated with investing in
new projects. The pandemic
has created a more fluid environment in which opportunities are likely
to emerge at speed.
SALES RESILIENCE
Sales have held up much better than we initially anticipated. We
think the following three factors have worked in our favour:
-- The scale and continued success of our Online business which,
before going into the lockdown, accounted for more than half of our
turnover
-- The fact that we have significant Home, Childrenswear,
loungewear and sportswear businesses, which have done relatively
well during the pandemic
-- The relative strength of our out of town Retail Park stores
The Relative Size of Our Online Business
NEXT was fortunate that its Online sales accounted for more than
half of its turnover going into the pandemic, so we had the scale
online to make up for some of the business we lost, and continue to
lose, from our stores. Interestingly, sales Online have been
significantly stronger since our stores reopened than they were
before the pandemic struck. It appears that some lockdown habits
have stuck, and we have been able to take advantage of this shift
to Online.
It was a stroke of good fortune that the product areas that did
well, also had much lower rates of return. So every item despatched
was less likely to come back and more likely to convert into a
sale. This meant that limited picking and packing capacity was used
to best effect.
It has not all been plain sailing. In March we had to close our
warehouses in order to make them COVID safe. The scale of that task
should not be underestimated - 6.8m square feet of warehousing had
to be repurposed to achieve rigorous social distancing. One-way
systems, perspex shielding, sanitation equipment, temperature
monitors, additional loos and new operating procedures were
designed and installed in two weeks. We then had to re-induct and
retrain over 4,000 colleagues.
Product Mix
As might be expected, some product areas did better than others
during lockdown. Unsurprisingly, sales of clothing for work,
weddings, going out and warm weather holidays were significantly
down on last year. In some weeks, areas such as men's and women's
suits, occasion dresses, formal shoes and party clothes were as
much as 80% down on last year. In contrast, childrenswear,
sportswear, loungewear, underwear and home products performed much
better, particularly Online where, in some areas, we experienced
significant growth. It is testament to many years of innovation and
hard work from our Childrenswear and Home product teams that these
better performing areas accounted for around half of our sales
going into the pandemic (see graphic below).
Product mix graphic: Click or paste the following link into your
web browser to view the PDF document. Refer to page 5 for the
relevant graphic.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Although these trends are now moderating, they have not reversed
and we do not expect to see these trends change direction until
next year, at the earliest.
Retail Parks
The sales performance of our stores, although down on the year,
has steadily improved since they reopened. However there has been a
marked difference in the performance of different types of store.
The difference is easy to explain in terms of people's reluctance
to be in crowded places, particularly those that many would
normally access through public transport. In addition (and again
unsurprisingly), those city centres that are most dependent on
office worker trade have fared much worse than the average. In
contrast, retail parks where customers can park and walk straight
into relatively spacious stores have performed much better. Smaller
towns have also generally performed better than larger cities.
The charts below set out the cumulative performance of our
stores by category since reopening, along with the percentage of
total Retail sales that each store type accounted for going into
this year. The regional shopping centres are stores in large
out-of-town or edge-of-town shopping centres such as Thurrock
Lakeside, Sheffield Meadowhall and Gateshead Metro Centre.
Retail Store Sales Versus Last Year by Store Type chart: Click
or paste the following link into your web browser to view the PDF
document. Refer to page 6 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Participation of Retail Sales Year Ended Jan 20 chart: Click or
paste the following link into your web browser to view the PDF
document. Refer to page 6 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
FINANCIAL STABILITY
Healthy Net Margins and Capital Discipline
Retail is a volatile industry, and we have always taken the view
that our net margins need to reflect the levels of risk inherent in
an unpredictable market. We have managed our pricing and investment
appraisals to maintain healthy net margins and good returns on
capital invested, occasionally at the expense of accelerating
growth. As a result of these disciplines, our business is geared up
to deliver good operating margins alongside low levels of capital
consumption, resulting in a business that has been, and remains,
highly cash generative.
For example, our investment hurdles for new store openings are
(and have always been) that they must achieve at least 15% net
branch contribution before central overheads and payback capital
invested in less than two years. As a result, the net branch
contribution of our entire store portfolio at the start of the year
was 20%, despite the fact our stores had been losing sales to
Online for five years.
The Ability to Control Stock
We were able to reduce our stock holding by much more than we
had anticipated in March. We had planned for sales in the first
half to grow by +3% and, at the end of February, our stock was up
+3% on the previous year. We were able to reduce the cost of stock
for the first half by GBP220m(4) by (1) cancelling orders that had
not yet gone into production (but paying for unused fabric), (2)
hibernating stock for the following year and (3) reducing future
orders. This meant that, despite full price sales decline of -33%
in the first half, we generated -17% less markdown stock than at
the same time last year.
(4) The figure quoted is the stock cancelled net of stock provisions.
The Quality of Our Customer Credit Book
We have always considered that the Group's net financial debt
(currently GBP765m) needs to be viewed in the context of our net
customer receivables which, after provisions for bad debt, stand at
GBP1.0bn at the half year. We believe the performance of our
customer receivables over the last six months has demonstrated the
quality and resilience of this asset in the most extreme
circumstances.
At the height of the pandemic, Online sales, along with the
associated consumer lending, declined. However, as the season
progressed, customer payments carried on much as usual. The
combination of less lending and normal collection rates meant that
during the half we collected in a net GBP241m of consumer
receivables.
As yet, we have seen no deterioration in bad debt rates or any
extension in payment days (the length of time that customers choose
to pay down their account), although we are providing for some
increase in bad debt during the second half in anticipation of any
fallout resulting from the end of furlough.
NEW WAYS OF WORKING
The pandemic has been expensive and miserable. But some good has
come from the upheaval. It is remarkable what can be learnt from
shutting down your entire operation and slowly, department by
department, store by store, warehouse by warehouse, bringing it
back to life. All the more challenging and informative with much of
the endeavour managed by hundreds of our colleagues sitting in
their spare bedrooms, kitchens and conservatories! We have learnt
how we can work more effectively. Lessons which, if we are careful
to preserve them, will stand us in good stead for years to
come.
The benefits fall into two categories: (1) in our warehouse and
call centre operations we have discovered more efficient ways of
working and (2) in non-operational departments such as IT and
Buying, working from home has forced us to take advantage of new
technology with all its possibilities for improved communications,
efficiency and employee job satisfaction.
At this point it is only right to mention the extraordinary
effort made by so many colleagues, at every level in the
organisation, to keep the Company running through lockdown. The
hard work, enthusiasm, ingenuity, common sense and determination of
colleagues from so many diverse parts of the Company has been an
inspiration. From warehouse managers to buyers, systems programmers
to store managers and financial analysts - NEXT employees have
pulled together to keep the Company running in circumstances none
of us could have imagined in January. I know our experience has not
been unique, but nonetheless over the last six months I have, on
many occasions, felt very thankful that I work for NEXT.
Operational Improvements in Warehouses and Call Centres
Warehouses
The process of ceasing virtually all warehouse operations and
slowly, operation by operation, winding them back up, was
instructive. Social distancing forced us to spread work as evenly
as possible over 24 hours and in doing so, we discovered we could
be much more efficient if we allocated work differently going
forward. We also gained an insight into the true costs of
stretching our next-day delivery cut off to midnight and we are
actively reviewing whether that last hour is really worth the costs
involved.
Call Centres
At a time when we needed them most, COVID rendered our Call
Centres virtually unusable. We needed to get colleagues taking
calls from their homes. For many years we believed this was simply
not practical or possible. I am grateful to Alex Baldock (CEO of
Dixons Carphone) for sharing his experience on this issue. Within
five weeks of Alex explaining it was possible, many of our managers
and staff were set up to take calls from home.
The solutions we have in place are temporary and need enhancing
and we are still struggling to keep up with call centre demand. We
need to recruit additional staff, invest in new equipment, develop
new management techniques and invest in upgrading software. But we
now know that we can employ customer service agents in their homes
for some of their working days. This opens up the possibility of
creating more flexible, convenient and enjoyable ways of working,
making it easier for the business to recruit and retain staff
whilst enhancing our ability to flex up work when we experience
spikes in call centre demand.
Working from Home - the Good, the Bad and the Unknown
The Good
Reducing the number of long commutes, with all their stress and
inconvenience, and eliminating the distractions inherent in the
office environment has allowed some solitary tasks (such as systems
coding and product design) to become more focussed and
effective.
In our Buying teams, restrictions on overseas travel have
actually encouraged more regular contact with suppliers and closer
collaboration through video calls. Many of our Buying teams have
succeeded in developing and selecting new ranges remotely using
digital technologies to handle diverse tasks from amending garment
fit to checking colour continuity. The result, in many cases, has
been more focussed, more frequent and faster decision making.
Decisions have been made on the spot rather than being 'saved up'
for trips or selection meetings. At best, these new ways of working
have engendered independence of action, creativity and stimulated
innovation.
Standing back from these changes one important theme emerges. We
have had to let go of some of our time-honoured product selection
processes - with all their checks and balances - and we have
empowered individuals and small teams to make more decisions
outside of the corporate machine. For many, this has been
liberating and the best people have increased and improved their
creative output. With hindsight, it appears that the corporate
machine was supporting the inexperienced and the less able, but
holding back the strong.
The Bad
By far the biggest problem with home working has been the lack
of spontaneous conversations between colleagues. We have missed the
chance conversations, unplanned questions, the ability to learn
from colleagues, along with the training and camaraderie that the
office provides. At its best, an office can be a cauldron for new
ideas and enhanced collaboration.
Where problem solving requires large groups to work together,
video calls have proved unwieldy, frustrating and inefficient.
Worst of all perhaps, large video calls have encouraged the
proliferation of one of the business world's most damaging
practices - death by deck: slideshow presentations that transform
meetings from productive exchanges of ideas into boring, one-way
lectures; with the "presenters" rattling through bullet points
already visible to their stultified audience.
The Unknown - Home Working Going Forward
It is too early to judge how much working from home will become
a permanent feature of life going forward. It will vary from
department to department, job to job and person to person.
Ultimately there will be a balance between home and office working;
finding that balance will take time and care.
We will avoid edicts from the Boardroom that impose a
one-size-fits-all solution for working from home. Instead, we will
allow the balance between working from home and in the office to
evolve over time, allowing each functional area (Buying, Design,
Systems Development, etc.) to work its way towards the optimum
working practices for its particular needs and its particular
people. We will, however, set out some very clear simple principles
which we expect people to follow when determining the balance
between home and office working - above all else we need to be
clear that the business must come first.
NEW BUSINESS DEVELOPMENTS
The lockdown has done nothing to impede the development of the
new businesses we mentioned in our March Report (Total Platform,
Licensing and Beauty). If anything, the upheaval has served to
accelerate the rate of development, partly through giving us the
time and space to develop new ideas, partly through opening our
minds, and those of our potential partners, to new ways of
collaborating in an industry that is changing faster than ever.
That said, there are clear boundaries to the ideas we will
consider and beyond which we will not reach. New businesses must
satisfy four simple tests. They must:
-- Create value - for our customers and our clients
-- Play to our strengths, assets and expertise
-- Make a margin commensurate with the risk of the endeavour in question
-- Make a healthy return on capital
Total Platform
We have recently launched our first Total Platform website for
Childsplay Clothing, an online retailer specialising in luxury
branded Childrenswear. The new site was launched on time and is
working well.
The aim of Total Platform is to allow clients to grow their
business without the capital costs, operational risks and
management time associated with developing increasingly complex and
expensive infrastructure. No one starts a new brand because they
are passionate about warehousing and data protection! Total
Platform allows brands to focus on the things they love doing and
where they can add the most value - building their product ranges
and developing their brand.
Total Platform graphic: Click or paste the following link into
your web browser to view the PDF document. Refer to page 10 for the
relevant graphic.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Total Platform services include: website systems, an online
marketing platform, warehousing for boxed, hanging and palletised
products, distribution networks (including to our c.500 stores),
returns handling, call centre services, account management systems,
payment systems, credit facilities, data management and security
systems, international websites and other online infrastructure
along with our marketing and operational know-how. We have recently
extended the scope of our services to include retail warehousing
and distribution alongside the use of our proprietary point-of-sale
software.
Total Platform is a pay-as-you-go answer to operating an online
business. Clients pay through a simple commission on sales, so
there are no uncomfortable step-change increases in fixed costs and
no capital requirements to support growth. No one needs reminding
that fashion is a volatile business and the variable cost base also
serves to protect the client should they have a difficult year.
And, of course, the commission model has one other vital function:
it aligns our interests with those of our clients; if they do well,
so do we.
Victoria's Secret UK and Eire Licence
Victoria's Secret and Pink are leading Lingerie and Beauty
brands owned by Lbrands, a public limited company based in the
United States. We have agreed terms with Lbrands to set up a joint
venture selling Victoria's Secret and Pink products under licence
in the UK and Eire. This agreement is subject to and contingent
upon regulatory approval. Subject to, and contingent upon, that
approval, the joint venture aims to operate through the following
routes to market in the UK and Eire:
-- Around 18 Victoria's Secret stand-alone stores
-- Select ranges sold on concession in selected NEXT stores
-- A dedicated Total Platform Victoria's Secret website (UK and Eire only)
-- Through LABEL on the next.co.uk website
The deal has been led by our Lipsy subsidiary and NEXT's share
of the joint venture's profits will be reported as part of Lipsy's
Profit and Loss account.
Online Commercial Terms in Outline
Lbrands will sell stock to the UK joint venture at cost. Sales
of goods online, whether through LABEL or Total Platform, will
require the joint venture to pay: (1) a royalty fee to Lbrands and
(2) a commission to NEXT. These arrangements have been negotiated
so that Lbrands and NEXT make broadly the same profit on the joint
venture's operations.
Retail Commercial Terms in Outline
Retail services, such as warehousing, systems and distribution,
will be provided to the joint venture by NEXT through our Total
Platform. These services will be recharged to the joint venture at
cost. Sales through physical stores will not incur a royalty fee.
The profit generated by the joint venture is shared between NEXT
and Lbrands.
Licensing
Our licensing business aims to marry our specialist sourcing and
quality control with the design flair of partner brands, allowing
partners to venture into areas where specialist knowledge or lack
of scale are barriers to entry. We are focussing mainly on
Childrenswear, selected Homeware categories, swimwear and men's
formalwear and have licensing agreements in place with six
companies.
We expect full price sales of licensed products this year to be
c.GBP12m, generating GBP2m of profit. On an annualised basis we
expect full price sales to be c.GBP25m and to generate GBP5m of
profit. We expect to continue increasing the number of license
partners we collaborate with as the year progresses.
Branded Beauty
We have significantly increased the breadth of our beauty offer
and we now sell over 280 beauty brands. In the first half we added
43 brands, including Tom Ford, Versace and Liz Earle. We expect to
add more key brands as the year progresses, including YSL, Bobbi
Brown, Urban Decay, Giorgio Armani Beauty, Too Faced, Lancôme,
Kiehl's, Mugler and Viktor & Rolf.
Our Online Branded Beauty business grew in the first half by
+19% despite the lockdown. Over the last thirteen weeks it has
experienced much stronger growth of around +60% and we are
forecasting this level of growth to continue in the second
half.
Beauty Halls Trial
We have agreed to work in partnership with the landlords of four
locations to create a new large Beauty and Home store concept.
These stores will offer Branded Beauty counters and fragrance
alongside our Home range and a selection of Women's accessories,
gifts and lingerie. We aim to open stores in Watford, Milton Keynes
and Gateshead Metro Centre during October with Reading opening
before Christmas.
FOCUS ON THE NEXT BRAND
The Beer....
There is risk that the excitement around new business projects
might distract us from our most important tasks. In these
situations, it is not uncommon for the froth to take precedence
over the beer! We remain acutely aware that our primary task is the
continued development of the NEXT brand. At the heart of the brand
are our product ranges. No new venture can be allowed to detract
from the buying, design and merchandising of our NEXT product
ranges.
It should give shareholders some comfort that the main Product
divisions and their leadership are not generally involved in the
development of these new business areas. The only exception being
some of the newer and smaller licence areas where their expertise
is valuable.
The leadership of our LABEL division is taking responsibility
for developing client relationships for Total Platform, which ties
in well with the relationships they have already established with
our LABEL partners.
The Development of Our Ranges
The pandemic has made it hard to assess the underlying
performance of our product ranges; the disruption serves to hide
our mistakes and triumphs in equal measure! As always, there have
been errors and omissions, but in general we have been very happy
with the ranges we have developed for this first half and, in some
areas, we have seen a flourishing of creativity.
As mentioned above, in many areas, the pandemic has served to
further encourage the innovation and independence of action we have
sought to foster for some time. Our teams have, more than ever,
tested the boundaries of their product ranges: pushing the breadth
of styles they develop and the categories they sell. They have
broadened their supply bases, in some cases sourcing better design
and quality, in others faster lead times. Often, in doing so, they
have also stretched their price architectures.
SUMMARY
Standing as we are, in the midst of the pandemic, with no sign
yet of abatement or vaccine, it might seem odd that the essential
tone of this report is optimistic. Particularly, some might say,
coming from NEXT.
But our confidence in the future is not because we see a
comfortable route through to the end of the pandemic. The prospects
for the next six months remain as uncertain as the outlook for the
virus itself; never has our guidance been more tentative or as
broad in its possible outcomes.
But in all our guidance scenarios the Group generates a profit,
generates cash and reduces its debts. So we can look to the end of
this extraordinary time - whenever that may be - in the belief that
we can build on the strength of the NEXT brand, its people and its
infrastructure along with all the new opportunities those assets
might deliver.
PART 2 - FINANCIAL PERFORMANCE
GROUP FINANCIAL PERFORMANCE(5)
Brand full price sales in the first half of this year were down
-33% on last year and total sales(6) (including markdown sales)
were down -34%. Profit before tax in the first half of the year was
GBP9m (on a pre-IFRS 16 basis) and we reduced our net debt by
GBP347m to GBP765m.
Full price sales at the beginning of the second half have
continued to exceed our expectations and we have revised our
central scenario for full year profit, up from GBP195m to GBP300m
(see page 40).
SALES
TOTAL SALES GBPm July 2020 July 2019
Online 862.6 1,004.9 - 14%
Retail 344.6 874.3 - 61%
Finance 127.9 134.0 - 5%
========= =========
Brand 1,335.1 2,013.2 - 34%
Other 21.7 45.6 - 52%
========= =========
Total Group sales 1,356.8 2,058.8 - 34%
================== ========= ========= =====
(5) The figures presented in this section are those used by
management to monitor and assess business performance. They are not
statutory measures. A reconciliation to the statutory equivalents
is provided in the Appendix on page 42.
(6) Total sales are VAT exclusive sales including the full value
of commission based sales (refer to Note 3 of the financial
statements).
Brand full price sales by week are shown in the graph below. The
solid bars show this year's full price sales, the blue show our
Online sales, the green Retail sales and the grey bars show
interest income. The first half can be separated into three parts:
(1) pre-lockdown when full price sales were down -1%, a little
below our expectations as flooding (Storm Dennis) and pre-COVID
nerves hindered sales, (2) lockdown, when sales were down -54% due
to the closure of Retail stores and disruption to our warehouse
operations and (3) post-lockdown when full price sales were down
-8%.
Brand Full Price Sales by Week graph: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 14 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
PROFIT, CASH FLOW AND NET DEBT
PROFIT GBPm and EPS (pre-IFRS 16) July 2020 July 2019
Online 128 177 - 28%
Retail (175) 56 - 413%
Finance (after charging interest) 59 76 - 22%
========= =========
Brand 12 309 - 96%
Sourcing, Property and Other(7) (2) 14
Group recharge of interest from Finance business 20 18
========= =========
Operating profit before interest 30 341 - 91%
Net external interest (21) (21)
========= =========
Profit before tax 9 320 - 97%
Taxation (see page 17) 6 (59)
========= =========
Profit after tax 15 261
========= =========
Earnings Per Share 11.8p 199.5p
================================================= ========= ========= ======
CASH FLOW AND NET DEBT GBPm July 2020 July 2019
Cash inflow/(outflow) 347 (97)
Net financial debt (excluding leases) 765 1,193 - 36%
====================================== ========= ========= =====
(7) Other profit includes Franchise, Lipsy, and other Group
costs (page 32).
NON-RECURRING PROFIT & LOSS ITEMS
Within the GBP9m of profit before tax reported above, there are
a number of significant, non-recurring items. In total, these
reduced profit by -GBP27m. These items are set out below, with
further details given after the table.
First half profit impact
GBPm (pre-IFRS 16)
============================================================== =========================
Property profit from the sale and leaseback of properties(8) +37
Business rates reduction +32
Property provisions for store impairment and onerous leases - 37
Stock provisions and fabric - 39
Bad debt provisions - 20
Total profit impact - 27
(8) Under IFRS 16 the difference between the cash proceeds and
the asset sold of GBP37m is not recognised as a gain in the year.
Instead, the gain is GBP7m with the difference recognised in lower
costs over the remaining lease term. The cash benefit and P&L
impact over the lease term is the same. See page 42.
Property Profit
One of the actions we took to generate cash in the first half
involved the sale and leaseback of a warehouse complex and our head
office. These transactions generated a net profit of GBP37m(8) (the
difference between the sale price of GBP147m and the book value of
the assets sold). We expect to generate a further GBP10m of
property profit in the second half (see page 34).
Business Rates Reduction
The Government's decision to halt business rates for retail
properties this year saved GBP32m in the first half.
Property Provisions for Store Impairment and Onerous Leases
We anticipate that a number of stores will not fully recover to
pre-COVID sales levels and have accelerated our internal forecasts
for the rate of sales decline in those locations. As a result, we
have taken provisions in 20 stores where we now anticipate we will
make a cash loss over the remaining term of their leases. The
GBP37m charge is a combination of a GBP6m write down of store
assets and a GBP31m provision for future cash losses.
Stock Provisions and Fabric
We have made additional stock provisions, in our Retail and
Online businesses, of GBP39m, increasing our total provisions on
stock from 9% of cost to 14%. This includes additional provisions
for: (1) Spring Summer 2020 stock which has been hibernated until
Spring Summer 2021, (2) clearance stock where we expect reduced
recovery rates and (3) fabric that might not be converted into
garments and compensation payments. The table below sets out the
relevant quantities and provisions. Note that the provision against
clearance stock is over and above the usual 70% write down we make
on stock at the end of our Sale events.
Cost price
Type of stock of stock Additional provision % Cost
============================================ =========== ===================== ======
Hibernated stock carried from SS20 to SS21 GBP50m GBP12m 24%
Clearance stock GBP61m GBP8m 13%
Fabric provisions and compensation payments GBP28m GBP19m 68%
=========== ===================== ======
Total GBP139m GBP39m 28%
Bad Debt Provisions
In the first half we have made a GBP20m provision for potential
future write-offs that may arise because of the economic impact of
COVID. To date, we have not seen any deterioration in overall
payment rates, but there is a risk that this will change when the
Government furlough scheme comes to an end in October. Further
details are given in the NEXT Finance section on page 28.
OVERVIEW OF CHANGES IN GROUP SALES, COSTS AND PROFIT
The table below explains how lost sales have flowed through to
reduce profit. Without remedial action, the GBP702m of lost sales
would have reduced profit by nearly the same amount; this is
because we had already bought the stock to achieve those sales.
This potential loss was mitigated by reducing the cost of stock by
GBP220m(9) , saving GBP102m of wage costs, the suspension of
marketing programmes, and savings in occupancy costs such as
electricity and service charge. In addition, the Government's
business rates holiday reduced costs in the half by GBP32m.
Profit impact
GBPm July 20 vs July 19
=============================================== ===================
Total lost sales (VAT ex) - 702
Reduction in cost of stock +220
Reduced wages +102
Reduced occupancy costs +45
Marketing costs +21
Other operational cost savings and Group items + 3
===================
Total lost profit - 311
(9) This saving on cost of stock is net of stock provisions.
TAXATION
In the first half, Group profit before tax is GBP9m and the tax
charge is a credit of GBP6m. This tax credit is largely due to the
removal of the GBP37m gain on the sale of the warehouse complex
from profit before tax when calculating the tax charge. This GBP37m
gain does not incur a tax charge, mainly due to HMRC's indexation
allowances and, to a lesser degree, historical capital losses. The
remaining accounting loss of -GBP28m has an Effective Tax Rate of
around 19%, which is consistent with the headline UK Corporation
Tax rate. This tax credit will be offset within the calculation of
tax in the second half.
NEXT ONLINE
FULL PRICE SALES BY WEEK
The chart below sets out Online full price sales by week. The
solid blue bars show this year's full price sales and the black
dotted line shows last year. At the beginning of the COVID period
in March we saw a steep decline in demand as consumers hunkered
down. In mid-March, as the lockdown intensified, we took the
decision to close our warehouses and Online operations to make them
COVID safe.
Online Full Price Sales by Week chart: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 18 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Our warehouses remained closed for two weeks. It then took us a
further five weeks to ramp up operations as we slowly re-inducted
and retrained our staff to work in a socially distanced
environment. From the end of May, sales were significantly better
than the pre-COVID period, even once our stores had reopened. We
believe that this was because of (1) continuing sales transfer from
our stores and (2) fewer people travelling overseas for their
holidays.
FULL PRICE SALES BY DIVISION
Online full price sales in the first half of the year were down
-11%. The table below sets out the full price sales performance by
division.
Full price sales GBPm July 2020 July 2019 Var %
============================== ========= ========= =====
NEXT Brand UK 423 469 - 10%
LABEL UK 158 199 - 21%
========= ========= =====
Total UK Online 581 668 - 13%
Overseas 204 212 - 3%
========= ========= =====
Total Online full price sales 785 880 - 11%
LABEL UK was particularly affected by the lack of demand for
occasion and party clothing along with some stock shortages as
partners were unable to reinstate orders we had cancelled. Within
the LABEL UK numbers Lipsy, which is heavily dependent on occasion
dresses, was down -48%. Excluding Lipsy, LABEL UK sales were down
-12% and more in line with NEXT Brand UK. Overseas sales have held
up well, though performance by region has been very varied (see
page 22).
ONLINE TOTAL SALES AND PROFIT BY DIVISION
In the first half, total Online sales (including markdown sales)
were down -14% and Online profit was GBP128m, down -28% on last
year. Sales and profit by division are set out below, along with
the change versus last year.
Sales GBPm Sales vs Profit GBPm Profit vs
Online division July 2020 July 2019 July 2020 July 2019
================ ========== ========== =========== ==========
NEXT Brand UK 472 - 14% 84 - 22%
LABEL UK 177 - 25% 16 - 53%
Overseas 214 - 2% 28 - 22%
========== ========== =========== ==========
Total Online 863 - 14% 128 - 28%
Profit Walk Forward
The table below sets out how the lost sales translate into lost
profit after accounting for various cost savings. The paragraphs
following the table explain some of the movements in costs.
Profit impact
GBPm July 2020 vs July 2019
=========================== =======================
Full price sales (VAT ex) - 95
Markdown sales (VAT ex) - 47
=======================
Total lost sales (VAT ex) - 142
Reduction in cost of stock +45
Reduced wages +32
Reduced marketing costs +21
Logistics costs - 5
=======================
Total lost profit - 49
Wage costs (+GBP32m)
Most of this saving relates to warehousing and distribution.
Some support teams in the contact centre and other Head Office
departments were also furloughed.
Marketing (+GBP21m)
We stopped digital marketing when our warehouse capacity was
less than daily demand. In addition, we stopped printing catalogues
and spent less on photography.
Logistics (- GBP5m)
The logistics cost increase was the net effect of savings from
lower parcel volumes, offset by the frictional costs associated
with working through the pandemic. The costs and savings are set
out in the table below.
Profit impact
GBPm July 2020 vs July 2019
==================================================== =======================
Parcel volume reductions +7
Increase in international parcel distribution costs - 5
Temporary storage and other temporary costs - 3
PPE, warehouse COVID set up and other costs - 4
=======================
Total profit impact of logistics costs - 5
MARKDOWN SALES
Stock marked down for Online Sale events was down -14% on last
year. Total Online markdown sales were down -38% on last year,
significantly more than the reduction in surplus stock, for three
reasons:
1. We were unable to service the mid-season Sale in late March
as a result of the closure of our warehouse, so the majority of
orders were cancelled
2. We have deliberately limited the availability of Clearance
stock on our website so that we can focus our limited warehousing
capacity on servicing full price sales
3. End of season Sale orders placed in July took longer to
despatch from our warehouses than last year, so GBP6m additional
markdown sales will be recognised after the reporting period.
Excluding this timing difference, markdown sales were down
-31%.
CUSTOMER BASE
Despite the fact that our sales fell in the half, average active
customers(10) increased by +1.9% to 6 million, driven by growth in
UK cash customers. Cash customers are those who do not use our
nextpay credit account when ordering. We believe that the increase
in cash customers can be attributed to Retail customers who
switched to ordering Online when stores were closed. The table
below sets out the respective parts of our customer base.
Average active customers (m) July 2020 July 2019 Var %
============================= ========= ========= ======
UK credit 2.57 2.57 +0.1%
UK cash 2.09 1.97 +5.7%
========= ========= ======
Total UK 4.66 4.54 +2.5%
Overseas cash 1.34 1.34 - 0.1%
========= ========= ======
Total 6.00 5.88 +1.9%
(10) Active customers are defined as those who have placed an
Online order or received a standard account statement in the last
20 weeks.
Divergence in Performance of UK Credit and UK Cash Sales
There was a significant difference between the performance of
Online credit and cash sales. UK Online credit sales were down -25%
and cash sales were up +12%. The main reason for the discrepancy
comes down to the mix of products sold during lockdown. Credit
sales tend to be focussed on two areas: (1) more expensive adult
clothing and (2) markdown stock; both areas performed badly during
lockdown.
UK total sales (inc. markdown)
GBPm July 2020 July 2019 Var %
=============================== ========= ========= =====
Credit 463 619 - 25%
Cash 185 166 +12%
========= ========= =====
UK total sales (inc. markdown) 648 785 - 17%
Online credit participation
% 71% 79%
UK Online Credit Sales by Product Type chart: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 20 for the relevant charts.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
FOCUS ON LABEL
Our third-party branded business has become a broad offer
stretching from perfume to trainers. The table below aims to give
an understanding of our full price sales performance by product
category. The performance of the different categories reflects the
shift in lockdown consumer preferences. Home and Beauty performed
exceptionally well.
Sportswear did much better than clothing, though our sales were
significantly inhibited by the lack of stock. Other (non-Lipsy)
fashion clothing underperformed, as a result of stock shortages and
because much of our branded products are purchased for special
occasions and parties - both of which have been in short supply!
Lipsy sales are dominated by its going out dress ranges and was hit
particularly hard.
Full price sales GBPm July 2020 July 2019 Var %
======================= ========= ========= =====
Clothing 83 126 - 34%
Fashion 58 79 - 26%
Lipsy 25 47 - 48%
Sports 46 49 - 7%
Home 21 17 +27%
Branded Beauty 8 7 +19%
========= ========= =====
Total full price sales 158 199 - 21%
The Development of Platform Plus
At the start of 2019 we enabled our customers to order items
from our partners' warehouses through our Platform Plus system.
This has allowed us to significantly increase the breadth of offer
from participating brands and, on average, Platform Plus boosted
partner brand sales by around +15%.
The Platform Plus functionality falls into two categories:
Delivered by Items that we collect from our partners' warehouses
NEXT: and deliver through our logistics network, so that
they can be consolidated with other items in the
same order.
Direct Despatch: Large Home items that are directly despatched to
the customer by the third-party brand through their
own networks.
The table below sets out this year's forecast growth in brands
and sales for both categories of Platform Plus products.
Jan 21(e)
Jan 21(e) Jan 20 GBPm Jan 20 GBPm
No. of brands No. of brands annual sales annual sales
================ ============== ============== ============= =============
Delivered by
NEXT 77 24 +221% 34 11 +209%
Direct Despatch 83 61 +36% 22 14 +57%
============== ============== ============= =============
Total 160 85 +88% 56 25 +124%
We are developing Platform Plus capabilities to estimate future
demand on popular items, so that we can call off those lines and
hold stock in our own warehouses in anticipation of future orders.
This system will be rolled out to at least 24 brands over the
coming months.
FOCUS ON ONLINE OVERSEAS SALES
A Half of Two Halves!
The overall performance of our Overseas business is a little
misleading and hides the underlying strength of the business. The
performance by quarter is set out below.
Full price sales GBPm July 2020 July 2019 Var %
================================== ========= ========= =====
Quarter 1 to 25 April 82 110 - 25%
Quarter 2 to 25 July 122 102 +19%
========= ========= =====
First half total full price sales 204 212 - 3%
In the first quarter, operational constraints meant we
prioritised the fulfilment of higher margin UK orders and many of
our Overseas sites remained closed after we had reopened the UK
website. In addition, we were not able to properly replenish our
Overseas warehouses in Russia and Germany for several weeks after
UK operations had resumed. By the beginning of June, our Overseas
operations were back to near normal levels of service and sales
recovered very strongly.
The chart below shows weekly full price sales and the number of
countries that were trading in each week. The blue bars show this
year's sales and the black lines show last year. The red dotted
line shows the number of countries trading in each week from the
end of March onwards (right hand axis).
Overseas Full Price Sales by Week chart: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 22 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
We have yet to relaunch in eight small countries that account
for less than 0.5% of our Overseas sales. These countries, along
with a further 60 new small territories, will be serviced by a
single dollar-denominated "Rest-of-World" website, which we aim to
launch later this year.
The Growing Importance of Third-Party Websites
The table below compares the performance of Overseas sales on
our own nextdirect.com website with sales through third-party
aggregators such as Zalando (including Zalando Fulfilment
Solutions), Otto Versant and others. Third-party sales were strong
throughout the half but particularly good in the second quarter,
with like-for-like third-parties up +84% on last year. This year we
have significantly increased the number of items sold by
third-parties, which we believe has helped drive sales growth. We
believe that overseas lockdowns drove more people to local
aggregation sites and as a result more customers found the NEXT
brand.
Full price sales GBPm July 2020 July 2019 Var % Q1 % Q2 %
================================ ========= ========= ===== ====
Third-parties
New 4 - - - -
Continuous 23 18 +31% - 18% +84%
========= ========= ===== ====
Total third-parties 27 18 +55% +18% +94%
nextdirect.com 177 194 - 9% - 29% +13%
========= ========= ===== ====
Total Overseas full price sales 204 212 - 3% - 25% +19%
Full Price Sales by Geographical Region
Sales in the first quarter struggled across all regions, but in
the second quarter we have seen encouraging growth in our largest
regions of Europe and the Middle East. The remaining regions have
been significantly affected by longer lead times and the increased
delivery charges we have had to impose due to restricted flight
availability and freight surcharges charged by our carriers.
Full Price Sales versus Last Year by Region chart: Click or
paste the following link into your web browser to view the PDF
document. Refer to page 23 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
% of Full Price Sales by Region chart: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 23 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
ONLINE WAREHOUSE CAPACITY
In our July Trading Statement we explained how our warehouses
had built back their capacity to levels approaching last year's
output, despite the restrictions of working within social
distancing requirements. Part of this improvement has come from the
higher levels of efficiency we have achieved during lockdown. These
output levels, when combined with lower levels of customer returns,
mean that we have been able to exceed last year's Online sales in
many weeks.
Keeping up with demand as sales ramp up in the Autumn/Winter
season will remain extremely challenging and we will have to work
hard to increase our output capacities as the year progresses. To
that end, we will do the following:
-- Realign all our shifts to maximise the use of the warehouse
during the parts of the day and night that are traditionally quiet
(for example, in the early hours of the morning)
-- Commission a fifth boxed packing sorter in October, which
will increase packing capacities by at least +15%
-- Increase mechanical storage for reserve stock
-- Increase in Online forward location storage for small Home product
-- Build in increased mechanical resilience to reduce points of
failure that can disrupt operations
The graph below shows last year's warehouse pick volumes (grey
shaded area) compared to our actual pick volumes this year (red
line) and those we anticipate as the year progresses (red dotted
line).
Weekly Picking Volumes - Main Boxed Warehouse graph: Click or
paste the following link into your web browser to view the PDF
document. Refer to page 24 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
NEXT RETAIL
FULL PRICE SALES BY WEEK
The chart below shows full price sales by week. The blue bars
show this year's sales and the dotted black line shows last year.
For the first half full price sales were down -62% on last year. In
the first six weeks, prior to the period of lockdown, full price
sales were down -9% and slightly below our expectations of -6%.
Stores gradually reopened following lockdown and in the last six
weeks of the first half, full price sales were down -39% (-32% on a
like-for-like basis).
Retail Full Price Sales by Week graph: Click or paste the
following link into your web browser to view the PDF document.
Refer to page 25 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
TOTAL SALES AND PROFIT/LOSS
Total sales (including markdown sales) were down -61% resulting
in a loss of -GBP175m.
GBPm July 2020 July 2019 Var % Var GBPm
======================== ========= ========= ====== ========
Total sales 345 874 - 61% - 529
Operating profit/(loss) (175) 56 - 413% - 231
========= ========= ====== ========
The following table sets out the change in sales and costs for
the first half versus last year. Following the closure of our
stores, we took several actions to manage and reduce costs in order
to preserve cash. Further details of the main cost categories are
given after the table.
Profit impact
Profit walk forward GBPm July 2020 vs July 2019
============================== =======================
Full price sales (VAT ex) - 488
Markdown sales (VAT ex) - 41
=======================
Total lost sales (VAT ex) - 529
Reduction in cost of stock +173
Reduced wages +70
Reduced occupancy costs +45
Store impairment/depreciation - 2
Other operational savings +12
=======================
Total lost profit - 231
Wage Costs (+GBP70m)
Wage costs reduced by GBP70m due to savings made during
lockdown, when almost all Retail store staff and support teams were
furloughed, and lower staff incentives.
3,500 store staff currently remain on the Government furlough
scheme, though more than half are now back working on a part-time
basis. Furloughed hours currently represent 6% of our total
contracted hours in Retail stores and we anticipate that the vast
majority of staff will be required as trade builds in the run up to
Christmas.
Occupancy Costs (+GBP45m)
Occupancy costs, which comprise rents, rates, service charge,
utilities and maintenance, were GBP45m lower than last year. Most
of this saving was a result of the Government business rates cut
that saved GBP32m in the first half.
We paid our rent as per our contractual obligations, in full and
on time. The total rent charge was GBP6m lower than last year,
partly as a result of the rent reductions we have negotiated at
lease renewals and partly as a result of stores that closed during
the last twelve months. Rent savings were offset by a GBP2m loss of
rental income from concessions (mainly cafes and travel agents)
during the period of store closures. Maintenance, service charge
and utilities costs fell by GBP9m while the stores were closed.
Impairment and Depreciation (-GBP2m)
Following the drop in sales, we have impaired store assets with
a value of GBP6m; this compares with zero impairment in the first
half of last year. This cost increase has been offset by a GBP4m
fall in depreciation, as assets in existing stores have been fully
depreciated. (Please note that, in addition to this impairment, a
GBP31m provision for onerous leases has been made in the Property
Management division of the Group, see page 33.)
Other Operational Savings (+GBP12m)
We made savings in Retail logistics and other costs that vary
with sales such as consumables and credit card fees.
RETAIL SPACE AND LEASE COMMITMENTS
This year we expect to increase net retail space by +114,000
square feet and reduce the number of stores by one. The
year-on-year change in store numbers and square footage is set out
below. The main addition to space this year will be the opening of
four NEXT Beauty Halls; further details of the development of our
Branded Beauty business are given on page 11.
Store NEXT Concessions Total
numbers Sq. ft. (k) Sq. ft. (k) Sq. ft. (k)
====================== ======== ============ ============ ============
January 2020 498 8,031 361 8,392
New Mainline stores +2 +12 +6 +18
New NEXT Beauty Halls +4 +154 - +154
Mainline closures - 13 - 135 - - 135
Clearance stores +6 +77 - +77
======== ============ ============ ============
January 2021(e) 497 8,139 367 8,506
Change - 1 +108 +6 +114
Change % +1.3% +1.5% +1.4%
Closures
We expect to close 13 mainline stores this year, one less
closure than we forecast in March. Together these stores turned
over GBP26m per annum. The net profit impact of closing these
stores, after accounting for a 20% transfer of trade to other NEXT
stores, would be a loss of around GBP1m per annum, assuming sales
remained at the level they were in 2019.
Lease Renewals
This year we expect to renew 60 store leases and extend their
lease term by an average of 3.5 years. Based on our negotiations so
far we anticipate that, on average, rent in these stores will fall
by -50%, saving GBP9.9m per annum. Eighteen of these lease renewals
are linked to store turnover, rather than a fixed rent, meaning
that we can be more confident in the store's longer term
future.
Assuming that store sales in 2021 settle at a level that is 20%
down on 2019 (i.e. pre-COVID), then we would expect these stores to
make a net branch profit of 24%, before accounting for central
overheads. When negotiating new leases, we stress test each store
on the basis it will experience a like-for-like decline of -10%
each year going forward. The initial rent (and resulting
profitability) is negotiated to ensure the store remains profitable
through the term of the lease. To that extent we are able to agree
longer leases in return for lower or variable levels of rent.
We expect to receive GBP5.3m of capital contributions or
rent-free incentives and will invest GBP6.8m upgrading these stores
to ensure they remain a credit to our brand.
60 store renewals After
January 2021 (e) Before renewal renewal
======================================================== ============== =========
Rental costs GBPm(11) GBP19.6m GBP9.7m - 50%
Net rent/sales (VAT inc.) 10.8% 5.3%
Average branch profitability (before central overheads) 16% 24% +8%
============== =========
Rent-free incentive/capital contributions GBP5.3m
Average lease term (to earlier of break or lease end) 3.5 years
(11) Rental costs include the release of any capital
contributions or rent-free incentives, over the term of the lease,
which will not be used to fund the refit of the stores being
renewed. Excluding the release of surplus capital contributions,
rent is forecast to decline by -48%.
Lease Commitments
At the end of July our average lease commitment (weighted by
value) was 5.5 years, compared with 5.9 years at the same time last
year. Fifty per cent of our store leases (by value) will expire or
break within 4.7 years and 82% within the next ten years.
Cumulative Lease Expiries by Rental Value graph: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 27 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
NEXT FINANCE
HEADLINES
-- NEXT Finance profit was GBP59m, down -22% on last year driven
by reduced interest income and higher bad debt provisions
-- Profit for the full year is forecast to be GBP107m, down -27% on last year
-- Forecast closing customer receivables of GBP1bn, down -18% on last year
-- Customer payments have continued at the same rate as last year
The table below sets out the performance of the finance business
in the first half and an estimate of the performance for the full
year. The full year estimate assumes that credit sales will be down
-10% in the second half.
First half actual Full year estimate
============================== =================================== ===================================
GBPm July 2020 July 2019 Var % Jan 2021(e) Jan 2020 Var %
============================== ========= ========= ============= =========== ========= ===========
Note of credit sales(12) 620 833 - 26% 1,441 1,748 - 18%
========= ========= ============= =========== ========= ===========
Interest income 128 134 - 5% 241 269 - 10%
Bad debt charge (29) (19) +53% (51) (43) +18%
Overheads (20) (21) - 9% (40) (42) - 7%
========= ========= ============= =========== ========= ===========
Profit before cost of funding 79 94 - 15% 150 183 - 18%
Cost of funding (20) (18) +14% (43) (36) +20%
========= ========= ============= =========== ========= ===========
Net profit 59 76 - 22% 107 147 - 27%
========= ========= ============= =========== ========= ===========
Key metrics
Average customer receivables GBP1,094m GBP1,167m - 6% GBP1,040m GBP1,185m - 12%
Closing customer receivables GBP993m GBP1,186m - 16% GBP1,009m GBP1,234m - 18%
(12) Credit sales are the sum of Online sales and Retail sales
paid for using a next credit account, plus interest income.
IMPACT OF THE PANDEMIC
The pandemic has affected the NEXT Finance business and its
profitability in the first half of this year in three ways:
-- The number of active credit customers at July 2020 is down
-3% on last year. This is due to reduced marketing activity and
customers paying off their outstanding balance without making new
purchases and becoming dormant (page 29).
-- The fall in credit sales (page 20) has driven down the
balance generating interest income. In the first half interest
income was down -5%, a reduction of GBP6m on last year (page
29).
-- In the first half, we have made an additional GBP20m
provision for bad debt. This provision is to cover the cost of
defaults which may arise as a result of the expected increase in
unemployment following the end of the Government's furlough scheme
(page 29).
Managing Customer Accounts During the Pandemic
We have made the following changes to how we manage our accounts
and customer balances:
Emergency Support Plans
As required by the FCA, we have put Emergency Support Plans
(ESPs) in place, which allow customers to pay just GBP1 per month
for a three month period. In line with current FCA guidance, we
will offer ESPs until October 2020. Around 13,000 customers are
currently on an ESP, representing 0.5% of the active customer base
and 2.5% of our receivables balance.
In addition, we suspended the GBP7.50 charge that is usually
made when a customer falls two months into arrears. We expect this
suspension to remain in place until at least November 2020.
Tightened Credit Control
In March, we suspended all credit limit increases. We are
looking to start selective credit limit increases where we feel it
is responsible to do so, and supported by both internal and
external data.
CREDIT CUSTOMERS
At the start of the year, the number of active credit customers
was up +2.5% on last year and by the end of July, was down -3%. The
majority of the fall is due to existing customers not making a
purchase during the season and becoming dormant. We restarted
credit marketing to new and existing customers in August and have
already arrested the decline in our customer base. We anticipate
that our credit customer base will continue to recover during the
second half.
Credit customers ('000) 2020 2019 Var %
================================ ===== ===== ======
Opening actives (January) 2,643 2,578 +2.5%
Average active credit customers 2,569 2,568 +0.1%
Closing actives (July) 2,482 2,559 - 3.0%
===== ===== ======
INTEREST INCOME
Interest income was down -5% on last year, broadly in line with
the average customer receivables. For the full year, we forecast
interest income to be down -10%, again broadly in line with our
full year forecast for average customer receivables.
BAD DEBT
In the first half, the bad debt charge was GBP29m, GBP10m higher
than last year. The change in bad debt rate was driven by three
factors:
-- Credit sales were down -26%, which reduced the provision required on new lending by GBP6m
-- We collected GBP4m on debt that had previously been written off
-- We have provided an extra GBP20m for potential future
write-offs resulting from the economic impact of COVID
The following table details the bad debt charge in the first
half and gives a forecast for the full year.
6 months to 12 months to
Bad debt walk forward GBPm July 2020 Jan 21(e)
====================================================== =========== ============
Last year's bad debt charge (19) (43)
Lower provision required due to lower credit sales 6 8
Sale of debt previously written off 4 4
Provision for potential defaults resulting from COVID (20) (20)
=========== ============
This year's bad debt charge (29) (51)
The additional GBP20m provision is to cover the risk of future
losses and is not reflective of our experience to date. Leading
indicators of write-offs, such as a fall in payments or an increase
in defaults, have not yet materialised and currently remain in line
with last year.
Payments and Defaults
Customer payments in the first half (as a percentage of their
monthly balance) were in line with last year, at 12.5%. The rate of
payment reduced during March when the pandemic first hit but
significantly recovered in July and has remained strong in August.
We believe that payment rates may reduce when the Government's
furlough scheme ends in October.
Monthly payments as a % of Customer Balance graph: Click or
paste the following link into your web browser to view the PDF
document. Refer to page 30 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Defaults (net of expected recoveries) were down -9% in the half
year, better than the -6% reduction in the average receivables
balance.
Our total provision for future defaults is 9.3% of our closing
receivables balance. The following graph shows the last twelve
years' history of defaults as a percentage of the receivables
balance together with our expectation for this year. Viewed in this
context and alongside current payment and default data, we believe
that the provision rate of 9.3% is reasonable.
Defaults and Insolvencies (Net of Expected Recoveries) as a
Percentage of Average Customer Receivables graph: Click or paste
the following link into your web browser to view the PDF document.
Refer to page 30 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
FINANCE BALANCE SHEET AND COST OF FUNDING
In the first half of the year, the cost of funding increased by
GBP2.6m, despite the fact that our average receivables reduced by
-6%. The cost of funding is a recharge from the Group based on the
assumption that the Finance business funds 85% of its receivables
balance with debt from the Group. The interest rate charged is
determined by the average interest rate incurred by the Group.
This year the Group's average interest rate rose from 3.6% to
4.4%. This increase is due to a higher proportion of the Group's
debt being funded by bonds, with little use of our less expensive
revolving credit facility.
For completeness, the calculation for the cost of funding is set
out below for the first six months of the year, together with our
forecast for the full year.
Cost of funding calculation July 2020 July 2019 Jan 2021(e) Jan 2020
============================= ========= ========= =========== =========
Average customer receivables GBP1,094m GBP1,167m - 6% GBP1,040m GBP1,185m - 12%
Debt funding % 85% 85% 85% 85%
========= ========= =========== =========
Customer receivables funded
by debt GBP930m GBP992m - 6% GBP884m GBP1,008m - 12%
Annual interest rate % 4.4% 3.6% 4.9% 3.6%
========= ========= =========== =========
Cost of funding for 6/12
months GBP20.4m GBP17.8m +14% GBP43.4m GBP36.3m +20%
========= ========= =========== =========
OTHER BUSINESS ACTIVITY
The profits and losses from other business activities, including
our other Group trading companies and non-trading activities, are
summarised below. NEXT Sourcing (NS), Lipsy and our Franchise
business all experienced significant reductions in sales and
profits. As a result, profits from other activities have fallen
from GBP14m last year to a loss of GBP2m this year. This section
gives further details of each Group business and our non-trading
activities.
GBPm July 2020 July 2019
=================================== ========= =========
NEXT Sourcing (NS) 4.9 16.9
Franchise and Retail International 0.5 3.1
Lipsy 0.1 5.8
Non-trading activities (7.4) (11.6)
========= =========
Total profit/(loss) (1.9) 14.2
NEXT SOURCING
NS is our internal sourcing agent, which procures around 40% of
NEXT branded product. NS charges an arm's length fixed commission
on all stock sourced for NEXT. The table below sets out the
performance of the business in Pounds and in Dollars.
Sales and profit are expected to improve in the second half of
the year, and we expect NS to deliver a profit of around GBP15m for
the full year.
July 2020 July 2019 July 2020 July 2019
GBPm GBPm USD m USD m
============================= ========= ========= ========= =========
Sales (mainly inter-company) 153.5 266.1 - 42% 193.5 343.3 - 44%
Operating profit 4.9 16.9 - 71% 6.2 21.7 - 71%
Net margin 3.2% 6.3% 3.2% 6.3%
========= ========= ========= =========
Exchange rate 1.26 1.29
FRANCHISE STORES AND INTERNATIONAL RETAIL
Our Franchise partners currently operate 183 stores in 35
countries, and we have one wholly owned store in the Czech
Republic. Sales were significantly affected by COVID lockdowns in
most of the territories in which our Franchise partners operate.
Revenue and profit are set out in the table below.
GBPm July 2020 July 2019 Var %
================= ========= ========= =====
Franchise income 11.6 26.2 - 56%
Own store sales 0.4 2.7 - 85%
========= ========= =====
Total revenue 12.0 28.9 - 58%
========= ========= =====
Operating profit 0.5 3.1 - 83%
========= ========= =====
We expect both sales and profit to fall by -20% in the second
half and we anticipate that profit in the full year will be around
GBP3m.
LIPSY
Lipsy is our wholly owned subsidiary which sells Lipsy's own
women's fashion brand and over 110 third-party clothing brands.
In July 2019, Lipsy acquired Fabled by Marie Claire, which
significantly increased the Group's offer of Branded Beauty
products. The table below sets out Lipsy's total sales(13)
performance by channel and operating profit.
GBPm July 2020 July 2019 Var %
============================================= ========= ========= ======
Sales through NEXT websites: Online clothing 27.0 56.5 - 52%
Sales through NEXT websites: Online beauty 8.1 6.7 +20%
Sales through NEXT stores 1.2 4.4 - 73%
========= ========= ======
Sales reported through NEXT (full price
and markdown sales) 36.3 67.6 - 46%
Other sales (wholesale, franchise, Fabled,
third-party websites) 2.5 5.9 - 57%
========= ========= ======
Total sales 38.8 73.5 - 47%
========= ========= ======
Net operating profit including Lipsy
acquisition costs 0.1 5.8 - 98%
Net operating profit/(loss) excluding
Lipsy acquisition costs (0.3) 7.4 - 104%
(13) Sales achieved through NEXT's stores and websites are
reported by NEXT Retail and Online respectively. Online, UK sales
are reported within LABEL and non-UK sales are reported within
Overseas.
In the second half of the year, we expect some improvement in
Lipsy's performance, with significant contribution from the
expansion of our Beauty business and the introduction of a new
casual Lipsy range. We anticipate a full year profit of around
GBP3m.
NON-TRADING ACTIVITIES
The table below summarises central costs and the profit on other
non-trading activities.
GBPm July 2020 July 2019
========================================= ========= =========
Central costs and employee share schemes (11.5) (11.0)
Property management 4.0 0.2
Foreign exchange 0.4 (0.9)
Associates and joint venture (0.3) 0.1
========= =========
Total (7.4) (11.6)
Property management generated net profit of GBP4m in the first
half. This is made up of GBP37m of property profit from the sale
and leaseback of our warehouse complex, offset by a GBP31m increase
in onerous lease provisions relating to our Retail stores and GBP2m
of other property provisions. The increase in onerous lease
provisions has been driven by the significant fall in Retail sales
during the COVID pandemic. Based upon projected sales, we
anticipate that 20 stores will not generate positive cash flow over
the term of their leases.
CASH FLOW
During the first half we generated GBP347m of surplus cash,
reducing our net debt to GBP765m, despite the fact that we made
only GBP9m of profit before tax. Cash inflows were significantly
enhanced by:
-- The net collection of GBP241m customer receivables, where collections exceeded lending
-- The sale and leaseback of our Head Office and a warehouse complex for GBP147m
Based on our central scenario, we expect net debt for the full
year, on a 53 week basis, to reduce by a further GBP115m to
GBP650m. The first half cash flow and full year forecast is set out
below.
July July Jan
GBPm 2020 2019 Jan 2021(e) 2020
====================================== ===== ===== =========== =====
Profit before tax 9 320 300 729
Depreciation 64 61 124 125
Proceeds from sale and leaseback
(net of profit gain) 110 - 110 -
Customer receivables 241 21 225 (27)
Working capital and other 60 (49) 26 (19)
Pension contributions (defined
benefit plan) (1) - (22) (6)
Tax paid (77) (70) (119) (138)
ESOT 7 (35) (28) (27)
Capital expenditure (47) (65) (135) (139)
===== ===== =========== =====
Cash before shareholder distributions 366 183 481 498
Ordinary dividends - - - (214)
Share buybacks (19) (280) (19) (300)
===== ===== =========== =====
Net cash inflow/(outflow) 347 (97) 462 (16)
Further details of significant cash flow movements and our
financing arrangements are set out in the following pages.
PROCEEDS ON SALE AND LEASEBACK TRANSACTIONS
In the first half, we sold a warehouse complex and our Head
Office as part of two sale and leaseback transactions. Proceeds of
GBP147m were received as consideration and we generated GBP37m of
profit.
In respect of the warehouse sale and leaseback, there is a
further GBP10m consideration which is contingent on completion and
approval of some existing development works. This has been included
within the forecast for the full year as we expect the work to be
completed and consideration received in the second half of the
year.
WORKING CAPITAL, PENSION, TAX and ESOT
Working Capital
Working capital in the period to July 2020 resulted in an inflow
of GBP60m, a variance of GBP109m compared to last year (outflow of
GBP49m). This variance is primarily driven by movements in stock of
GBP94m and the deferral of a VAT payment (GBP20m). The VAT of
GBP20m was paid in August.
Pension Scheme
On the IFRS accounting basis, our defined benefit schemes have
moved from GBP133m surplus at January 2020 to GBP88m surplus at
July 2020. Further detail on the accounting position is provided in
Note 10 of the Financial Statements.
A full actuarial valuation of our defined benefit pension scheme
was undertaken as at 30 September 2019 and showed a small deficit
of GBP19m. The funding position on the same valuation basis was a
deficit of GBP67m when rolled forward to 30 June 2020. This
triggered an increase in Company contributions under the terms of
an agreement with the Pension Scheme Trustee and an additional
GBP12m was paid into the pension scheme in August 2020. In total,
we are forecasting that GBP22m of contributions will be paid into
the pension scheme this year.
Tax Paid
This year, HMRC changed the timing of quarterly Corporation Tax
payments so that UK businesses pay tax in the same year that the
taxable profit is earned. Previously, half of the tax payment (two
quarters) was deferred until the following year. This change has
resulted in a one-off catch up with six tax quarters being paid
this year, compared with four payments last year. In the first
half, tax paid was GBP7m higher than last year. For the full year
our forecast tax is GBP119m, GBP19m lower than last year. This
reduction is the net effect of accelerated tax payments offset by
lower taxable profits.
GBPm July 2020 July 2019 Jan 2021(e) Jan 2020
=========================== ========= ========= ============= ========
Tax paid relating to prior
years 60 68 60 68
Tax paid on in year profit 17 2 59 70
========= ========= ============= ========
Total tax paid in period 77 70 119 138
Employee Share Option Trust (ESOT)
In the first half we suspended purchases into our ESOT and
received GBP7m from employee share option exercises. In the second
half of the year we anticipate that we will restart share purchases
for the ESOT and forecast a full year net cash outflow of
GBP28m.
CAPITAL EXPITURE
We have continued to invest in the business and forecast total
capital expenditure this year of GBP135m, compared with GBP139m
last year. Our forecast for this year is shown below, by category,
with the equivalent figures shown for last year.
GBPm Jan 2021 (e) Jan 2020
================================== ============ ========
Warehousing 78 87
Systems 13 9
Retail space expansion 29 24
Retail cosmetic/maintenance capex 10 14
Head Office infrastructure 5 5
============ ========
Total capital expenditure 135 139
Warehousing
Warehousing will be our biggest expenditure this year at GBP78m;
part of a long-term investment programme to increase capacity. This
year's forecast spend is GBP9m lower than last year because last
year included some particularly large projects, including the
extension of our Home palletised warehouse and the delivery of a
new automated returns storage and retrieval system.
Systems Capital and Revenue Spend
We plan to invest GBP13m of capital in systems this year. This
comprises GBP6m for hardware and infrastructure and GBP7m for the
modernisation and development of three core Online systems: our
website platform, warehouse systems and product systems.
Until recently, almost all our systems' costs were expensed as
revenue costs. We anticipate that this will change as the nature of
our systems development changes, and we expect systems capex to
rise to GBP21m next year. There are two reasons for the change:
-- The requirement for more long-term software infrastructure
projects to update and replace existing legacy systems
-- Total Platform third-party websites that will deliver
benefits over the life of the Total Platform contracts
Over recent years we have also increased revenue systems
expenditure. The following chart shows our historical capital and
revenue spend for the last four years and our forecast for this
year. In the current year we expect to spend a total of GBP98m, up
+44% on 4 years ago.
Systems Capital and Revenue Spend Jan 2017 -Jan 2021(e) chart:
Click or paste the following link into your web browser to view the
PDF document. Refer to page 36 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Retail Stores
Capital spent on Retail space expansion, at GBP29m, is GBP5m
higher than last year. This is the result of delivering four large
store re-sites, due to open in Spring 2021. Cosmetic and
maintenance spend is expected to be GBP4m lower than last year due
to the suspension of non-essential work during lockdown.
FIVE YEAR OUTLOOK FOR CAPITAL EXPITURE
Over the next five years we expect to spend GBP625m on capital
expenditure, an average of GBP125m per annum. The warehouse
expenditure totalling GBP370m covers an extensive expansion
programme to increase Online capacity. We believe that this
expenditure will increase our Online warehousing capacity by 80%
from where it was during the year ended January 2020.
Capital Expenditure Outlook by Category Jan 2021 - Jan 2025(e)
chart: Click or paste the following link into your web browser to
view the PDF document. Refer to page 37 for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
New Online Boxed Warehouse
Around GBP160m of the GBP370m forecast warehouse capital
expenditure relates to the first phase of a new online boxed
warehouse ("Elmsall 3"). A planning application for the building
has been submitted and we expect this to be approved by the end of
September. We plan to commence construction in 2021 and be
operational in 2023. This first phase will provide a +75% increase
in current boxed unit throughput. Elmsall 3 is planned to be highly
automated and our aim is that the labour cost of Online boxed
picking will be 45% lower in Elmsall 3 than in the year to January
2020.
The Changing Shape of Capital Expenditure
The bar chart below shows the average capital expenditure over
the last five years compared to our expectations for the next five
years, along with the percentage consumed by warehousing, stores
and systems, respectively.
Overall, the net capital expenditure consumption of the Group is
forecast to remain broadly unchanged. However, warehouse and
systems capital requirements are set to rise dramatically with
store capex falling to levels commensurate with maintaining, rather
than expanding, our store estate.
Estimated Capital Expenditure 2015 -2024(e) Average Annual Spend
and % of Spend by Category chart: Click or paste the following link
into your web browser to view the PDF document. Refer to page 38
for the relevant chart.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
Please note that the capital expenditure figures given do not
account for the capital contributions we have received from retail
landlords. Accounting for capital contributions, the average net
capital expenditure would be GBP107m over the last five years. Over
the next five years we expect the equivalent net capex to be around
GBP115m.
ORDINARY DIVIDS AND SHARE BUYBACKS
In our April Trading Statement, we announced that we would
suspend all capital returns to shareholders for the duration of
this financial year. This includes both ordinary dividends and
share buybacks. Prior to that announcement, in early February, we
had bought back 279,639 shares for a total value of GBP19m.
We recognise the importance of providing our shareholders with
consistent and reliable dividend returns. However, with so much
uncertainty around the course of the pandemic and its economic
effects, we believe it is sensible and appropriate to continue to
protect and enhance the Group's balance sheet. We remain committed
to paying dividends to our shareholders once the crisis has passed
and do not anticipate any long term change to our dividend
policy.
NET DEBT, BOND AND BANK FACILITIES
Based on our central scenario for sales and cash this year, we
expect year end net debt to be around GBP650m, a reduction of
GBP462m since the start of the year. This would leave us
significantly within our existing bond and bank facilities of
GBP1,575m, with headroom of GBP925m at the end of the year.
Our bond and bank facilities are set out below, by value and
maturity date. Our GBP325m bond matures in October 2021. Based on
our current forecast, we would have the capacity to settle this
bond without issuing a new bond and, at present, we do not intend
to issue a new bond to replace it.
The graph below shows our current funding, our forecast for year
end net debt and our anticipated peak financing requirements for
the year ending January 2022. We expect that our net financial debt
will be significantly lower than our GBP1bn of customer
receivables.
Financing, Net Debt and Customer Receivables graph: Click or
paste the following link into your web browser to view the PDF
document. Refer to page 39 for the relevant graph.
http://www.rns-pdf.londonstockexchange.com/rns/2805Z_1-2020-9-17.pdf
The Group manages the financing of its debt and liquidity to
ensure it maintains its longstanding investment grade credit
rating. Despite the impact of the pandemic, funding headroom
remains significantly above peak debt and the liquidity outlook for
the Group remains strong, supported by its long term bonds, bank
facilities and strong free operating cash flow.
PART 3 - FULL YEAR SALES, PROFIT AND CASH SCENARIOS
FULL PRICE SALES SCENARIOS
In the last thirteen weeks (since our stores reopened) Brand
full price sales have been much better than we anticipated, down
-2% on last year. Unfortunately, we believe that recent sales are
very unlikely to be indicative of our sales performance for the
rest of the year. We believe that sales in August and September
have been boosted by:
-- Far fewer people taking overseas holidays in August
-- Cool weather at the end of August and over the bank holiday
boosting sales of Autumn weight clothing. This contrasted with a
bank holiday heat wave the previous year.
Our new central scenario assumes that sales will be down -12%
for the rest of the year. This may sound pessimistic, but we
believe that it is realistic for the following reasons:
-- Furlough comes to an end in October, with all the economic discomfort that is likely to bring
-- The onset of colder weather might worsen the effects of the
pandemic and the measures required to contain it
-- The recently implemented social distancing rule (the 'rule of
six'), if still in force in December, is likely to depress demand
for gifts and clothing associated with traditional Christmas family
get togethers
In our downside scenario we assume that full price sales will be
down -34% for the rest of the year. This scenario reflects a level
of sales decline that seems likely if we experience more widespread
lockdown measures and store closures.
The upside scenario assumes full price sales are down -4% for
the rest of the year and almost certainly represents the top end of
what is achievable with the stock that we have bought for the
second half.
Full price sales versus last
year Upside Central Downside
============================= ====== ======= ========
First half - 33% - 33% - 33%
====== ======= ========
Second half to date +4% +4% +4%
Rest of year scenario - 4% - 12% - 34%
====== ======= ========
Second half - 2% - 8% - 25%
====== ======= ========
Full year - 17% - 20% - 29%
====== ======= ========
PROFIT BEFORE TAX, CASH AND NET DEBT
Based on these three scenarios for full price sales, the
expected profit, surplus cash and net debt at the end of the year
are set out below.
Profit before tax, cash and
net debt Upside Central(14) Downside
============================== ======= =========== ========
Profit before tax GBP370m GBP300m GBP110m
Reduction in year end net debt GBP477m GBP462m GBP287m
Year end net debt(15) GBP635m GBP650m GBP825m
======= =========== ========
(14) For a full reconciliation to our July Trading Statement see
Appendix 2 on page 46.
(15) Year end net debt at 53(rd) week
THIRD QUARTER TRADING UPDATE
Our third quarter Trading Statement will cover the thirteen
weeks to 24 October 2020 and is scheduled for Wednesday 28 October
2020.
Lord Wolfson of Aspley Guise
Chief Executive
17 September 2020
APPIX 1
STATUTORY SALES AND PROFIT
STATUTORY BASIS GBPm and EPS July 2020 July 2019
Sales 1,290.1 2,014.5 - 36.0%
Profit/(loss) before tax (16.5) 327.4 - 105.0%
Profit/(loss) after tax (11.5) 266.9 - 104.3%
Earnings Per Share (Basic) (9.0)p 204.4p
Adjusted net debt (including leases) (2,077.3) (2,524.1)
===================================== ========= ========= ========
Overview
Last year, following the introduction of the new lease
accounting standard IFRS 16, we decided to maintain the reporting
of our profit on a pre-IFRS 16 basis. This was because the pre-IFRS
16 profit was consistent with the financial information used to
inform business decisions and investment appraisals. In addition,
in common with many retailers, we used "Total sales" as a measure
to assess the performance of the business and not statutory
revenue. Having been prepared on a basis that was consistent with
prior years, and our Trading Statements, it was our view that this
provided both a useful and necessary basis for understanding the
Group's results. We have taken the same approach this year.
In the first half of this year, on a statutory basis, sales were
down -36% and, including the effect of IFRS 16, we made a loss
before tax of -GBP16.5m. This is GBP25.5m less profit than pre-IFRS
16. The reason for this difference is primarily the accounting
treatment of the sale and leaseback transactions. Under IFRS 16,
the gain on the sale and leaseback is limited to GBP7m compared to
GBP37m on a pre-IFRS 16 basis (see details on accounting policy for
Sale and Leaseback in Note 1 of the Interim Financial Statements).
This difference will effectively be amortised over the duration of
the lease, such that over its full term the net impact on the
P&L is the same under IFRS 16 and pre-IFRS 16. As shown below,
the significant, non-recurring items in our statutory accounts have
the net effect of reducing profit by -GBP61m.
First half profit impact
GBPm (IFRS 16)
=========================================================== =========================
Property profit from the sale and leaseback of properties +7
Business rates reduction +32
Store related impairment - 41
Stock and fabric provisions - 39
Bad debt provisions - 20
Total profit impact - 61
Further details and explanation of statutory sales and the
impact of IFRS 16 are provided in the following pages.
Sales
Sales presented in pages 2 to 41 are based on "Total sales"
excluding VAT. "Total sales" represent VAT exclusive sales,
including the full value of commission based sales and interest
income. For statutory reporting purposes two adjustments are made
to derive statutory revenue:
-- Where third-party branded goods are sold on a commission
basis, only the commission receivable is included in statutory
revenue. This adjustment reduces the value of sales recognised
in statutory reporting by GBP93.6m for the period to July
2020 (2019: GBP65.0m)
-- Customer delivery charges, income received from printed
publications, promotional discounts, Interest Free Credit
commission costs and unredeemed gift card balances are included
in statutory revenue (these amounts being reclassified from
the cost of sales). This adjustment increases the value
of sales recognised for statutory reporting purposes by
GBP26.9m for the period to July 2020 (2019: GBP20.7m)
As a result, Total Sales for the period to July 2020 of
GBP1,356.8m (2019: GBP2,058.8m) are recognised for statutory
purposes as revenue of GBP1,290.1m (2019: GBP2,014.5m). A
corresponding amount has been recognised in cost of sales.
This change has no impact on profit before taxation, profit
after taxation, Earnings Per Share or cash flow.
IFRS 16 Leases and the Impact on the Income Statement
Last year, on adoption of IFRS 16 for the first time, we
recognised a significant portion of the lease costs directly in
reserves. Where the lease portfolio is stable, this will result in
lower lease costs being recognised in the Income Statement going
forward. This was evident in the July 2019 Income Statement, which
showed a benefit to profit before tax of GBP7.8m when it was
restated for IFRS 16.
However, for the period to July 2020 the net impact of IFRS 16
is to reduce the profit before tax by GBP25.5m. This movement is
primarily the result of:
1. Underlying IFRS 16 transactions +GBP7.9m: This represents the
IFRS 16 adjustment on underlying/normal trade. The GBP7.9m is
primarily the result of (1) IAS 17 rent costs of +GBP118m, (2)
Removal of IAS 17 capital contributions -GBP12m and (3) IFRS 16
depreciation -GBP69m and finance costs -GBP29m.
2. Lease provisions and impairment -GBP3.4m : The property and
onerous lease provision of GBP37m recognised under the pre-IFRS 16
accounting has been reversed. The retail stores have then been
reviewed for impairment and this has resulted in an additional
impairment charge on the right-of-use asset of GBP41m.
3. Sale and leaseback gain -GBP30m: In the pre-IFRS 16
accounting the gain on the sale and leaseback is calculated as
proceeds less the net book value of the assets being sold. However,
under IFRS 16 the approach is different. IFRS 16 effectively limits
any gain to the element of the asset which it no longer has access
to use. The gain is effectively limited to the 'portion' of the
asset not reacquired under the terms of the leaseback. This has
resulted in the recognition of a smaller gain of GBP7m.
The net impact of IFRS 16 on both 2020 and 2019 is summarised in
the table below. IFRS 16 changes profit before tax, profit after
tax and Earnings Per Share.
July 2020 July 2020
GBPm excluding IFRS 16 IFRS 16 impact including IFRS 16
=========================== ================== ============== ==================
Profit before taxation 9.0 (25.5) (16.5)
Taxation 6.2 (1.2) 5.0
Profit after taxation 15.2 (26.7) (11.5)
================== ============== ==================
Earnings Per Share (Basic) 11.8p (20.8)p (9.0)p
July 2019 July 2019
GBPm excluding IFRS 16 IFRS 16 impact including IFRS 16
=========================== ================== ============== ==================
Profit before taxation 319.6 7.8 327.4
Taxation (59.1) (1.4) (60.5)
Profit after taxation 260.5 6.4 266.9
================== ============== ==================
Earnings Per Share (Basic) 199.5p 4.9p 204.4p
It is important to stress that while the timing and nature of
costs under IFRS 16 differ to those reported under IAS 17, over the
course of the lease term the overall costs remain the same. This
also applies to the gain on the sale and leaseback which, over the
life of the lease, will result in the same net impact to the income
statement.
Adjusted Net Debt
Net debt at July 2020, excluding leases, was GBP765m. From a
statutory reporting perspective, IFRS 16 results in the recognition
of lease debt on the Balance Sheet of GBP1,313m (2019:
GBP1,331m).
Reduction
GBPm July 2020 July 2019 in net debt
=========================== ========= ========= ============
Cash and cash equivalents 360.3 42.1
========= ========= ============
Unsecured bank loans - (160.0)
Corporate bonds (1,168.6) (1,114.6)
Fair value hedges of bonds 43.6 39.2
========= ========= ============
Net debt excluding leases (764.7) (1,193.3) 428.6
========= ========= ============
Lease debt under IFRS 16 (1,312.6) (1,330.8)
========= ========= ============
Net debt including leases (2,077.3) (2,524.1) 446.8
========= ========= ============
The year-on-year reduction in lease debt reflects the payments
made in the period and the trend towards shorter lease terms on
retail stores, offset by the sale and leaseback transactions
entered into during the period.
Cash Flow
In the Chief Executive's Review, the cash flow has been
presented in the format we use to inform our business decisions and
assess overall liquidity. Accordingly, it shows the movement in the
Group's net debt as a cash inflow of GBP347m for the 26 week period
to July 2020.
In contrast, the "Net increase in cash and cash equivalents" in
the Interim Financial Statements shows a cash inflow GBP307m which
represents the overall movement in the cash balance, not the
movement in the Group net debt. The difference between these two
values relates to the repayment of GBP40m under our revolving
credit facility which reduced the cash balance, but has no impact
on net debt (as the reduction in cash is offset by reduction in
external debt).
Lease Commitment Profile
On an IFRS 16 basis 50% of the lease liability (by value) will
expire within the next 10 years. This differs from the lease
profile on page 27 which states that 50% of the leases will expire
or break within 4.7 years and that within the next 10 years 82% of
the rental liability would have expired.
This difference is primarily due to the following factors:
-- The IFRS 16 lease profile includes all lease contracts within
the scope of IFRS 16 - stores, warehouses, Head Office and plant
and machinery. In contrast the lease commitment profile on page 27
includes store leases only
-- The IFRS 16 liability includes lease terms beyond the break
clause based on our expectation of how long we will remain in the
lease. In contrast the lease commitment profile on page 27 only
includes the commitment to expiry or break point
-- The IFRS 16 lease liability is measured as the present value
of future lease payments. In contrast the lease commitment on page
27 is not discounted.
APPIX 2
Reconciliation of New Central Scenario Cash and Profit with
July's Trading Statement
When compared to the July Trading Statement, our new central
scenario for full year profit before tax has increased by +GBP105m.
However, the forecast net cash generated has not materially
changed. The points and table below explain and reconcile the
apparent contradiction.
Net cash from additional profit adds GBP72m after tax, but we
anticipate this will be offset by:
-- The purchase of shares for our Employee Share Option Trust (ESOT)
-- Capital expenditure increases from (1) the spend on Online
systems projects and (2) restarting warehouse projects earlier than
expected
-- A GBP20m VAT payment, that was owed but we could have chosen
to defer under current HMRC guidelines.
Cash reconciliation of new central scenario versus July Trading Statement GBPm (e)
========================================================================== ========
Additional profit before tax (GBP300m - GBP195m) +105
Additional Corporation Tax at 19% - 21
Increase in customer receivables - 12
========
Forecast cash from additional profit +72
Increase in ESOT share purchases - 35
Increase in capital expenditure - 23
VAT (-GBP20m) and other working capital (+GBP4m) - 16
========
Total change in cash - 2
UNAUDITED CONSOLIDATED
INCOME STATEMENT
26 weeks 26 weeks
to to
25 July 27 July
2020 2019
GBPm GBPm
------------------------------------------------- -------- ---------
Continuing operations
Revenue 1,290.1 2,014.5
Cost of sales (918.6) (1,249.6)
------------------------------------------------- -------- ---------
Gross profit 371.5 764.9
Distribution costs (227.0) (249.6)
Administrative expenses (110.5) (131.4)
Other gains/(losses) 0.4 (3.2)
------------------------------------------------- -------- ---------
Trading profit 34.4 380.7
Share of results of associates and joint venture (0.3) 0.1
------------------------------------------------- -------- ---------
Operating profit 34.1 380.8
Finance income 0.2 0.1
Finance costs (Note 6) (50.8) (53.5)
------------------------------------------------- -------- ---------
(Loss)/profit before taxation (16.5) 327.4
Taxation (Note 7) 5.0 (60.5)
------------------------------------------------- -------- ---------
(Loss)/profit for the period attributable to
equity holders of the Parent Company (11.5) 266.9
------------------------------------------------- -------- ---------
26 weeks 26 weeks
to to
25 July 27 July
2020 2019
------------------------------------------------- -------- ---------
Earnings Per Share (Note 8)
Basic (9.0)p 204.4p
Diluted (9.0)p 203.3p
Numbers presented in these unaudited consolidated financial
statements have been prepared in accordance with IFRS. A
reconciliation between the statutory results and those disclosed in
the Chief Executive's Review is provided in Appendix 1 of the Chief
Executive's Review.
UNAUDITED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
26 weeks 26 weeks
to to
25 July 27 July
2020 2019
GBPm GBPm
----------------------------------------------------- -------- --------
(Loss)/profit for the period (11.5) 266.9
Other comprehensive income and expenses:
Items that will not be reclassified to profit
or loss
Actuarial (losses)/gains on defined benefit
pension scheme (48.8) 16.6
Tax relating to items which will not be reclassified 9.3 (2.8)
----------------------------------------------------- -------- --------
Subtotal items that will not be reclassified (39.5) 13.8
----------------------------------------------------- -------- --------
Items that may be reclassified to profit or
loss
Exchange differences on translation of foreign
operations (0.2) (1.0)
Foreign currency cash flow hedges:
- fair value movements 21.8 46.8
- reclassified to the Income Statement - (7.2)
- recognised in inventories - (8.8)
Cost of hedging
- fair value movements 0.9 0.7
Tax relating to items which may be reclassified (3.6) (5.3)
----------------------------------------------------- -------- --------
Subtotal items that may be reclassified 18.9 25.2
----------------------------------------------------- -------- --------
Other comprehensive income for the period (20.6) 39.0
----------------------------------------------------- -------- --------
Total comprehensive income for the period (32.1) 305.9
----------------------------------------------------- -------- --------
UNAUDITED CONSOLIDATED BALANCE SHEET
27 July
25 July 2019
2020 restated 25 Jan 2020
Notes GBPm GBPm GBPm
------------------------------------- ----- --------- --------- -----------
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 459.8 569.7 578.5
Intangible assets 44.2 44.5 44.2
Right-of-use asset 17 857.0 916.6 852.7
Associates, joint venture and
other investment 4.9 5.1 5.0
Defined benefit pension asset 10 88.1 142.0 133.4
Other financial assets 11 62.1 60.5 48.4
Deferred tax assets 62.8 40.5 55.7
------------------------------------- ----- --------- --------- -----------
1,578.9 1,778.9 1,717.9
Current assets
Inventories 485.3 551.1 527.6
Customer and other receivables 12 1,066.4 1,254.0 1,315.3
Right of return asset 30.0 32.6 24.2
Other financial assets 11 5.6 35.8 1.7
Cash and short term deposits 16 395.8 156.9 86.6
------------------------------------- ----- --------- --------- -----------
1,983.1 2,030.4 1,955.4
------------------------------------- ----- --------- --------- -----------
Total assets 3,562.0 3,809.3 3,673.3
------------------------------------- ----- --------- --------- -----------
Current liabilities
Bank loans and overdrafts (35.5) (274.8) (73.7)
Trade payables and other liabilities 13 (581.9) (589.4) (592.0)
Lease liabilities 17 (168.5) (154.5) (172.3)
Dividends payable 9 - (140.3) -
Other financial liabilities 11 (15.4) (4.8) (32.6)
Current tax liabilities (5.7) (77.9) (79.2)
------------------------------------- ----- --------- --------- -----------
(807.0) (1,241.7) (949.8)
Non-current liabilities
Corporate bonds 14 (1,168.6) (1,114.6) (1,163.7)
Provisions (18.6) (15.2) (17.3)
Other financial liabilities 11 (10.5) (13.1) (7.8)
Lease liabilities 17 (1,144.1) (1,176.3) (1,078.7)
Other liabilities (18.5) (17.7) (14.5)
Deferred tax liabilities - (4.4) -
------------------------------------- ----- --------- --------- -----------
(2,360.3) (2,341.3) (2,282.0)
------------------------------------- ----- --------- --------- -----------
Total liabilities (3,167.3) (3,583.0) (3,231.8)
------------------------------------- ----- --------- --------- -----------
NET ASSETS 394.7 226.3 441.5
------------------------------------- ----- --------- --------- -----------
TOTAL EQUITY 394.7 226.3 441.5
------------------------------------- ----- --------- --------- -----------
UNAUDITED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Cash Cost
Share Capital flow of Foreign
Share premium redemption ESOT hedge hedging currency Other Retained Total
capital account reserve reserve reserve reserve translation reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 25 January
2020 13.3 0.9 16.6 (284.9) (24.7) 0.5 - (1,443.8) 2,163.6 441.5
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Loss for the
period - - - - - - - - (11.5) (11.5)
Other
comprehensive
income/(expense)
for the period - - - - 18.4 0.7 (0.2) - (39.5) (20.6)
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Total
comprehensive
income/(expense)
for the period - - - - 18.4 0.7 (0.2) - (51.0) (32.1)
Reclassified
to cost of
inventory - - - - (1.5) - - - - (1.5)
Share buybacks
and commitments - - - - - - - - (19.3) (19.3)
ESOT share
purchases - - - (87.0) - - - - - (87.0)
Shares
sold/issued
by ESOT - - - 123.4 - - - - (29.1) 94.3
Share option
charge - - - - - - - - 7.8 7.8
Tax recognised
directly in
equity - - - - - - - - (9.0) (9.0)
Equity dividends
(Note 9) - - - - - - - - - -
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 25 July 2020 13.3 0.9 16.6 (248.5) (7.8) 1.2 (0.2) (1,443.8) 2,063.0 394.7
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 26 January
2019 13.9 0.9 16.0 (271.6) 0.4 0.4 (2.0) (1,443.8) 2,052.0 366.2
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Profit for the
period - - - - - - - - 266.9 266.9
Other
comprehensive
income/(expense)
for the period - - - - 25.6 0.6 (1.0) - 13.8 39.0
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
Total
comprehensive
income/(expense)
for the period - - - - 25.6 0.6 (1.0) - 280.7 305.9
Share buybacks
and commitments (0.5) - 0.5 - - - - - (280.2) (280.2)
ESOT share
purchases - - - (46.2) - - - - - (46.2)
Shares issued
by ESOT - - - 15.0 - - - - (3.3) 11.7
Share option
charge - - - - - - - - 6.4 6.4
Tax recognised
directly in
equity - - - - - - - - 2.8 2.8
Equity dividends
(Note 9) - - - - - - - - (140.3) (140.3)
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
At 27 July 2019 13.4 0.9 16.5 (302.8) 26.0 1.0 (3.0) (1,443.8) 1,918.1 226.3
----------------- ------- ------- ---------- ------- ------- -------- ----------- --------- -------- -------
UNAUDITED CONSOLIDATED
CASH FLOW STATEMENT
26 weeks 26 weeks
to to
25 July 27 July
2020 2019
GBPm GBPm
---------------------------------------------------- -------- --------
Cash generated from operations 471.9 474.8
Corporation taxes paid (76.9) (70.2)
---------------------------------------------------- -------- --------
Net cash from operating activities 395.0 404.6
---------------------------------------------------- -------- --------
Cash flows from investing activities
Additions to property, plant and equipment (47.2) (65.1)
Movement in capital accruals (4.3) 2.2
---------------------------------------------------- -------- --------
Payments to acquire property, plant and equipment (51.5) (62.9)
Proceeds from sale of property, plant and equipment 145.1 0.2
---------------------------------------------------- -------- --------
Net cash from investing activities 93.6 (62.7)
---------------------------------------------------- -------- --------
Cash flows from financing activities
Repurchase of own shares (19.3) (280.2)
Purchase of shares by ESOT (87.0) (46.2)
Disposal of shares by ESOT 95.7 11.7
Issue of corporate bonds - 198.6
Repayment of unsecured bank loans (40.0) (95.0)
Lease repayment (86.6) (75.1)
Interest paid (43.9) (48.1)
Interest received 0.1 0.2
---------------------------------------------------- -------- --------
Net cash from financing activities (181.0) (334.1)
---------------------------------------------------- -------- --------
Net increase in cash and cash equivalents 307.6 7.8
Opening cash and cash equivalents 52.9 34.0
Effect of exchange rate fluctuations on cash
held (0.2) 0.3
---------------------------------------------------- -------- --------
Closing cash and cash equivalents (Note 16) 360.3 42.1
---------------------------------------------------- -------- --------
NOTES TO THE UNAUDITED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The Group's interim results for the 26 weeks to 25 July 2020
(prior year 26 weeks to 27 July 2019) were approved by the Board of
Directors on 17 September 2020 and have been prepared in accordance
with IAS 34 "Interim financial reporting", as adopted by the
European Union.
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 contained in this report is condensed
and does not include all of the information and disclosures
required in the annual financial statements, and should be read in
conjunction with the Group's annual consolidated financial
statements for the 52 weeks to 25 January 2020 which have been
delivered to the Registrar of Companies. The audit report for those
accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under Section
498(2) or (3) of the Companies Act 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. Where applicable, disclosures required by
paragraph 16A of IAS 34 are given either in these interim financial
statements or in the accompanying Chief Executive's Review.
The comparative financial information shown for the period to 27
July 2019 has been restated to align to the final IFRS 16 balance
sheet as presented in the January 2020 Annual Report. The
restatement related to the January 2018 opening balance sheet under
IFRS 16 with the adjustment reducing creditors by GBP9.4m and
reducing the deferred tax asset by GBP1.7m (net impact on net
assets of GBP7.7m). It had no impact on the Income Statement or
other primary statements.
New accounting standards, interpretations and amendments adopted
by the Group
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 52 weeks ended 25
January 2020 except for new policies to cover accounting for sale
and leaseback transactions and grants as set out below.
Grants
Grants are recognised only when there is reasonable assurance
that the Group will comply with the conditions attached to them and
that the grants will be received.
Grants that are receivable as compensation for expenses already
incurred are recognised in profit or loss in the period in which
they become receivable.
Sale and leaseback
A sale and leaseback transaction is where the Group sells an
asset and immediately reacquires the use of the asset by entering
into a lease with the counterparty. A sale is recognised when
control of the underlying asset passes to the counterparty. The
asset sold is derecognised and a lease liability and right-of-use
asset recognised in relation to the lease. Any gain or loss arising
on the transaction is recognised in the Income Statement and
relates to the rights transferred to the counterparty.
Major sources of estimation uncertainty and judgement
The preparation of the interim financial statements requires the
directors to form estimations and assumptions that affect the
reported values of assets, liabilities, revenues and expenses.
Estimates and underlying assumptions are reviewed on an ongoing
basis with revisions to accounting estimates recognised in the year
in which the estimate is revised.
In preparing these interim financial statements the directors
have given specific consideration to events including the impact of
the COVID pandemic. As a result, they have identified the following
areas as key
estimates that have a significant risk of resulting in a
material adjustment to the carrying value of assets and liabilities
in the next year.
Expected credit losses (ECL) on Online customer and other
receivables
The provision for the allowance for ECL (Note 12) is calculated
using a combination of internally and externally sourced
information, including future default levels (derived from
historical defaults overlaid by indebtedness profiles and
macro-economic assumptions), future predicted cash collection
levels (derived from past trends), arrears stage and customer
indebtedness and other credit data.
A key assumption within the ECL calculation is the forecast rate
of UK unemployment. As a result of the uncertainty caused by the
ongoing COVID pandemic, the forecast unemployment rate used is 3%
higher than the position used as at January 2020.
The expected increase in the rate of unemployment provides a
strong indicator of a deterioration in the ability of customers to
afford their payments and, in turn, an increase in Probability of
Default (PD) and the Exposure at Default (EAD). This is a key
driver behind the increase in the bad debt provision in the period.
A 1% movement in this assumption equates to a circa GBP6m movement
in provision.
Management have also sensitised the impact of a change in
customer affordability on the PD and EAD by using a 10%
deterioration and 10% improvement of Experian's average Customer
Indebtedness Index. This results in an GBP11.0m increase and
GBP11.0m decrease, respectively, in the allowance for ECL. The
choice of a 10% change for the determination of sensitivity
represents a reasonable, but not extreme, variation in typical
customer indebtedness.
A 2% movement upwards (or downwards) in the expected rate of
cash collectable following default reduces (or increases) the
allowance for ECL by GBP1.0m. The choice of a 2% change for the
determination of sensitivity represents a reasonable, but not
extreme variation in the collection rate.
In the five weeks following the interim period end date,
GBP0.2bn of the GBP1.0bn NEXT customer and other trade receivables
has been recovered.
Net realisable value of inventories
The selling prices of inventory are estimated to determine the
net realisable value of inventory. Historical sales patterns and
post period end trading performance are used to determine these. A
2% change in the volume of inventories going to clearance would
impact the net realisable value by circa GBP4m. A 2% change in the
level of markdown applied to the selling price would impact the
value of inventories going to clearance by circa GBP6m.
Impairment of right-of-use assets and PPE
Property, plant and equipment are reviewed for impairment if
events or changes in circumstances indicate that the carrying
amount may not be recoverable. When an impairment review is
performed, the recoverable amount is based on the higher of the
value in use and fair value less costs to sell. The value in use
method requires the Group to apply assumptions in performing its
assessment of future cash flows over the useful life of the asset.
Key assumptions used are the long-term growth rate to be applied to
this life and the risk-adjusted pre-tax discount rate used to
discount the assumed cash flows to present value.
In light of the COVID pandemic and its impact on the business
performance, the Group's cash flow projections for its Retail
stores have been revised and now factor in the experience of trade
since stores reopened following Government restrictions, the impact
of social distancing measures, and the actions the Group is taking
to protect the business. The cash flow projections include
assumptions on store performance throughout the remaining lease
term, in particular the expected growth in like-for-like sales
which represent a source of significant estimation uncertainty. A
future change to the assumption of sales growth would result in a
reassessment of the value in use and could give rise to a
significant change in the impairment recognised.
A change of 1% to the assumed annual change in like-for-like
Retail sales would result in a change to the impairment charge in
the period of GBP2m. A change of 1% on the discount rate applied to
the across the portfolio of stores would result in an increase in
the impairment charge of GBP1m.
Significant judgements
Significant judgements, apart from those involving estimations,
that are applied in the preparation of the consolidated financial
statements are discussed below:
Leases
Management exercises judgement in determining the lease term on
its lease contracts. Within its lease contracts, particularly those
in respect of its Retail business, break options are included to
provide operational and financial security should store performance
be different to expectations. At inception of a lease, management
will typically assess the lease term as being the full lease term
as such break options are not typically considered reasonably
certain to be exercised.
The discount rate used to calculate the lease liability is based
on the incremental borrowing rate. Incremental borrowing rates are
determined monthly and depend on the lease term, currency and start
date of the lease. The incremental borrowing rate is determined
based on a series of inputs including: the risk free rate based on
government bond rates; country specific risk and NEXT bond
yields.
The impact of an increase of 0.5% on the discount rate applied
to the July 2020 right-of-use asset, depreciation charge, lease
liability and finance cost is presented below.
Right-of-use asset GBP55m decrease
Depreciation GBP10m decrease
Lease liability GBP40m decrease
Finance cost GBP6m increase
Going concern
In light of the current economic uncertainty caused by the COVID
pandemic, the directors have reviewed the current financial
performance and liquidity of the business, and assessed its
resilience to a reduction in sales through a series of scenarios.
Further details of the assessment are provided in the Chief
Executive's Review.
The directors report that, having reviewed current performance
and forecasts, they have a reasonable expectation that the Group
has adequate resources to continue its operations for the
foreseeable future. For this reason, they have continued to adopt
the going concern basis in preparing the interim financial
statements.
2. Risks and uncertainties
The Board has considered the principal risks and uncertainties
for the remaining half of the financial year and determined that
the risks presented in the 2020 Annual Report, described as
follows, also remain relevant to the rest of the financial year:
Business strategy development and implementation; Product design
and selection; Key suppliers and supply chain management;
Warehousing and distribution; Customer-facing systems; Management
of long term liabilities and capital expenditure; Information
security, data privacy, business continuity and cyber risk;
Financial, treasury, liquidity and credit risks; and Regulatory
compliance in relation to our consumer credit business. These are
detailed on pages 60 to 64 of the 2020 Annual Report, a copy of
which is available on the Company's website at www.nextplc.co.uk
.
3. Segmental analysis
The Group's operating segments are determined based on the
Group's internal reporting to the Chief Operating Decision Maker
(CODM). The CODM has been determined to be the Group Chief
Executive, with support from the Board. The performance of
operating segments is assessed on profits before interest and tax,
excluding equity-settled share option charges recognised under IFRS
2 "Share-based payment", IFRS 16 "Leases" and unrealised gains or
losses on derivatives which do not qualify for hedge
accounting.
The Property Management segment holds properties and property
leases which are sublet to other segments and external parties. The
NEXT International Retail segment comprises franchise and wholly
owned stores overseas. International online sales are included in
the NEXT Online segment.
Where third-party branded goods are sold on a commission basis,
only the commission receivable is included in statutory revenue.
"Total sales" represents the full customer sales value of
commission based sales and interest income, excluding VAT. Under
IFRS 15 "Revenue from contracts with customers", total sales have
also been adjusted for customer delivery charges, income received
from printed publications, promotional discounts, Interest Free
Credit commission costs and unredeemed gift card balances. The CODM
uses the total sales as a key metric in assessing segment
performance; accordingly this is presented below and then
reconciled to the statutory revenue.
In common with many retailers, revenue and trading profit are
subject to seasonal fluctuations and are weighted towards the
second half of the year which includes the key Christmas period for
the business.
Segment sales and revenue
Total sales Commission Total
excluding sales IFRS 15 External Internal segment
26 weeks to 25 VAT adjustment adjustments revenue revenue revenue
July 2020 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----------- ----------- ------------ -------- -------- --------
NEXT Retail 344.6 (0.7) (0.4) 343.5 0.1 343.6
NEXT Online 862.6 (92.9) 27.3 797.0 - 797.0
NEXT Finance 127.9 - - 127.9 - 127.9
NEXT International
Retail 12.0 - - 12.0 - 12.0
NEXT Sourcing 2.6 - - 2.6 150.9 153.5
---------------------------- ----------- ----------- ------------ -------- -------- --------
1,349.7 (93.6) 26.9 1,283.0 151.0 1,434.0
Lipsy 2.5 - - 2.5 21.3 23.8
NENA* 0.2 - - 0.2 - 0.2
Property Management 4.4 - - 4.4 97.0 101.4
---------------------------- ----------- ----------- ------------ -------- -------- --------
Total segment sales/revenue 1,356.8 (93.6) 26.9 1,290.1 269.3 1,559.4
Eliminations - - - - (269.3) (269.3)
---------------------------- ----------- ----------- ------------ -------- -------- --------
Total 1,356.8 (93.6) 26.9 1,290.1 - 1,290.1
---------------------------- ----------- ----------- ------------ -------- -------- --------
*NENA (Next Europe and North Africa) is a small acquisition made
on 31 January 2020.
Segment sales and revenue
Total sales Commission Total
excluding sales IFRS 15 External Internal segment
26 weeks to 27 VAT adjustment adjustments revenue revenue revenue
July 2019 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ----------- ----------- ------------ -------- -------- --------
NEXT Retail 874.3 (1.5) (0.5) 872.3 1.6 873.9
NEXT Online 1,004.9 (63.5) 21.2 962.6 - 962.6
NEXT Finance 134.0 - - 134.0 - 134.0
NEXT International
Retail 28.9 - - 28.9 - 28.9
NEXT Sourcing 3.4 - - 3.4 262.7 266.1
---------------------------- ----------- ----------- ------------ -------- -------- --------
2,045.5 (65.0) 20.7 2,001.2 264.3 2,265.5
Lipsy 5.9 - - 5.9 32.1 38.0
Property Management 7.4 - - 7.4 98.5 105.9
---------------------------- ----------- ----------- ------------ -------- -------- --------
Total segment sales/revenue 2,058.8 (65.0) 20.7 2,014.5 394.9 2,409.4
Eliminations - - - - (394.9) (394.9)
---------------------------- ----------- ----------- ------------ -------- -------- --------
Total 2,058.8 (65.0) 20.7 2,014.5 - 2,014.5
---------------------------- ----------- ----------- ------------ -------- -------- --------
In the Chief Executive's Review, Label commission sales include
sales of all Lipsy stock on the NEXT website, as NEXT trades on a
commission basis with Lipsy. However, as Lipsy is a Group company
no commission adjustment is required in respect of this for
external revenue in the notes above.
Segment profit
The view of segment profit used by the CODM does not include the
impact of IFRS 16 because the IFRS 16 profit before tax is not used
in internal reporting.
26 weeks
to
26 weeks to 27 July
25 July 2020 2019
GBPm GBPm
------------------------------------------- ------------- --------
NEXT Retail (175.2) 56.0
NEXT Online 128.2 177.1
NEXT Finance 58.9 75.8
NEXT International Retail 0.5 3.1
NEXT Sourcing 4.9 16.9
-------------------------------------------- ------------- --------
17.3 328.9
Lipsy 0.1 5.7
Property Management 4.0 0.2
-------------------------------------------- ------------- --------
Total segment profit 21.4 334.8
Central costs and other (3.7) (4.5)
Recharge of interest 20.4 17.8
Share option charge (7.8) (6.4)
Unrealised foreign exchange gains/(losses) 0.4 (0.9)
-------------------------------------------- ------------- --------
Trading profit 30.7 340.8
Share of results of associates
and joint venture (0.3) 0.1
Finance income 0.2 0.1
Finance costs (21.6) (21.4)
-------------------------------------------- ------------- --------
Profit before tax excluding IFRS
16 9.0 319.6
-------------------------------------------- ------------- --------
IFRS 16 (25.5) 7.8
-------------------------------------------- ------------- --------
(Loss)/profit before tax including
IFRS 16 (16.5) 327.4
-------------------------------------------- ------------- --------
4. Revenue
The Group's disaggregated revenue recognised under contracts
with customers relates to the following categories and operating
segments:
26 weeks to 25 July 2020
Credit
Sale of account Rental
Goods interest Royalties Income Total
GBPm GBPm GBPm GBPm GBPm
-------------------- ------- --------- --------- ------- -------
NEXT Online 797.0 - - - 797.0
NEXT Finance - 127.9 - - 127.9
NEXT Retail 343.5 - - - 343.5
NEXT International
Retail 10.6 - 1.4 - 12.0
NEXT Sourcing 2.6 - - - 2.6
Lipsy 1.7 - 0.8 - 2.5
NENA - - 0.2 - 0.2
Property Management - - - 4.4 4.4
-------------------- ------- --------- --------- ------- -------
Total 1,155.4 127.9 2.4 4.4 1,290.1
-------------------- ------- --------- --------- ------- -------
26 weeks to 27 July
2019
Credit
Sale of account Rental
Goods interest Royalties Income Total
GBPm GBPm GBPm GBPm GBPm
-------------------- ------- --------- --------- ------- -------
NEXT Online 962.6 - - - 962.6
NEXT Finance - 134.0 - - 134.0
NEXT Retail 872.3 - - - 872.3
NEXT International
Retail 26.1 - 2.8 - 28.9
NEXT Sourcing 3.4 - - - 3.4
Lipsy 4.8 - 1.1 - 5.9
Property Management - - - 7.4 7.4
-------------------- ------- --------- --------- ------- -------
Total 1,869.2 134.0 3.9 7.4 2,014.5
-------------------- ------- --------- --------- ------- -------
5. Operating Profit
Group operating profit is stated after charging/(crediting):
26 weeks to 26 weeks to
25 July 2020 27 July 2019
GBPm GBPm
-------------------------------------- ------------- -------------
Impairment charges on tangible assets 5.6 -
Impairment charges on right-of-use
assets 35.9 -
Write down of inventories to net
realisable value 78.2 56.9
Depreciation of property, plant and
equipment 57.7 60.4
Depreciation of right-of-use asset 69.2 67.4
Job Retention Scheme receipts (79.4) -
Customer and other receivables:
Impairment charge 34.3 20.8
Amounts recovered (1.0) (1.6)
During the period to July 2020 the Group received funds under
the UK Government's Job Retention Scheme which has been paid to
employees on furlough. This has been recognised as a grant in
accordance with the accounting policy set out in Note 1.
6. Finance costs
26 weeks to 26 weeks to
25 July 2020 27 July 2019
GBPm GBPm
--------------------------------- ------------- -------------
Interest on bonds and other
borrowings 21.4 20.9
Other fair value movements 0.2 0.5
Finance costs on lease liability 29.2 32.1
--------------------------------- ------------- -------------
Finance costs 50.8 53.5
--------------------------------- ------------- -------------
7. Taxation
Income tax expense is recognised based on management's best
estimate of the full year effective tax rate based on estimated
full year profits. It is adjusted for material, non-recurring
transactions in the period to which they relate.
8. Earnings Per Share
26 weeks 26 weeks 26 weeks 26 weeks
to to to to
25 July 27 July 25 July 27 July
2020 2019 2020 2019
Including Including Excluding Excluding
IFRS 16 IFRS 16 IFRS 16 IFRS 16
--------------------------- ---------- ---------- ---------- ----------
Basic Earnings Per Share (9.0)p 204.4p 11.8p 199.5p
--------------------------- ---------- ---------- ---------- ----------
Diluted Earnings Per Share (9.0)p 203.3p 11.8p 198.4p
--------------------------- ---------- ---------- ---------- ----------
Basic Earnings Per Share (EPS) is based on the profit for the
period attributable to the equity holders of the Parent Company
divided by the net of 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 calculated by adjusting the
weighted average number of shares used for the calculation of basic
Earnings Per Share as increased by the dilutive effect of potential
ordinary shares. Dilutive shares arise from employee share option
schemes where the exercise price is less than the average market
price of the Company's ordinary shares during the period. Their
dilutive effect is calculated on the basis of the equivalent number
of nil cost options. Where the option price is above the average
market price, the option is not dilutive and is excluded from the
diluted EPS calculation. In the current period, there were 3.8
million non-dilutive share options which were excluded from the
diluted EPS calculation (2019: 2.3 million).
The table below shows the key variables used in the Earnings Per
Share calculations:
26 weeks 26 weeks
to to
25 July 2020 27 July 2019
GBPm GBPm
----------------------------------------------- ------------- -------------
(Loss)/profit after tax attributable to equity
holders of the Parent Company (11.5) 266.9
Weighted average number of shares
(millions):
Weighted average shares in issue 133.0 136.2
Weighted average shares held by
ESOT (4.2) (5.6)
------------------------------------------------ ------------- -------------
Weighted average shares for basic
EPS 128.8 130.6
------------------------------------------------ ------------- -------------
Weighted average dilutive potential
shares 0.5 0.7
------------------------------------------------ ------------- -------------
Weighted average shares for diluted
EPS 129.3 131.3
------------------------------------------------ ------------- -------------
9. Dividends
No dividends were declared or paid in the period to July 2020.
NEXT does not intend to pay an ordinary interim dividend in the
year to January 2021. Dividends paid or declared during the period
to July 2019 were as follows:
Statement July 2019
Pence Cash Flow of Changes Balance
per Statement in Equity Sheet
26 weeks to 27 July 2019 Paid share GBPm GBPm GBPm
------------------------- ----------- ------ ---------- ----------- ---------
Ordinary final dividend
for year to Jan 2019 1 Aug 2019 110p - 140.3 140.3
------------------------- ----------- ------ ---------- ----------- ---------
- 140.3 140.3
------------------------------------- ------ ---------- ----------- ---------
10. Defined benefit pension
The principal pension scheme is the 2013 NEXT Group Pension
Plan, which includes defined benefit and defined contribution
sections.
The movement in the defined benefit pension surplus in the
period is as follows:
26 weeks 26 weeks
to to 52 weeks to
25 July 27 July 25 January
2020 2019 2020
GBPm GBPm GBPm
------------------------------------ -------- -------- -----------
Surplus in schemes at the beginning
of the period 133.4 125.0 125.0
Current service cost (4.8) (3.6) (6.0)
Administration costs (1.1) (1.2) (2.4)
Net interest 1.2 1.9 3.7
Employer contributions 8.2 3.5 7.3
Actuarial (losses)/gains (48.8) 16.4 5.8
------------------------------------ -------- -------- -----------
Surplus in schemes at the end of
the period 88.1 142.0 133.4
------------------------------------ -------- -------- -----------
The surplus in the schemes has moved from GBP133.4m at January
2020 to GBP88.1m at July 2020, primarily due to actuarial losses of
GBP48.8m. The majority of this movement results from updating the
membership data in line with the most recent triennial valuation
for both actual member experience, and the split of the pension
liabilities between the various tranches of benefit.
The main financial assumptions and actuarial valuations have
been updated by independent qualified actuaries under IAS 19
"Employee benefits". The following financial assumptions have been
used:
26 weeks 26 weeks
to to 52 weeks to
25 July 27 July 25 January
2020 2019 2020
--------------------------------- -------- -------- -----------
Discount rate 1.60% 2.20% 1.75%
Inflation - RPI 2.70% 3.10% 2.80%
Inflation - CPI 1.80% 2.10% 1.90%
Salary increases - - -
Pension increases in payment
- RPI with a maximum of 5% 2.65% 2.95% 2.75%
- RPI with a maximum of 2.5% and
discretionary increases 1.85% 2.00% 1.90%
11. Other financial assets and liabilities
Other financial assets and other financial liabilities include
the fair value of derivative contracts which the Group uses to
manage its foreign currency and interest rate risks. All
derivatives are categorised as Level 2 under the requirements of
IFRS 13 "Fair value measurement", as they are valued using
techniques based significantly on observed market data (refer to
the Fair Value Hierarchy table in Note 27 of the January 2020
Annual Report).
12. Customer and other receivables
25 July 2020 27 July 2019 25 Jan 2020
GBPm GBPm GBPm
------------------------------------ ------------ ------------ -----------
Gross customer receivables 1,250.9 1,415.0 1,455.5
Less: refund liabilities (61.1) (60.7) (49.9)
------------------------------------ ------------ ------------ -----------
Net customer receivables 1,189.8 1,354.3 1,405.6
Less: allowance for expected credit
losses (197.0) (168.5) (171.5)
------------------------------------ ------------ ------------ -----------
992.8 1,185.8 1,234.1
Other trade receivables 14.2 19.4 26.4
Less: allowance for doubtful debts (1.4) (0.1) (0.5)
------------------------------------ ------------ ------------ -----------
1,005.6 1,205.1 1,260.0
Prepayments 34.4 36.6 38.8
Other debtors 22.4 10.4 13.3
Amounts due from associates and
joint venture 4.0 1.9 3.2
------------------------------------ ------------ ------------ -----------
1,066.4 1,254.0 1,315.3
------------------------------------ ------------ ------------ -----------
No interest is charged on customer receivables if the statement
balance is paid in full and to terms; otherwise balances bear
interest at a variable annual percentage rate of 23.9% at the half
year end date (2019: 23.9%) except for GBP8.1m (July 2019: GBP5.2m,
January 2020: GBP6.0m) of next3step balance that bears interest at
29.9% (2019: 29.9%).
The Group applies the simplified approach to providing for
expected credit losses prescribed by IFRS 9, which permits the use
of the lifetime expected loss provision. The expected credit losses
incorporate forward looking information.
The fair value of customer receivables and other trade
receivables is approximately GBP960m (July 2019: GBP1,150m, January
2020: GBP1,200m). This has been calculated based on future cash
flows discounted at an appropriate rate for the risk of the debt.
The fair value is within Level 3 of the fair value hierarchy (refer
to the Fair Value Hierarchy table in Note 27 of the January 2020
Annual Report).
Expected irrecoverable amounts on balances with indicators of
impairment are provided for based on past default experience,
adjusted for expected behaviour. Receivables which are impaired,
other than by age or default, are separately identified and
provided for as necessary.
13. Trade payables and other liabilities (current)
27 July 2019
25 July 2020 restated 25 Jan 2020
GBPm GBPm GBPm
----------------------------------- ------------ ------------ -----------
Trade payables 191.5 220.4 212.8
Refund liabilities 5.6 6.1 5.4
Other taxation and social security 81.2 64.1 73.4
Deferred revenue from the sale of
gift cards 64.3 60.3 74.9
Share-based payment liability 0.1 0.4 0.2
Other creditors and accruals 239.2 238.1 225.3
----------------------------------- ------------ ------------ -----------
581.9 589.4 592.0
----------------------------------- ------------ ------------ -----------
14. Corporate bonds
The table below shows the nominal and balance sheet values of
the Group's outstanding corporate bonds:
Nominal value Balance Sheet value
25 July 27 July 25 Jan 25 July 27 July 25 Jan
2020 2019 2020 2020 2019 2020
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------- ------- ------- ------- ------- -------
Corporate bond 5.375%
repayable 2021 325.0 325.0 325.0 326.6 327.6 327.0
Corporate bond 3.000%
repayable 2025 250.0 200.0 250.0 250.0 200.0 250.0
Corporate bond 4.375%
repayable 2026 250.0 250.0 250.0 292.0 287.0 286.7
Corporate bond 3.625%
repayable 2028 300.0 300.0 300.0 300.0 300.0 300.0
---------------------- ------- ------- ------- ------- ------- -------
1,125.0 1,075.0 1,125.0 1,168.6 1,114.6 1,163.7
---------------------- ------- ------- ------- ------- ------- -------
As explained in the January 2020 Annual Report, the Group uses
interest rate derivatives to manage part of the interest rate risk
associated with its corporate bonds, whereby the carrying value of
the relevant bonds is adjusted for changes in fair value
attributable to the hedged risk. At July 2020, the fair value of
the Group's corporate bonds was GBP1,168.0m (July 2019:
GBP1,185.6m, January 2020: GBP1,253.6m). The fair values are market
values at the balance sheet date (IFRS 13 Level 1).
15. Share buybacks
Movements in the Company's issued share capital during the year
are shown in the table below:
2020 2020 2019 2019
Shares Shares
'000 GBPm '000 GBPm
---------------------------------- ------- ----- ------- -----
Shares in issue at start of year 133,229 13.3 138,605 13.9
Shares purchased for cancellation
in the period (280) - (5,040) (0.5)
---------------------------------- ------- ----- ------- -----
Shares in issue at July 132,949 13.3 133,565 13.4
---------------------------------- ------- ----- ------- -----
The total cost of shares purchased for cancellation as shown in
the Statement of Changes in Equity was GBP19.3m (2019:
GBP280.2m).
16. Analysis of net debt
25 July 2020 27 July 2019 25 Jan 2020
GBPm GBPm GBPm
------------------------------------- ------------ ------------ -----------
Cash and short term deposits 395.8 156.9 86.6
Overdrafts and short term borrowings (35.5) (114.8) (33.7)
------------------------------------- ------------ ------------ -----------
Cash and cash equivalents 360.3 42.1 52.9
------------------------------------- ------------ ------------ -----------
Unsecured bank loans - (160.0) (40.0)
Corporate bonds (1,168.6) (1,114.6) (1,163.7)
Fair value hedges of corporate
bonds 43.6 39.2 38.7
------------------------------------- ------------ ------------ -----------
Net debt excluding leases (764.7) (1,193.3) (1,112.1)
------------------------------------- ------------ ------------ -----------
Current lease liability (168.5) (154.5) (172.3)
Non-current lease liability (1,144.1) (1,176.3) (1,078.7)
------------------------------------- ------------ ------------ -----------
(1,312.6) (1,330.8) (1,251.0)
------------------------------------- ------------ ------------ -----------
Net debt including leases (2,077.3) (2,524.1) (2,363.1)
------------------------------------- ------------ ------------ -----------
17. Leases
25 July 2020 27 July 2019 25 Jan 2020
GBPm GBPm GBPm
------------------------------------ ------------ ------------ -----------
Right-of-use asset 857.0 916.6 852.7
Maturity profile of lease liability
Less than 1 year 168.5 154.5 172.3
More than 1 year 1,144.1 1,176.3 1,078.7
------------------------------------ ------------ ------------ -----------
Total 1,312.6 1,330.8 1,251.0
------------------------------------ ------------ ------------ -----------
During the period the Group entered into sales and leaseback
transactions on its Elmsall warehouses and the Head Office in
Leicester. As a result a lease liability of GBP122m and
right-of-use asset of GBP87m was recognised. A gain of GBP7m was
recognised on the sale and leaseback transactions.
1 8 . Post balance sheet event
On 7 September 2020 NEXT entered into a joint venture agreement
with Lbrands, a public limited company based in the United
States.
Under the agreement a newly-formed joint venture company will
acquire the majority of the assets of the Victoria's Secret UK
business that is currently in administration. The joint venture
will be 51% owned by NEXT and 49% owned by Lbrands. Further details
of the joint venture are provided in the Chief Executive's
Review.
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 'Interim financial reporting';
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
Lord Wolfson of Aspley Guise Amanda James
Chief Executive Group Finance Director
17 September 2020
The full half year report and the results presentation can be
found on the Company's website at www.nextplc.co.uk.
To view our range of exciting, beautifully designed, excellent
quality clothing and homeware go to www.next.co.uk
Certain statements which appear in a number of places throughout
this document are "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 "aim", "anticipate", "believe", "budget",
"estimate", "expect", "forecast", "intend", "plan", "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 risks and uncertainties, including but not limited to the risks
described in "Risks & Uncertainties" on pages 60 to 64 of the
2020 Annual Report and those matters highlighted in the Chief
Executive's review; failure by NEXT to accurately predict 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;
insufficient consumer interest in NEXT Online; 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 does 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.
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END
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